For the council, the Monday discussion marked the first step in the budget process that promises to be full of tough choices and deep uncertainty. With local hotels nearly empty and many retailers shut down, Palo Alto is seeing its revenues plunge.
The proposed budget estimates that general fund taxes will drop by at least $20 million — and likely far more. The magnitude of the cuts will depend to a large degree on factors beyond the city's control: How soon will the shutdown end and how fast can the economy recover?
The proposed $818.9-million budget actually represents a 13% increase from fiscal year 2020. This includes a general fund of $238.8 million, up by 3.5% from the current year. Those numbers, however, are almost certain to be revised downward, staff said.
"The future will really be driven by factors and functions that are yet to be defined," Shikada told the council Monday.
Given the uncertainties, the budget process promises to be less straightforward this year. Shikada wrote in the transmittal letter that the budget "begins what staff expects to be an ongoing conversation and difficult work ahead to plan for the return or recovery period once the shelter-in-place order is lifted and the impacts of COVID-19 continue to materialize financially."
"It is expected that these deliberations will require resetting expectations and many shared sacrifices moving forward," Shikada wrote.
Shikada told the council that staff will explore three different budget scenarios: one that presumes a relatively rapid recovery from the pandemic; another that considers the shutdown extending through the spring; and a third — and most likely — one in which some social-distancing measures remain in place through the winter.
Even the first scenario, however, will require the city to make unpopular decisions, council members said. Mayor Adrian Fine said his colleagues "understand that massive changes are occurring on a day-to-day basis, and it seems like each day is different from the one before."
"Next fiscal year will be very tough for Palo Alto," Fine said.
Councilwoman Alison Cormack also suggested that cuts will be inevitable, given the declining revenues.
"Honestly, it's going to break my heart to not reopen all five of our libraries, but the reality is everyone's heart is going to be broken over this process," Cormack said.
In addition to upending the city's previously rosy economic outlook, the ongoing health crisis also threatens to upend the council's long-term priorities, including housing production and the redesign of rail crossings. Shikada's list of potential cuts includes deferring the Housing Work Plan and halting initiatives to encourage electrification of buildings.
"I do think our annual council priorities probably have gone out the window at this point," Vice Mayor Tom DuBois said.
Staff also is proposing reducing code-enforcement staffing, scaling back application requirements for wireless communication facilities and reducing the number of projects that undergo architectural reviews. The budget also proposes that the city explore terminating the city's lease of Cubberley Community Center space from the Palo Alto Unified School District or switching to a "shared revenue structure."
"Whether we're cutting a library or fire station or whether we're cutting some program near and dear to us, it's very tough," Councilwoman Liz Kniss said. "This is something the public is going to really weigh in on."
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