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Palo Alto’s operating budget would swell by nearly a third over the next year thanks in large part to new utility projects, growing labor costs and increased investment in public safety under a proposal that City Manager Ed Shikada is set to present to the City Council on Monday evening.
The proposal includes an operating budget of $934.2 million in fiscal year 2023, which begins on July 1, representing a 32.8% hike from the current year. The overall amount includes a budget of $237.8 million in the general fund, which pays for most city services aside from utilities. That’s up by 15.2% over the current budget of $206.4 million.
Shikada’s proposed budget, which will be subject to a series of meetings by the council’s Finance Committee in the coming weeks, reflects both the city’s economic recovery after the sharp downturn of the COVID-19 pandemic and the council’s desire to restore some of the services that were slashed over the past two years. It includes 58.85 new full-time positions, including 44 in the general fund. About 20 of these had already been approved by the council in recent months as part of mid-year budget adjustments.
If the council approves the budget as proposed, the number of positions would increase from 956 in the current budget to 1,084.85 in the next one.
In a transmittal letter, Shikada characterizes the budget proposal as a transition from the leaner years of the pandemic. As the city’s revenues declined amidst the economic slump of 2020, the council cut its budget by about $40 million, which included reducing the city’s workforce by 86 full-time positions and 102 part-time positions.
Shikada noted that the prior budget cuts, while necessary to address the financial disruptions of the pandemic, were “operationally unsustainable for the long-term health of Palo Alto.” Even the budget increases he has proposed fall well short of addressing long-term challenges such as affordable housing and grade separating train crossings, he wrote.
“Although the City’s fiscal recovery outlook remains cautiously optimistic, the City’s long-term fiscal health requires additional sustainable revenue to meet community service priorities,” Shikada wrote. “With the rising cost of services in a period of significant inflation and workforce competition, coupled with the services reduced over the prior two years, long-term sustainability is not achieved with existing revenue sources alone.”
At the same time, his request represents a significant uptick in spending after two years of relative austerity. The new positions in the budget include three firefighter trainees who would be charged with “proactive and continuous” recruitment of firefighters as well as four new positions to the Fire Department’s Fire Prevention Bureau: a preventing captain, two hazardous materials inspectors and one administrative associate.
The Police Department would hire four additional police officers, who according to the budget would focus on health and safety in downtown and in the city’s commercial cores as well as conduct outreach to homeless individuals and focus on property crimes. Shikada is proposing adding two police dispatchers and hiring a management analyst in Shikada’s office who would serve as the city’s “equity and inclusion official.”
The city’s beleaguered permitting operation, a longtime source of frustration for contractors and customers, would be bolstered with three new positions: an assistant building official and two building inspectors whose goal would be to speed up the permitting process.
And on the utility side, the budget creates four new positions to transition local residents and businesses to “advanced metering infrastructure,” commonly known as “smart meters,” a multiyear project that the Utilities Department is looking to accelerate.
The budget also includes a 4% raise for all employees as a cost of living adjustment, as well as an additional 3% raise for members of the city’s largest firefighters union, International Association of Fire Fighters. Several major labor groups, including the public safety unions, had agreed earlier this year to extend their contracts, which were set to expire in June, until the end of December rather than negotiate new deals. The city’s largest union, Services Employees International Union, Local 521, will also see its contract end this December.
The significant budget increase also reflects recent revenue trends. The revenue budget of $237.8 million in the general fund represents an increase of $31.4 million over the current fiscal year, with every major tax revenue category showing growth. Sales tax revenues are projected to increase by 15.6%, according to the budget, going from $28.6 million to $32.6 million. Hotel tax and property tax revenues are projected to go up by $9.8 million and $8.5 million. The hotel tax revenues, which had plunged over the course of the pandemic, are projected to grow by 115.9% this year, going from $8.5 million to $18.2 million.
Even with the recent turnaround, the Palo Alto City Council is preparing to ask the voters to approve two revenue measures in November: one that would establish a business tax and another that would restore Palo Alto’s historic practice of transferring funds from its gas utility to the general fund. The city suspended the practice over the past two years after a lawsuit from resident Miriam Green. After a court ruled in 2020 that the transfer constitutes an illegal tax and ordered the city to issue refunds, Palo Alto halted the transfers, which resulted in an annual reduction of about $7 million in the general fund.
The council supported last week the idea of allowing voters to weigh in on the policy, though a final decision on a ballot measure has not yet been made.
“This is a crucial part of funding our services and it’s been a double whammy during the pandemic to not be able to have access to these funds,” council member Alison Cormack said during the April 25 discussion.
The council will get its first look at the budget on Monday evening. Its Finance Committee is scheduled to begin its detailed hearings on the budget next week, with the first meetings scheduled for May 10 and May 11.
So it seems that with an increase in the available funds will mean an increase in City staff. Something tells me we have heard this before, more people in City Hall eating up funds that could be used for things like reinstating the shuttle, improving parking, improving some of our most congested intersections, etc.
It would be interesting to see how income v expenditure at Foothills Nature Preserve are contributing or costing us.
Lastly, we rumors of several lawsuits pending, it would be fair to ask just how much of this increase in budget is going to end up in legal fees.
The city has only itself to blame for its economic woes due to over-reliance on the hotel tax and on commuters vs other thriving locales that have weathered the pandemic much better than PA. Yet here we go again projecting a huge increase in hotel tax revenue to justify more spending and hiring.
Also, the city wants to legitimize its practice of overcharging residents $20,000,000 a year to subsidize the general fund yet this article ignores any revenue projections for the long-overdue business tax. Maybe that’s because they’ve staffed up with new hires and consultants to ensure that we pass the Utility Transfer tax rather than the business tax.
Shikada and his crew are NOT serving the residents well, only themselves. (I also didn’t see anything there re our unfunded pension liabilities in this article.)
With the City’s pensions and rail crossings both seriously underfunded by hundreds of millions, there is no surplus. Securing rail funding should be top priority, plus making a contribution to shave some of the pension liability. An Equity and Inclusion officer is a trendy but ill-considered frittering of scarce funds.
Is the idea by using taxpayer money on a equity and inclusion officer to help staff learn how to include resident feedback and well being in their decision making? I don’t think most residence with support spending money on such a position. A budget that is growing by over 30% and almost $1 billion for a town of just over 60,000 residents is too much. That equates to almost $17,000 for every man, woman and child just for city services!
The two people speaking here with any political, community, or economic sense seems to me to be Bystander and Baron Park Denizen. Palo Alto should concentrate upon quality of life (including traffic and parking problems) for its EXISTING residents. And that means freezing the number of overpaid demi-bureaucratic incompetents at City Hall so more funds are available for improving the lives of existing community, tax-paying residents. Rail crossing and general spending on community traffic and parking improvements are FAR more important the paying the grossly overpaid salaries and pensions of new, useless City Hall employees.
Time for Palo Alto to get its priorities right. Serve its residents, their quality of life, their transportation, and their safety. Isn’t that what competent city government is supposed to be about? Serve residents first, especially TAXPAYERS.