When the Palo Alto City Council adopted this week a goal of going carbon neutral by 2030, it effectively declared war on natural gas, an energy source that city leaders say contributes to both global warming and respiratory illnesses.
It also, however, contributes to Palo Alto's parks, libraries and public safety services. For decades, the city has balanced its budget by transferring funds from the municipal gas utility, which is supported by gas rates, to the general fund, which pays for most services not related to utilities. Local voters affirmed the practice in the 1950s, and council members have generally accepted it as a key strategy for raising revenues for basic services.
That, however, changed in 2020, when a Santa Clara County judge ruled that the city's equity transfers amount to an illegal tax under state law and ordered the city to issue refunds. The ruling in Miriam Green v. City of Palo Alto followed more than five years of litigation. And while some aspects of the prolonged dispute remain unresolved, the city approved a settlement last month that requires it to refund $17 million to ratepayers.
The broader question still remains: Should gas transfers be used to pay for city services? That's the dilemma that voters will confront when they go to the voting booth to consider Measure L.
For Don Jackson, a local resident who served on the Utilities Advisory Commission, the answer is a resounding "no." Jackson noted in an interview that the council is already taking critical steps to promote "electrification" and reduce the city's dependence on natural gas, a key to meeting its goal of reducing carbon emissions by 80% by 2030. Natural gas, he argued, should be phased out. And phasing it out, he said, could prove more difficult if the city is relying on the utility to pay for services that have nothing to do with energy.
"Once we get that source of money, $7 million a year, how are we going to give that up? Especially now, when it's sanctioned or legal. You're never going to give that up," Jackson said.
Jackson said he would have supported Measure L if the transferred revenues were committed to programs that wean the community off natural gas, allowing the utility to "shut down gracefully." As drafted, however, the measure gives the council broad leverage as to how the money can be spent.
Supporters of Measure L strongly object to this argument. All utilities, they note, have the ability to transfer funds for other purposes. Investor-owned utilities like PG&E provide profits to their shareholders. For public utilities, the residents are effectively the shareholders and there's nothing inappropriate about using proceeds to fund services they care about, proponents argue.
In addition, by maintaining the cost of natural gas, the city is acting in alignment with its sustainability goals, said Leah Russin, who is leading the campaign in favor of Measure L.
"Measure L takes that money from dirty fossil fuels, and it's important to make to sure our fossil fuel rates don't fall," Russin said. "I feel strongly that we need to continue to live up to Palo Alto's promise to make steps to mitigate climate change. And Measure L does that."
In placing the measure on the ballot, council members have emphasized the need to retain and enhance services. In 2020, the city approved $40 million in budget cuts, which led to a reduction of police officers, firefighters and library hours. Since then, revenues have rebounded and the council has been able to restore some of these positions. The council has also been relying on grants from the American Recovery and Reinvestment Act to balance the last two budgets. The federal funding source will no longer be available for future budget cycles.
Christine Paras, assistant director of the city's Administrative Services Department, noted at an Aug. 8 meeting that various positions, including those in 911 dispatch, library services, the Junior Museum and Zoo and open space preserves, are only funded for the next two years.
"Should the gas transfer be not affirmed, these services would likely be cut in 2025 based on the two-year budget balancing strategy," Paras said.
For supporters like Russin, this makes Measure L particularly valuable and timely.
Proceeds from the gas transfers can, in the near term, restore the revenues that the city had lost because of the pandemic, Russin said. Once the budget picture stabilizes, the services are restored, the revenues increase, and more residents and businesses shift away from natural gas, Palo Alto will be able to reconsider the transfer policy.
Measure L supporters also note that because the transfer policies are already factored into gas rates, it would not cause a rate increase. Debbie Mytels, a Palo Alto resident and environmental educator, wrote that supporting the measure that keeps the gas rates stable will "help us meet our important climate goals as we begin to transition appliances from unhealthy gas to carbon-neutral electricity."
Council member Alison Cormack, who strongly supports the measure, also framed it as a way to encourage cleaner energy.
"The most important work we're doing here has to do with climate and it would be antithetical to our climate needs to not place the gas utility transfer on (the ballot)," Cormack said at the Aug. 8 meeting.
City staff estimate that the measure would result in a transfer of about $7 million from the gas utility to the general fund. It would authorize the city to transfer up to 18% of the revenues of the gas utility to the general fund, consistent with past practice.
Supporters of the measure have raised $6,382 for their campaign by Sept. 24, according to campaign finance disclosures. Contributors include current Utilities Advisory Commission members A.C. Johnston, Lauren Segal and Lisa Forssell, who is running for council. Council members Eric Filseth and Cormack have also contributed to the campaign.
Opponents of Measure L have not formed a campaign committee. The only two people who signed an argument against the measure are John Dehr, chair of the Santa Clara County Libertarian Party, and resident Alan Kaiser (they are also the only two individuals who signed the argument against Measure K, which would create a business tax). Dehr and Kaiser argued that it makes no sense for the city to rely on an "unhealthy" source of energy to pay for basic services.
"Doesn't that create a conflict of interest for city officials? How can Palo Alto hope to be a 'green' city if its police and libraries depend on sales of fossil fuels? This is just one example of how the city shifts money around," they wrote.