Palo Alto prepares to tap into federal funds, reserves to avoid budget cuts

Bolstered by federal funds, Palo Alto’s elected leaders moved this week to reverse most of the cuts to city services in City Manager Ed Shikada’s proposed budget, which included library closures, a “brownout” of a fire station and the elimination of police positions.

Over a course of two marathon meetings on Tuesday and Wednesday, the City Council’s Finance Committee reviewed the budget of every department before voting on Wednesday afternoon to nullify most of the program cuts that Shikada proposed in his budget, which for the second straight year included cuts to a host popular programs and critical public-safety services. These included closing the Downtown, College Terrace and Children’s libraries; significantly reducing city support for the Palo Alto Art Center and the Children’s Theatre; and cutting five more patrol positions in the Police Department, on top of the 11 that the city had eliminated last year.

To avoid making these cuts, the committee agreed Wednesday to tap into additional revenues from the American Rescue Plan Act, which provides about $13.7 million in stimulus funds to the city over a two-year period — up from the initial allocation of $12.5 million. While Shikada’s budget proposes using only $3.2 million in fiscal year 2022, which begins on July 1, leaving an additional $3 million to the council’s discretion, and saving the remainder for 2023, the committee voted for a 50-50 split in federal funds, which would allow it to tap into about $6.8 million this year.

The committee also agreed to withdraw an additional $2.5 million from the city’s budget stabilization reserve to plug the budget hole in the coming year. While some council members expressed concerns that this would increase the city’s future risks in the coming years, the additional withdrawal would still leave the reserve with about $35 million in funding — about 17% of the city’s total expenses and well within the council’s target of 15% to 20%.

Vice Mayor Pat Burt, who sits on the committee, argued that the city should go even further and restore some of the cuts that the council made last summer, when plummeting revenues from hotel- and sales tax revenues promoted the council to slash about $40 million from the city budget. He suggested using about two-thirds of the federal stimulus funds this year, though his two colleagues on the committee — Chair Alison Cormack and Eric Filseth — both favored the more conservative approach, with less reliance on federal funding and local reserves.

Burt argued over the course of both hearings that the city has “exceptional needs” right now and that both the federal funds and the city’s budget stabilization reserve were intended precisely for the types of situations that the city is currently experiencing.

“I think it’s important to be looking at our long-term structural circumstances, but I think it’s even more important is to not attempt to resolve those in the middle of the biggest emergency we’ve had in decades,” Burt said at the Tuesday meeting.

Filseth countered that while the federal funds may help the city in the near term, they represent a one-time source that would not address the broader problem of city expenses rising faster than revenues. Avoiding most of the cuts, he suggested, amounts to simply “kicking the can down the road.”

The committee’s recommendations will go to the full council, which is set to review them on May 17 and approve the budget on June 21.

In deliberating Shikada’s budget proposal, the council heard from several department heads who warned that further cuts would significantly diminish the services that residents are accustomed to. Police Chief Robert Jonsen noted in his Tuesday presentation that the department has already eliminated all of its discretionary programs and has cut back on, among other areas, public communication and specialist positions.

The department’s staffing, which included 92 in the 2020 budget, went down to 78 positions last year. The proposed budget would have brought it to 73 by eliminating five more officers from patrol. With the city’s typical attrition rate of three to four officers — and a hiring freeze in place — Jonsen warned that the department could drop to about 65 in 2023, giving the city one of the highest officer-to-resident ratios in the area.

“These are impacts that are going to compromise our ability to serve this city at (the) level (residents) are accustomed to,” Jonsen said.

The city’s two police unions, the Palo Alto Police Management Association and the Palo Alto Police Officers Association, made the same argument in a letter to the council, noting that most other cities are retaining — and in some cases, bolstering — their police forces while Palo Alto is slashing its public safety funding.

Reduced staffing, the letter states, “results in extended police response times, or even non-response, to ‘everyday’ calls for service, and the likelihood of inadequate resources in the event of critical incidents.” It also precludes the department from staffing detective positions and dedicated traffic enforcement teams, among other services.

“Staffing reductions also have a substantial negative impact on employee morale, retention and recruitment,” states the letter from Lt. James Reifschneider, president of Palo Alto Police Management Association and Sgt. Ken Kratt, president of Palo Alto Police Officers Association. “When most Bay Area agencies are actively hiring, even officers who truly want to remain a part of the Palo Alto Police Department family are being forced to reconsider leaving for a more financially stable agency with opportunities for advancement and special assignments.”

If the council adopts the Finance Committee’s recommendation, the five positions that were on the chopping block for the coming year would be maintained. The city would also keep Fire Station 2 staffed on most days, though the station would continue to see “brownouts” on nights and weekends, much like it had over the past year. Shikada’s budget called for keeping the station in brownout mode every day, a proposal that was strongly opposed by College Terrace residents and those who live near the foothills.

Linda Faste, a resident of Peter Coutts Circle, which is on Stanford University land, noted that the area is both heavily populated and particularly vulnerable to fire risk.

“In our new era of yearly wildfires and very dry winters, these decisions to reduce services are not only short-sighted, they are indeed a bad and potentially dangerous one,” Faste wrote to the council.

Most of the public speakers at the two committee meetings were particularly alarmed about proposed cuts to community services, including libraries, arts and theater programs. Parents of children who had participated in Children’s Theatre productions urged the council to maintain funding for the popular theater.

“As our economy is staring to reopen and we know the toll the pandemic has taken on our youth, now is not the time to not cut but to restore funding to these precious city gems,” said Michelle Wang, whose 16-year-old daughter has been patronizing the Children’s Theatre since she was 8.

Others residents took issue with the planned cuts to the Palo Alto Art Center, which would lose all city support for its exhibition programs and see a reduction in hours. Nicki Moffat maintained that going through with this proposal would be “a grievous mistake, a giant step backward and a black mark on our community.”

“The Palo Alto Art Center not only puts on thoughtful, cutting edge exhibitions but is also at the forefront of engaging members of our community, adults as well as children, in finding the joy in making and appreciating art,” Moffat wrote to the council. “This is an invaluable addition to our community, and to lose it would be a major loss.”

The committee also began to backtrack Wednesday from its initial recommendation to institute a $18 entrance fee for the Palo Alto Junior Museum Zoo, which is set to reopen in October after three years of renovation and expansion. The proposed fee to the museum — which historically offered free admission — rankled museum advocates, including the group Friends of the Junior Museum and Zoo, which spearheaded the effort to raise $25 million in private funds for the new museum. Group members suggested that the $18 fee would deter people from visiting and cause the museum’s revenues to plunge.

Lauren Angelo, co-president of Friends of the Junior Museum and Zoo, suggested at the Wednesday hearing that a $10 fee to the museum should be the “ceiling.”

“Going from free to fee is a significant hurdle and there is a catastrophic downfall to setting the price of admission too high,” Angelo said.

The committee’s budget recommendation assumes a $10 fee. It also recommends keeping all library branches open, effectively reversing Shikada’s proposal to close three branches and focusing most library services at the Mitchell Park and Rinconada libraries. While Filseth and Burt both suggested that the Children’s and College Terrace libraries stay open, they were more open to the idea of temporarily shuttering the downtown branch. Cormack strongly opposed the idea of closing any branches and noted that many seniors, including residents of Channing House, use the Downtown Library.

“I expect our libraries to be fully funded at the end of the day,” Cormack said.

Find comprehensive coverage on the Midpeninsula’s response to the new coronavirus by Palo Alto Online, the Mountain View Voice and the Almanac here.