News

With Measure L, city hopes to preserve a controversial budget practice

After legal setback, Palo Alto asks residents to weigh in on use of gas revenues to pay for basic services

Palo Alto utilities workers assess the damage to a gas pipeline after an accident on Dec. 28, 2017. Photo by Veronica Weber.

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.

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"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."

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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.

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Gennady Sheyner
 
Gennady Sheyner covers the City Hall beat in Palo Alto as well as regional politics, with a special focus on housing and transportation. Before joining the Palo Alto Weekly/PaloAltoOnline.com in 2008, he covered breaking news and local politics for the Waterbury Republican-American, a daily newspaper in Connecticut. Read more >>

Follow Palo Alto Online and the Palo Alto Weekly on Twitter @paloaltoweekly, Facebook and on Instagram @paloaltoonline for breaking news, local events, photos, videos and more.

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With Measure L, city hopes to preserve a controversial budget practice

After legal setback, Palo Alto asks residents to weigh in on use of gas revenues to pay for basic services

by / Palo Alto Weekly

Uploaded: Wed, Oct 5, 2022, 3:32 pm

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.

Comments

Online Name
Registered user
Embarcadero Oaks/Leland
on Oct 5, 2022 at 8:04 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Oct 5, 2022 at 8:04 pm

"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."

These threats are getting old while the city continue wastes money and gives higher priority to a new gym and a risky $144,000,000 fiber network above than restoring library hours, a decent 9/11 dispatch service, reliable electrical power outage reporting system or upgrading the electrical grid.

Budget-balancing strategies for the Junior Museum and Zoo are challenging due to shortfalls in attendance and projected revenue from the new $18 entrance fee. The expected school buses from nearby schools never materialized, even with group discounts. Who knew all the kids and their caretakers playing at the newly rebuilt Rinconada Playground wouldn't spend $18 for each bathroom visit. Certainly not the outside consultant or the staff with budget responsibility,

"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."

The city is effectively the shareholder here, not the residents being treated as cash cows. This taxpayer wants the dividends and services WE care about."

We care about our libraries and a reliable 911 dispatch service and police services due to increased crime and traffic accidents. We care about decent electrical power and timely reports on power outrages and service restoration times.

But that's not what we're getting.


Bystander
Registered user
Another Palo Alto neighborhood
on Oct 5, 2022 at 9:18 pm
Bystander, Another Palo Alto neighborhood
Registered user
on Oct 5, 2022 at 9:18 pm

If there's a surplus (and basically I don't see why there should be) shouldn't it go towards utilities improvements? We are told that undergrounding powerlines is expensive and is taking 50 years. How about using the surplus to get our power lines underground to improve our inefficient supply.


resident3
Registered user
Another Palo Alto neighborhood
on Oct 5, 2022 at 9:33 pm
resident3, Another Palo Alto neighborhood
Registered user
on Oct 5, 2022 at 9:33 pm

"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."

If I was a shareholder of PG&E I could SELL my shares.

And run as fast as possible from the *completely inappropriate* contortions about how proceeds are spent - by an unaccountable Council and City Manager. Do I want to spend proceeds to subsidize heat pumps for mansions? No. Do I want proceeds to purchase carbon offsets (charity to far away lands) which even Greenpeace calls a scam and are the subject of investigation?

I almost fell for the threats about the Junior Museum, libraries, and all the services I don't use but am happy to support, but this goes too far. No thanks, I prefer to do my own charity and not become a captive to things that can get way out of control.


peppered
Registered user
Community Center
on Oct 6, 2022 at 10:23 am
peppered, Community Center
Registered user
on Oct 6, 2022 at 10:23 am

Overcharging residents for gas, an essential commodity, to pay for services makes no sense.
It also results in iniquities since anyone who is 100% electric will not be paying for certain services.

If the City needs revenues to support services, it should impose those as taxes, rather than hiding them as a surcharge on utilities. And it should be able to justify those taxes to voters.

There is so much pork in City Hall. Let's focus on efficiency, cutting costs and outsourcing work to the private sector via competitive bids.


Local Resident
Registered user
Community Center
on Oct 6, 2022 at 10:42 am
Local Resident, Community Center
Registered user
on Oct 6, 2022 at 10:42 am

Residents enjoy lots of things like Parks, Libraries, Community Services but they have to be paid for somehow. Voting for this keeps those services. Why would we subsidize gas when we want folks to switch to clean electricity?


RW1
Registered user
Green Acres
on Oct 6, 2022 at 10:57 am
RW1, Green Acres
Registered user
on Oct 6, 2022 at 10:57 am

Absolutely agree with Bystander. Any surpluses from utilities should go to upgrading utilities, especially undergrounding of electricity. Overhead lines are expensive to maintain (think of all the tree trimming), unsightly, and will be increasing unreliable with the inevitable increase in storm intensity.


John Page
Registered user
another community
on Oct 6, 2022 at 11:01 am
John Page, another community
Registered user
on Oct 6, 2022 at 11:01 am

There are two issues being commented on here: What should the city spend money on, and how does the city raise revenues? The first issue is important, but this is only about he second one.

My take: It's simple. The city wants to phase out fossil fuels, so if it is successful that source of revenue will vanish. So if you want to keep spending at the current rate, a replacement source of revenue will have to be found over time. Seems straightforward to me.


Online Name
Registered user
Embarcadero Oaks/Leland
on Oct 6, 2022 at 11:10 am
Online Name, Embarcadero Oaks/Leland
Registered user
on Oct 6, 2022 at 11:10 am

"There is so much pork in City Hall. Let's focus on efficiency, cutting costs and outsourcing work to the private sector via competitive bids."

When I hear the city start talking about the above I'll consider voting to let them continue to over-charge me.

In all the city's mission statements and UpLift newsletters, I have never once heard them talk about the above and there are more examples of waste and failure to do their homework than this space allows. Instead we get blather about mindfulness, meditation and new recipes each week.

Nor have I ever heard our past and present "leaders" take responsibility for our budget woes being so much worse than surrounding communities because they short-sightedly put all their eggs in the business basket and hotel tax revenues.

How much money was wasted on 6+ years of Casti hearings before they even got to asking the tough questions like who pays to monitor traffic? How much money was wasted on hearings about converting Town & Country Shopping Center to "medical/retail" without bothering to define what medical/retail even was, to calculate the lost sales tax revenue and/or to realize that we were mere weeks away from ending the pandemic lockdown?

Sure, let's evict 85 low/moderate income long-time residents from The President Hotel so a developer can put in another high-end hotel and then ask us for $$$$$ to build downtown housing for the same low-moderate income people.

It took a newspaper expose for them to discover that NO solar permits were being granted until the PAO newspaper expose WHILE they kept wasting money on promoting solar conversion programs!


BobH
Registered user
Palo Verde
on Oct 6, 2022 at 11:23 am
BobH, Palo Verde
Registered user
on Oct 6, 2022 at 11:23 am

I am planning to vote NO on Measure L.

It makes little sense to put excess natural gas revenue into the general fund at the same time the City wants us to transition away from gas to all electric to reduce emissions. Any excess gas revenue should go into updating the electrical grid and building charging networks for EVs, not into the general fund.


Consider Your Options.
Registered user
Another Palo Alto neighborhood
on Oct 6, 2022 at 11:54 am
Consider Your Options. , Another Palo Alto neighborhood
Registered user
on Oct 6, 2022 at 11:54 am

"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." This is a fundamental truth.

1). Palo Altans still pay less for gas and electric than PG&E customers

2). This use of the Utilities Users Tax (UUT) was previously approved by the voters. It provides a revenue source we need and enjoy in Palo Alto, contributing to our quality of life. The law changed and the city did not adapt quickly enough. The city probably should have brought this measure forward sooner, but that doesn't negate the local community need for the UUT revenues. A YES vote will continue the revenue stream that the city depends on to maintain services. A NO vote will require draconian cuts to services. I have read the budget. It really is that important. The cuts they will have to make if K & L don't pass will be felt by every single community member.

I am supporting Measures K & L.


Citizen
Registered user
College Terrace
on Oct 6, 2022 at 12:02 pm
Citizen , College Terrace
Registered user
on Oct 6, 2022 at 12:02 pm

Vore no on Measure L.


resident3
Registered user
Another Palo Alto neighborhood
on Oct 6, 2022 at 12:07 pm
resident3, Another Palo Alto neighborhood
Registered user
on Oct 6, 2022 at 12:07 pm

@consider your options,

“This use of the Utilities Users Tax (UUT) was previously approved by the voters. It provides a revenue source we need and enjoy in Palo Alto, contributing to our quality of life.”

You are referring to a vote of trust that happened practically in a different world and time.

This is today’s vote. I don’t trust that we have appropriate city governance or accountability, as any regular “shareholder” would expect to have.



Interested Reader
Registered user
Old Palo Alto
on Oct 6, 2022 at 1:25 pm
Interested Reader, Old Palo Alto
Registered user
on Oct 6, 2022 at 1:25 pm

From the Impartial analysis:

“City voters adopted Article VII of the City Charter in 1950 to authorize the transfer of utility revenues to the General Fund after other obligations are paid, such as operating and maintenance expenses, debt payments, capital expenditures and reserve funding. Under this authority, the City Council has for decades approved yearly transfers of natural gas utility revenue to the General Fund. The transfer provides approximately $7 million each year toward City services maintained by the General Fund, such as roads, parks, libraries, climate change reduction, police, fire, emergency medical and 9-1-1 response. About half of the transfer is paid by the gas utility’s commercial customers, and half is paid by residential customers.
The City designs its natural gas rates so the utility will have enough money to cover its expenses as well as the General Fund transfer. “


resident3
Registered user
Another Palo Alto neighborhood
on Oct 6, 2022 at 1:53 pm
resident3, Another Palo Alto neighborhood
Registered user
on Oct 6, 2022 at 1:53 pm

@interested reader,

"City voters adopted Article VII of the City Charter in 1950 to authorize the transfer of utility revenues to the General Fund after other obligations are paid, such as operating and maintenance expenses, debt payments, capital expenditures and reserve funding."

Debt payments? As in debt payments to borrow for a $150 million plan to "compete" with AT&T, that nobody asked for? Those who asked for fiber years ago are against it. Things change from 1950; those who voted for this surely didn't have the current situation in mind.


Native to the BAY
Registered user
Old Palo Alto
on Oct 7, 2022 at 1:25 am
Native to the BAY, Old Palo Alto
Registered user
on Oct 7, 2022 at 1:25 am

So I do not ever want to support a Libertarian, the only opponent of L. Yet all the above justifications for Yes on L are so not in my wheelhouse. My tiny, inefficient 2B, 2017 Palo Alto-Stanford, ALL electric complex , all concrete and vinyl 71 units at Related/ Mayfield Place is falling apart with absolute chiseling on the cheap. Luke warm water, power surges, electrical panel shorts, appliances — like a steam mop — mysteriously burn out, hood vents don’t suck up air to prevent grease fires, just die. You know the essential functions of safe quality rental for living. There are NO, not one EV charging stations — not even for VISTA center or Fambrinis, a “dumb” broken down, all electric car park lift that’s unsafe for children and not ADA accessible. Really only designed for long term, specialty car storage. Tiny 7 washers and dryers for families to squeeze their bedding and clothing into to wash & sanitize. This reeks of oil disguised under a lawn. What am I to do? I am inclined to vote no on L. Yet I am no Libertarian!


Palo Alto native
Registered user
Old Palo Alto
on Oct 7, 2022 at 7:15 am
Palo Alto native, Old Palo Alto
Registered user
on Oct 7, 2022 at 7:15 am

Why did it take a lawsuit by a resident to bring out in the open this illegal structure of monies going into the General Fund? If this was approved in the 1950’s , as a native Palo Altan,I only remember how proud my parents were that we owned our own Utilities, and that they were considerably cheaper than all of our neighboring towns. However, for the recent years they are no bargain. I am voting against this illegal tax. If we need to raise taxes for basic services, then do it. Don’t siphon off money from our utility dept. For some wishes by community groups. We are taxed too much. Palo Alto needs to right-size its personnel, benefits and retirement benefits to what neighboring cities do. I do not think Palo Alto is so much better run than Menlo Park or Los Altos.


ArtL
Registered user
Barron Park
on Oct 8, 2022 at 9:39 pm
ArtL, Barron Park
Registered user
on Oct 8, 2022 at 9:39 pm

Even though the article mentions the measure would have no effect on gas rates, ( "Measure L supporters also note that because the transfer policies are already factored into gas rates, it would not cause a rate increase."), nothing constrains future Councils from hiking the gas rates, which is very likely to happen as the use or natural gas declines while the need for revenue by the City increases. And if gas usage does not decline fast enough to satisfy the sustainability targets, future Councils could even raise gas rates to punitive levels.


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