Alarmed by rising pension costs, Palo Alto's elected leaders made a highly unusual move Monday night when they passed an annual budget that includes $4 million in unspecific cuts.
By a 6-1 vote, with Councilwoman Lydia Kou dissenting and councilmen Greg Tanaka and Tom Dubois absent, the City Council approved a $709.9-million budget for fiscal year 2019 that eliminates 11 positions in the Fire Department and 6.6 positions in other departments.
The budget includes a $210.7-million general fund, which pays for most basic services, excluding utilities. It also assumes that in the first six months of the fiscal year that begins July 1, the City Council will reduce expenses by $4 million and use that money to address the city's unfunded pension liability, which is estimated at more than $500 million.
In approving the budget, the council followed the recommendation of its Finance Committee, which reviewed the document last month and agreed to explore more cuts. Councilman Greg Scharff, who chairs the council's Finance Committee, said Monday that the committee made a concerted effort this year to focus on the pension problem. Every year that the city does nothing to address its unfunded pension liability, the backlog grows by $8 million, he said.
Mayor Liz Kniss compared the city's pension problem to having a credit card with an interest rate of 18 percent. The best thing to do is to pay it off as soon as possible.
"This is a sea change for us. This isn't just a small bump. This is the kind of thing we will try to continue on," Kniss said.
Vice Mayor Eric Filseth, who serves on the Finance Committee, said the budget is the first step toward keeping up with the city's growing unfunded pension liability. He called the $4 million in proposed cuts a "prudent" step to getting a handle on the issue.
"The later we postpone this, the more difficult -- and dramatically more difficult -- it would be to get in front of it," Filseth said.
The budget also reflects the council's appetite for infrastructure. It includes $133.2 million in capital spending, of which $88.9 million is devoted to the council's infrastructure plan, a list of projects that includes a new public-safety building, new garages downtown and at California Avenue, a bike bridge over U.S. Highway 101 and the completion of the Chalreston-Arastradero streetscape project.
The council was largely in agreement on the need to address the pension problem and fund infrastructure. Kou, the sole dissenter, said she was concerned about the city's failure to prioritize the projects. Tanaka left before the vote but he indicated early in the discussion that he is frustrated about the city's spending practices.
"I think for us, staying within our means is critically important," Tanaka said. "To stick with the budget rather than going to the taxpayers again and again, with more and more tax increase -- for us this should be the last resource."