Let's start with understanding the $231 million general fund (I am going to use FY2020 numbers because it's so hard to estimate what will happen in fiscal year 2021, which starts in July). What does it pay for? The budget pays for our police officers and 911 dispatchers, firefighters, librarians and books, park rangers and groundskeepers, zookeepers and animal food, exercise instructors and equipment, arts programs and materials, theater programs and costumes, building planners and reviews, tree trimming and disposal, transportation experts and third-grade bike rodeos, street sweeping, city attorneys, communications gurus and emergency-preparedness folks — all the things that make our city run each and every day.
So, how do we pay for the general fund?
Whenever I ask that question, the first response I hear from people is that's what property taxes are for. Indeed, property taxes are the biggest source of revenue at $48 million or 21% of the whole. If you own your home, only about 10% of the first line on your property tax bill goes to the city of Palo Alto, and unless you moved here in the past few years, it's probably less than you thought. About half of that first line goes to the school district, and much of the rest goes to the county for services (including the public health department).
Since property taxes have been a lagging indicator of recessions, this source is not likely to decrease significantly in fiscal year 2021, but much depends on how assessed values change during the next year.
Our first significant problem then is sales tax, at $34 million and 15% of our general fund. The largest source of sales-tax revenue for Palo Alto is Stanford Shopping Center, which right now is mostly closed. One of the largest segments of sales tax is restaurants, and many of those are also closed. Since we will likely be dealing with COVID-19 restrictions for many months, we will see a significant decrease in sales tax in fiscal year 2021.
The second significant problem we have is the hotel tax, officially known as the transient-occupancy tax, at $29 million or 13%. It is not paid by the hotels out of their profits; it is calculated on top of the room rate, then added to the bill of a person who stays in the hotel, and then transmitted to the city. We rely on this source of revenue to help fund our infrastructure projects, like the new fire station on Embarcadero Road and the bike bridge over U.S. Highway 101 and the upcoming police station near California Avenue.
Most hotels are empty at the moment and some have about 10% occupancy instead of the usual 80%, so this source of revenue has screeched to a halt and will not fully rebound until domestic and international travel return to normal levels.
Why am I talking about where the money comes from? Because the revenue we receive each year determines the programs and services that we can afford to offer. It's just that simple. And since we will see sales and hotel taxes go down by tens of millions of dollars, we will have to reduce our expenses by that same amount.
What will that look like?
The city manager listed changes we must consider on pages 6 and 7 of his budget transmittal letter, which can be found at cityofpaloalto.org/civicax/filebank/documents/76290. As I said when this budget was presented to the council, it's going to break my heart to not reopen all five of our libraries, but the reality is that everyone's heart is going to be broken during this process. Here are some of the options on the list: fewer staff or hours at a fire station; fewer libraries; no traffic enforcement team; much higher fees for the Art Center, Children's Theatre and the Junior Museum and Zoo (all of which are subsidized by the city); fewer special events, like the Chili Cook-off and May Fete Parade and holiday tree-lighting ceremony; having homeowners be financially responsible for sidewalks; no changes to our housing development rules; no all-electric ordinance for commercial buildings; increased fees for residential parking permits; and much more.
I expect to receive many, many emails and calls in the next few weeks exclaiming that we can't possibly cut (fill in the blank here for your favorite program). Please keep in mind the magnitude of this problem, which is tens of millions of dollars, and remember that we are all in this together. We will all have to share in the sacrifices and they won't be easy.
Our experienced, professional staff will provide more details on Monday, May 11, about how much revenue we anticipate losing (e.g., 15% of this year's budget would be $35 million, which is more than the entire Community Services Department costs to operate) and propose programs and services to be eliminated. I encourage you to watch that meeting online and then share your thoughts with the council via email or via Zoom.
I believe that every person who lives and works in Palo Alto will feel the impact of these changes. They are a reminder that we are more connected than we realize — to the businesses that operate here, to the visitors who come here and to the city employees whose work creates the programs and services that make our city such a wonderful place to live.
This story contains 950 words.
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