The URL can be used to link to this page

Home My WebLink About2020-06-16 City Council Agenda PacketCity Council 1 Tuesday, June 16, 2020 Special Meeting 5:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday 11 days preceding the meeting. ****BY VIRTUAL TELECONFERENCE ONLY*** https://zoom.us/join Meeting ID: 362 027 238 Phone:1(669)900-6833 Pursuant to the provisions of California Governor’s Executive Order N-29-20, issued on March 17, 2020, to prevent the spread of Covid-19, this meeting will be held by virtual teleconference only, with no physical location. The meeting will be broadcast on Cable TV Channel 26, live on YouTube at https://www.youtube.com/c/cityofpaloalto, and Midpen Media Center at https://midpenmedia.org. Members of the public who wish to participate by computer or phone can find the instructions at the end of this agenda. To ensure participation in a particular item, we suggest calling in or connecting online 15 minutes before the item you wish to speak on. TIME ESTIMATES Time estimates are provided as part of the Council's effort to manage its time at Council meetings. Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. HEARINGS REQUIRED BY LAW Applicants and/or appellants may have up to ten minutes at the outset of the public discussion to make their remarks and up to three minutes for concluding remarks after other members of the public have spoken. Call to Order Oral Communications 5:00-5:15 PM Members of the public may speak to any item NOT on the agenda. Council reserves the right to limit the duration of Oral Communications period to 30 minutes. Action Items Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters. 5:15-6:30 PM A.Adoption of Amendments to the City of Palo Alto Tobacco Retailer Permit Ordinance (Palo Alto Municipal Code Chapter 4.64) to Further Restrict Electronic Cigarette Products and Flavored Tobacco Products (CONTINUED FROM JUNE 8, 2020) REVISED Public Comment 2 June 16, 2020 6:30-7:30 PM 1.Direct Staff to Continue With the 2020 Sustainability and Climate Action Plan (S/CAP) Update and Evaluate the 2020 S/CAP Potential Goals and Key Actions (CONTINUED FROM JUNE 8, 2020) 7:30-8:30 PM 2.Review of the Third Quarter Financial Report and Approval of Various Fiscal Year (FY) 2020 Budget Adjustments to Address Projected COVID-19 Impacts 8:30-9:30 PM 3.Discussion and Direction to Staff Regarding the: 1) Establishment of a Pension Funding Policy, 2) Approval of Contract Number C15159278 With Bartel Associates for a Six-year Term for Actuary Services in the Amount Not-to-Exceed of $132,325, and 3) and Authorization to the City Manager to Execute a Contract Amendment Number 1 to Contract Number C15159278 to Increase Funding by $97,675 for a Revised Total Not-to-Exceed $230,000 for Additional Actuarial Consultant Work Related to Long-term Obligations for Pension and Retiree Health Liabilities (CONTINUED FROM JUNE 8, 2020) Adjournment AMERICANS WITH DISABILITY ACT (ADA) Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. MEMO Public Comment Presentation Presentation Presentation 3 June 16, 2020 Public Comment Instructions Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1.Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2.Spoken public comments using a computer will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom-based meeting. Please read the following instructions carefully. A.You may download the Zoom client or connect to the meeting in- browser. If using your browser, make sure you are using a current, up-to-date browser: Chrome 30+, Firefox 27+, Microsoft Edge 12+, Safari 7+. Certain functionality may be disabled in older browsers including Internet Explorer. B.You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. C.When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. D.When called, please limit your remarks to the time limit allotted. E.A timer will be shown on the computer to help keep track of your comments. 3.Spoken public comments using a smart phone will be accepted through the teleconference meeting. To address the Council, download the Zoom application onto your phone from the Apple App Store or Google Play Store and enter the Meeting ID below. Please follow the instructions B-E above. 4.Spoken public comments using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. https://zoom.us/join Meeting ID: 362 027 238 Phone:1(669)900-6833 City of Palo Alto (ID # 11372) City Council Staff Report Report Type: Consent Calendar Meeting Date: 6/8/2020 City of Palo Alto Page 1 Summary Title: Adoption of Tobacco Retail Permit Ordinance Title: Adoption of Amendments to the City of Palo Alto Tobacco Retailer Permit Ordinance (PAMC Chapter 4.64) to Further Restrict Electronic Cigarette Products and Flavored Tobacco Products From: City Manager Lead Department: Public Works Recommendation Per Council direction at the May 18, 2020 Council meeting, staff recommends that Council adopt revisions to Chapter 4.64 of the Palo Alto Municipal Code (Attachment A) to mirror the Santa Clara County Department of Health Tobacco Permit Ordinance, which will further restrict sales of flavored tobacco and electronic cigarette products. Background At the December 9, 2019 Council meeting, Council directed staff to adopt an ordinance prohibiting the sale and distribution of all electronic cigarettes and flavored tobacco products, in alignment with the County of Santa Clara’s recent approach, with as few exemptions as possible (Colleagues’ Memo From Council Members Cormack, Fine, and Tanaka Regarding Anti- Vaping Measures, December 9, 2019). Following a stakeholder engagement process with affected businesses, staff returned with a proposed ordinance, which mirrored the Santa Clara County ordinance, but which proposed an exemption for adult-only stores (those which serve customers only age 21 and older) because of the severe financial impact and potential closure of five retailers in Palo Alto (Staff Report #11005, May 4, 2020). The proposed ordinance was at first scheduled as a Consent Item but was rescheduled as an Action Item for Council discussion at the May 18 Council meeting. Subsequently, a staff memo and additional ordinance adjustments reflecting public feedback received after May 4 were presented for Council consideration (Memo to Staff Report #11332). At the May 18, 2020 meeting, Council reviewed the proposed ordinance and directed staff to return with ordinance revisions that mirror the Santa Clara County ordinance requirements. The attached proposed ordinance (Attachment A) mirrors the Santa Clara County ordinance requirements. City of Palo Alto Page 2 Stakeholder Engagement Stakeholder engagement to affected businesses was conducted and is discussed in Staff Report #11005. In addition, staff attended several public meetings and met with community members to hear concerns about youth vaping. A summary of stakeholder input is summarized in Memo to Staff Report #11332 (Attachment A–Summary of Major Public Comments About Palo Alto’s Proposed Tobacco Retail Permit Ordinance). Environmental Review This proposed ordinance would not be subject to environmental review under the California Environmental Quality Act (CEQA) because it does not cause a direct physical change in the environment or a reasonably foreseeable indirect change in the physical environment. Attachments: • Attachment A - Ordinance Amending Chapter 4.64 of the Municipal Code to Adopt the County's Tobacco Retailer Permit Ordinance *Not Yet Approved* 1 20200520_ts_24_206 Ordinance No. _____ Ordinance of the Council of the City of Palo Alto Amending Chapter 4.64 (Permits for Retailers of Tobacco Products) Of Title 4 (Business Licenses and Regulations). The Council of the City of Palo Alto ORDAINS as follows: SECTION 1. Findings and Declarations. The City Council finds and declares as follows: A. Electronic cigarettes, also known as e-cigarettes, e-vaporizers, or electronic nicotine delivery systems, are battery-operated devices that people use to inhale an aerosol that typically contains nicotine. In addition to nicotine, the aerosol from e-cigarettes may include up to 31 other components, including formaldehyde, acetaldehyde, glycidol, acrolein, acetol, and diacetyl. Several of these compounds are likely carcinogens, and acrolein is a powerful irritant.1 These products can resemble traditional tobacco cigarettes (cig-a-likes), cigars, or pipes, or even everyday items like pens or USB memory sticks.2 The pervasive use of these and other related Electronic Cigarette Products has given rise to a massive and multi-faceted public health crisis. B. The Surgeon General has declared the use of e-cigarettes among youth an “epidemic.” There is an extensive and rapidly growing body of evidence supporting that characterization. For instance: i. E-cigarette companies use marketing strategies to target youth. In 2014, 18 million (7 out of 10) middle and high school students were exposed to e- cigarette ads.3 ii. E-cigarettes are marketed in a variety of flavors that appeal to youth, including gummy bear, birthday cake, cotton candy, and fruit punch. iii. While youth use of combustible cigarettes has decreased dramatically, e- cigarette use—or “vaping”—among middle and high school students increased 1 Centers for Disease Control and Prevention. Cigarette Use Among Youth and Young Adults: A Report of the Surgeon General (2016). https://www.cdc.gov/tobacco/data_statistics/sgr/e-cigarettes/index.htm. 2 National Institute on Drug Abuse. Electronic Cigarettes (E-cigarettes) (2019). https://www.drugabuse.gov/publications/drugfacts/electronic-cigarettes-e-cigarettes; Breland A, Soule E, Lopez A, Ramôa C, El-Hellani A, Eissenberg T. Electronic cigarettes: what are they and what do they do? Ann N Y Acad Sci. 2017;1394(1):5-30. doi:10.1111/nyas.12977. 3 Centers for Disease Control and Prevention. E-cigarette Ads and Youth (2017). https://www.cdc.gov/vitalsigns/ecigarette-ads/index.html. *Not Yet Approved* 2 20200520_ts_24_206 by 78 percent between 2017 and 2018, with over 4 million kids currently using e- cigarettes in 2018.4 iv. The proportion of current e-cigarette users in high school who reported use on 20 days or more in the past 30-day period increased from 20 percent in 2017 to 27.7 percent in 2018.5 v. In 2019, the national prevalence of e-cigarette use during the previous 30 days was more than 1 in 4 students in the 12th grade, more than 1 in 5 in the 10th grade, and more than 1 in 11 in the 8th grade.6 vi. Use of e-cigarettes among undergraduate college students increased from 4.9 percent to 10.1 percent between 2017 and 2018.7 vii. There was a 46.2 percent increase in current e-cigarette use between 2017 and 2018 among young adults.8 viii. Adolescents obtain e-cigarettes from a variety of sources. The most common sources are: purchasing from a store or online (31.1 percent); buying from another person (16.3 percent); and giving someone money to purchase for them (15.0 percent).9 C. Nearly 1 in 3 Santa Clara County teens—31.6 percent—report that they have used an e- cigarette at least once. Most teens obtained their e-cigarettes from “social sources,” 4 Cullen KA, Ambrose BK, Gentzke AS, Apelberg BJ, Jamal A, King BA. Use of Electronic Cigarettes and Any Tobacco Product Among Middle and High School Students—United States, 2011–2018. MMWR Morb Mortal Wkly Rep. 2018;67(45):1276-1277. doi:10.15585/mmwr.mm6745a5. 5 Cullen KA, Ambrose BK, Gentzke AS, Apelberg BJ, Jamal A, King BA. Use of Electronic Cigarettes and Any Tobacco Product Among Middle and High School Students—United States, 2011–2018. MMWR Morb Mortal Wkly Rep. 2018;67(45):1276-1277. doi:10.15585/mmwr.mm6745a5. 6 Miech R, Johnston L, O’Malley PM, Bachman JG, Patrick ME. Trends in Adolescent Vaping, 2017–2019. N Engl J Med. September 2019:NEJMc1910739. doi:10.1056/NEJMc1910739. 7 Compare American College Health Association-National College Health Assessment II: Undergraduate Student Reference Group Executive Summary Spring 2018. Silver Spring, MD: American College Health Association with American College Health Association-National College Health Assessment II: Reference Group Undergraduate Executive Summary Spring 2017. Hanover, MD: American College Health Association. 8 Dai H, Leventhal AM. Prevalence of e-Cigarette Use Among Adults in the United States, 2014-2018. JAMA. September 2019. doi:10.1001/jama.2019.15331. 9 Pepper JK, Coats EM, Nonnemaker JM, Loomis BR. How Do Adolescents Get Their E-Cigarettes and Other Electronic Vaping Devices? Am J Health Promot. 2019;33(3):420-429. doi:10.1177/0890117118790366. *Not Yet Approved* 3 20200520_ts_24_206 while around 45 percent reported purchasing their own e-cigarettes (with over a quarter of this group saying they buy them directly from a local store).10 D. E-cigarettes have severe adverse health effects for both youth and adults. i. According to the Surgeon General, “[m]ost e-cigarettes contain nicotine—the addictive drug in regular cigarettes, cigars, and other tobacco products. Nicotine exposure during adolescence can harm the developing brain—which continues to develop until about age 25. Nicotine exposure during adolescence can impact learning, memory, and attention. Using nicotine in adolescence can also increase risk for future addiction to other drugs. In addition to nicotine, the aerosol that users inhale and exhale from e-cigarettes can potentially expose both themselves and bystanders to other harmful substances, including heavy metals, volatile organic compounds, and ultrafine particles that can be inhaled deeply into the lungs.”11 ii. E-cigarette use can also play a role in adolescent social maladjustment, including poor learning and academic performance, increased aggressive and impulsive behavior, poor sleep quality, attention deficits, impaired memory, cognition, and increased depression and suicidal ideation.12 iii. Daily e-cigarette use is associated with increased risk of irreversible cardiovascular and lung disease through the inhalation of harmful chemicals.13 iv. Secondhand emissions from e-cigarettes are also dangerous because they contain “nicotine; ultrafine particles; flavorings such as diacetyl, a chemical linked to serious lung disease; volatile organic compounds such as benzene, which is found in car exhaust; and heavy metals, such as nickel, tin, and lead.”14 10 Zhu S-H, Lee J, Zhuang YL, Branden K, Cole A, Wolfson T, Gamst A (2019). Tobacco use among high school students in Santa Clara County: Findings from the 2017-18 California Student Tobacco Survey. San Diego, California: Center for Research and Intervention in Tobacco Control (CRITC), University of California, San Diego. 11 Surgeon General’s Advisory on E-cigarette Use Among Youth (2008). https://e- cigarettes.surgeongeneral.gov/documents/surgeon-generals-advisory-on-e-cigarette-use-among-youth-2018.pdf. 12 Tobore TO. On the potential harmful effects of E-Cigarettes (EC) on the developing brain: The relationship between vaping-induced oxidative stress and adolescent/young adults social maladjustment. J Adolesc. 2019; 76:202-209. doi:10.1016/j.adolescence.2019.09.004. 13 American Lung Association. The Impact of E-Cigarettes on the Lung (2011). https://www.lung.org/stop- smoking/smoking-facts/impact-of-e-cigarettes-on-lung.html; Bein K, Leikauf GD. Acrolein - a pulmonary hazard. Mol Nutr Food Res 55(9):1342-60. doi: 10.1002/mnfr.201100279. 14 American Lung Association. The Impact of E-Cigarettes on the Lung (2011). https://www.lung.org/stop- smoking/smoking-facts/impact-of-e-cigarettes-on-lung.html. *Not Yet Approved* 4 20200520_ts_24_206 v. E-cigarette use is dangerous for pregnant women and is a fetal risk factor. It is associated with an increased risk of smallness-for-gestational-age.15 E. In addition to these negative long-term health effects, e-cigarette use is now associated with a wave of dangerous, life-threatening illnesses. i. As of October 15, 2019, 1,479 cases of acute lung injury associated with the use of e-cigarette or vaping products in 49 states, the District of Columbia, and 1 U.S. territory have been reported to the Centers for Disease Control and Prevention (CDC). Thirty-three deaths have been confirmed in 24 states.16 ii. Since the CDC’s August 30, 2019 Official Health Advisory,17 there have been two reported cases of lung injury associated with e-cigarettes in Santa Clara County. One of these cases was in an adolescent, and both individuals required hospitalization. F. Other risks and injuries are attributable to the proliferation of e-cigarettes: i. E-cigarettes present a poison risk for children. From 2013 to 2017, an estimated 4,745 e-liquid poisoning cases among children under age five were treated in U.S. hospital emergency departments.18 ii. E-cigarettes present a risk of burns and other injuries, usually from malfunctioning batteries. From 2015 to 2017, there were an estimated 2,035 e- cigarette explosion and burn injuries reported in U.S. hospital emergency rooms.19 // 15 Cardenas V, Cen R, Clemens M, et al. Use of Electronic Nicotine Delivery Systems (ENDS) by pregnant women I: Risk of small-for-gestational-age birth. Tob Induc Dis. 2019;17(May). doi:10.18332/tid/106089 16 Centers for Disease Control and Prevention. Outbreak of Lung Injury Associated with E-cigarette Use, or Vaping. October (2019). https://www.cdc.gov/tobacco/basic_information/e-cigarettes/severe-lung-disease.html. 17 Centers for Disease Control and Prevention Official Health Advisory. Severe Pulmonary Disease Associated with Using E-Cigarette Products (Aug. 30, 2019). https://emergency.cdc.gov/han/han00421.asp. 18 Chang JT, Wang B, Chang CM, Ambrose BK. National estimates of poisoning events related to liquid nicotine in young children treated in US hospital emergency departments, 2013–2017. Inj Epidemiol. 2019;6(1):10. doi:10.1186/s40621-019-0188-9. 19 Rossheim ME, Livingston MD, Soule EK, Zeraye HA, Thombs DL. Electronic cigarette explosion and burn injuries, US Emergency Departments 2015-2017. Tob Control. 2019;28(4):472-474. doi:10.1136/tobaccocontrol-2018- 054518. *Not Yet Approved* 5 20200520_ts_24_206 G. While the e-cigarette industry claims that its products help people quit smoking combustible cigarettes, the evidence shows that e-cigarette use is actually associated with increased risk of cigarette initiation, particularly among low-risk youths.20 i. Use of e-cigarettes was most common among smokers, and dual users had the highest prevalence of respiratory symptoms. On a population level, this indicates that the present use of e-cigarettes does not adequately serve as a smoking cessation tool.21 ii. E-cigarettes are not commonly used as a quit tool among college students, but rather as a secondary source of nicotine, most commonly in current smokers.22 iii. Of adults and young adults over 18 who use e-cigarettes, around 63 percent typically use non-tobacco flavored e-cigarettes, while over a third typically use tobacco-flavored or unflavored e-cigarettes.23 H. Open e-cigarette systems are customizable by consumers and often allow for potential “unorthodox” use of the product. These modifications include altering mechanical components and replacing liquid cartridges with dangerous off-market or illegal substances.24 Customization is one of the most popular social media topics for e- cigarettes.25 // // 20 Berry KM, Fetterman JL, Benjamin EJ, et al. Association of Electronic Cigarette Use With Subsequent Initiation of Tobacco Cigarettes in US Youths. JAMA Netw Open. Published online February 01, 2019;2(2):e187794. doi:10.1001/jamanetworkopen.2018.7794. 21 Hedman L, Backman H, Stridsman C, et al. Association of Electronic Cigarette Use With Smoking Habits, Demographic Factors, and Respiratory Symptoms. JAMA Netw Open. 2018;1(3):e180789. doi:10.1001/jamanetworkopen.2018.0789. 22 Martinasek MP, Bowersock A, Wheldon CW. Patterns, Perception and Behavior of Electronic Nicotine Delivery Systems Use and Multiple Product Use Among Young Adults. Respir Care. 2018;63(7):913-919. doi:10.4187/respcare.06001. 23 Landry RL, Groom AL, Vu T-HT, et al. The role of flavors in vaping initiation and satisfaction among U.S. adults. Addict Behav. 2019;99:106077. doi:10.1016/j.addbeh.2019.106077. 24 Guy MC, Helt J, Palafox S, et al. Orthodox and Unorthodox Uses of Electronic Cigarettes: A Surveillance of YouTube Video Content. Nicotine Tob Res. 2019;21(10):1378-1384. doi:10.1093/ntr/nty132. 25 Lee A, Hart J, Sears C, Walker K, Siu A, Smith C. A picture is worth a thousand words: Electronic cigarette content on Instagram and Pinterest. Tob Prev Cessat. 2017;3(July). doi:10.18332/tpc/74709. *Not Yet Approved* 6 20200520_ts_24_206 SECTION 2. Chapter 4.64 (Permits for Retailers of Tobacco Products) of Title 4 (Business Licenses and Regulations) is hereby amended and restated as follows: CHAPTER 4.64. PERMITS FOR RETAILERS OF TOBACCO PRODUCTS 4.64.010. Intent. This Chapter is adopted to: (1) Ensure compliance with the business standards and practices of the County; (2) Encourage responsible retailing of Tobacco Products; (3) Discourage violations of laws related to Tobacco Products, especially those that prohibit or discourage the Sale or Distribution of Tobacco Products to individuals under 21; (4) Respond to a new wave of addiction to Electronic Cigarette Products; (5) Reduce vulnerability to unexplained illnesses associated with Electronic Cigarette Products; and (6) Protect the public health and welfare. This Chapter does not expand or reduce the degree to which the acts regulated by federal or state law are criminally proscribed or alter the penalties provided by such laws. 4.64.020. Definitions. For the purposes of this Chapter, the following definitions shall apply: (a) Arm’s Length Transaction means a Sale in good faith and for valuable consideration that reflects the fair market value in the open market between two or more informed and willing parties, neither of which is under any compulsion to participate in the transaction. A Sale between relatives, related companies or partners, or a Sale for which a significant purpose is avoiding the effect of the violations of this Chapter is not an Arm’s Length Transaction. (b) Department means any department of the City of Palo Alto or County of Santa Clara designated by the City Manager to enforce or administer this Chapter, including the County of Santa Clara’s Department of Environmental Health and any agency or Person designated by the Director of the Department of Environmental Health to enforce or administer the provisions of this Chapter. *Not Yet Approved* 7 20200520_ts_24_206 (c) Distribute or Distribution means the transfer, by any Person other than a common carrier, of a Tobacco Product to another Person for Sale or personal consumption. (d) Electronic Cigarette Products means any of the following products: (1) Any device or delivery system that can be used to deliver nicotine in aerosolized or vaporized form, including, but not limited to, an e-cigarette, e-cigar, e-pipe, vape pen, or e-hookah. (2) Any component, part, or accessory of such a device or delivery system that is used during its operation. (3) Any flavored or unflavored liquid or substance containing nicotine, whether Sold separately or Sold in combination with any device or delivery system that could be used to deliver nicotine in aerosolized or vaporized form. (4) Any product for use in an electronic nicotine device or delivery system whether or not it contains nicotine or tobacco or is derived from nicotine or tobacco. (5) Electronic Cigarette Products shall not include any battery, battery charger, carrying case, or other accessory not used in the operation of the device if Sold separately. Electronic Cigarette Products shall not include any product that has been approved by the United States Food and Drug Administration for Sale as a tobacco cessation product or for other therapeutic purposes where that product is marketed and Sold solely for such approved use. See 21 U.S.C. § 387(a). As used in this subsection, nicotine does not include any food products as that term is defined pursuant to Section 6359 of the California Revenue and Taxation Code. (e) Ownership means possession of a ten percent or greater interest in the stock, assets, or income of a business, other than a security interest for the repayment of debt. Notwithstanding any other definition in this Code, an Owner means a Person who possesses Ownership. (f) Permit means a valid permit issued by the Department to a Person to act as a Retailer. (g) Retailer means any Person who Sells or Distributes Tobacco Products for any form of consideration. Retailing shall mean the doing of any of these actions. This definition is without regard to the quantity of Tobacco Products Sold or Distributed. (h) School means a public or private elementary, middle, junior high, or high school. (i) Sale and Sold includes any sale, exchange, barter or offer for sale. *Not Yet Approved* 8 20200520_ts_24_206 (j) Tobacco Product means (unless specifically noted elsewhere) any product subject to Subchapter IX (21 U.S.C. § 387 et seq. (“Subchapter IX”)) of the Federal Food, Drug, and Cosmetic Act. (See 21 U.S.C. § 387a(b) (products subject to Subchapter IX); 21 C.F.R. §§ 1100.1-1100.3 (tobacco products subject to Subchapter IX).) Products subject to Subchapter IX include, but are not limited to, cigarettes, cigarette tobacco, roll-your- own tobacco, smokeless tobacco, cigars, pipe tobacco, waterpipe tobacco, and Electronic Cigarette Products. Products that are not subject to Subchapter IX include accessories of Tobacco Products, such as, but not limited to, ashtrays, spittoons, and conventional matches and lighters that solely provide an external heat source to initiate but not maintain combustion of a Tobacco Product. 4.64.030. Requirements and prohibitions. (a) Permit required. It shall be unlawful for any Person to act as a Retailer without first obtaining and maintaining a Permit pursuant to this Chapter for each location at which Retailing occurs. (b) Lawful business operation. It shall be a violation of this Chapter for any Retailer to violate any local, state, or federal law applicable to Tobacco Products or the Retailing of such Tobacco Products. (c) Display of Permit. Each Permit shall be prominently displayed in a publicly visible place at the location identified in the Permit. (d) Notice of minimum age for purchase of Tobacco Products. Retailers shall post conspicuously, at each point of purchase, a notice stating that selling Tobacco Products to anyone under 21 years of age is illegal and subject to penalties. Such notice shall be subject to the approval of the Public Health Department. (e) Positive identification required. No Retailer shall Sell or Distribute a Tobacco Product to another individual who appears to be under 30 years of age without first examining the individual’s identification to confirm that the individual is at least the minimum age required under state law to purchase and possess the Tobacco Product. (f) Minimum age for individuals selling Tobacco Products. No individual who is younger than the minimum age established by State law for the purchase or possession of Tobacco Products shall engage in Retailing. (g) False and misleading advertising prohibited. A Retailer without a Permit: (1) Shall keep all Tobacco Products out of public view. (2) Shall not display any advertisement relating to Tobacco Products that promotes the Sale or Distribution of such products from the Retailer’s location or that *Not Yet Approved* 9 20200520_ts_24_206 could lead a reasonable consumer to believe that Tobacco Products can be obtained at that location. (h) Limitation on storefront advertising. No more than 15 percent of the square footage of the windows and clear doors of a physical storefront used for Retailing Tobacco Products shall bear advertising or signs of any sort, and all advertising and signage shall be placed and maintained in a manner that ensures that law enforcement personnel have a clear and unobstructed view of the interior of the premises, including the area in which the cash registers are maintained, from the exterior public sidewalk or entrance to the premises. However, this latter requirement of this subsection (h) shall not apply to an establishment where there are no windows or clear doors, or where existing windows are located only at a height that precludes a view of the interior of the premises by an individual standing outside the premises. (i) Flavored Tobacco Products. (1) Except as permitted in paragraph (3) of this subsection (i), no Retailer shall Sell a Tobacco Product containing, as a constituent or additive, an artificial or natural flavor or aroma (other than tobacco) or an herb or spice, including but not limited to strawberry, grape, orange, clove, cinnamon, pineapple, vanilla, coconut, licorice, cocoa, chocolate, cherry, mint, menthol, or coffee, that is a characterizing flavor or aroma of the Tobacco Product, smoke, or vapor produced by the Tobacco Product. (2) A Tobacco Product shall be subject to a rebuttable presumption that the product is prohibited by paragraph (1) of this subsection if: (i) The product’s manufacturer or any other Person associated with the manufacture or Sale of Tobacco Products makes or disseminates public statements or claims to the effect that the product has or produces a characterizing flavor or aroma, other than tobacco; or (ii) The product’s label, labeling, or packaging includes a statement or claim—including any text and/or images used to communicate information—that the product has or produces a characterizing flavor or aroma, other than tobacco. (3) Except as provided in Paragraph (4) of this subsection (i), Paragraph (1) of this subsection (i) shall not apply to any Retailer that meets all the following criteria: (i) Primarily sells Tobacco Products; (ii) Generates more than 60 percent of its gross revenues annually from the Sale of Tobacco Products; *Not Yet Approved* 10 20200520_ts_24_206 (iii) Does not permit any individual under 21 years of age to be present or enter the premises at any time, unless accompanied by the individual’s parent or legal guardian, as defined in Section 6903 of the Family Code; (iv) Does not Sell alcoholic beverages or food for consumption on the premises; and (v) Posts a sign outside the retail location that clearly, sufficiently, and conspicuously informs the public that individuals under 21 years of age are prohibited from entering the premises. (4) No Retailer that is issued a new Permit after July 22, 2020 shall Sell or Distribute flavored Tobacco Products under paragraph (3) of this subsection (i) after Permit issuance. No Retailer that receives a Permit renewal after July 22, 2020 shall Sell or Distribute flavored Tobacco Products under paragraph (3) of this subsection (i) after Permit renewal. Regardless of the date of Permit issuance or renewal, no Retailer shall Sell or Distribute flavored Tobacco Products after July 22, 2020. (j) Vending machines prohibited. No Tobacco Product shall be Sold or Distributed to the public from a vending machine or appliance, or any other coin or token operated mechanical device designed or used for vending purposes, including, but not limited to, machines or devices that use remote control locking mechanisms. (k) Prohibition on Sale or Distribution of Tobacco Products to individuals under 21. No Retailer shall Sell or Distribute any Tobacco Product to any individual who is under 21 years of age. (l) Prohibition on Sale or Distribution of Electronic Cigarette Products. No Retailer that is issued a new Permit after July 22, 2020 shall Sell or Distribute Electronic Cigarette Products after Permit issuance. No Retailer that receives a Permit renewal after July 22, 2020 shall Sell or Distribute Electronic Cigarette Products after Permit renewal. Regardless of the date of Permit issuance or renewal, no Retailer shall Sell or Distribute Electronic Cigarette Products after July 22, 2020. 4.64.040. Eligibility requirements for a Permit. (a) No Permit may be issued to authorize Retailing at or from other than a fixed location. For example, Retailing by Persons on foot or from vehicles is prohibited. (b) No Permit may be issued to authorize Retailing at a temporary or recurring temporary event. For example, Retailing at flea markets and farmers’ markets is prohibited. *Not Yet Approved* 11 20200520_ts_24_206 (c) No Permit may be issued to authorize Retailing at any location where the profession of pharmacy is practiced by a pharmacist licensed by the State in accordance with the Business and Professions Code and where prescription drugs are offered for Sale. (d) No Permit may be issued to authorize Retailing at any location within 1,000 feet of a School, as measured by a straight line between any point along the property line of any parcel on which a School is located and any point along the perimeter of the Permit applicant’s proposed business location; provided, however, that the prohibition contained in this subsection (d) shall not apply to the following: (1) Any Retailer of Tobacco Products (as such term was defined in the predecessor Ordinance No. 5418) operating lawfully on June 30, 2018 provided that the Retailer obtains a permit prior to July 1, 2020 pursuant to sections 4.64.050 and 4.64.060, and timely renews its permit pursuant to section 4.64.070(b); (2) Any Retailer of electronic smoking devices (as such term was defined in the predecessor Ordinance No. 5418) operating lawfully on June 30, 2018 provided that the Retailer obtains a permit prior to July 1, 2020 pursuant to sections 4.64.050 and 4.64.060, and timely renews its permit pursuant to section 4.64.070(b); however, any such Retailer is subject to the prohibition on the Sale and Distribution of Electronic Cigarette Products established in Section 4.64.030(l); and (3) Any lawfully operating Retailer of Tobacco Products that would otherwise become ineligible to receive or renew a Permit due to the creation or relocation of a School. (e) No Permit may be issued to authorize Retailing at a location which is within 500 feet of a location occupied by another Retailer, as measured by a straight line between any point along the perimeter of an existing Retailer’s business location and any point along the perimeter of the Permit applicant’s proposed business location; provided, however, that the prohibition contained in this subsection (e) shall not apply to: (1) Any Retailer of Tobacco Products (as such term was defined in the predecessor Ordinance No. 5418) operating lawfully on June 30, 2018 provided that the Retailer obtains a permit prior to July 1, 2020 pursuant to sections 4.64.050 and 4.64.060, and timely renews its permit pursuant to section 4.64.070(b); and (2) Any Retailer of electronic smoking devices (as such term was defined in the predecessor Ordinance No. 5418) operating lawfully on June 30, 2018 provided that the Retailer obtains a permit prior to July 1, 2020 pursuant to sections 4.64.050 and 4.64.060, and timely renews its permit pursuant to section 4.64.070(b); however, any such Retailer is subject to the prohibition on the Sale *Not Yet Approved* 12 20200520_ts_24_206 and Distribution of Electronic Cigarette Products established in Section 4.64.030(l). (f) Any exemption granted to a Retailer pursuant to subsections (d) and (e) shall cease to apply upon the earlier of the following to occur: (1) The Retailer fails to timely renew the Permit pursuant to Section 4.64.070(b) of this Chapter. (2) A new Person obtains Ownership in the business. 4.64.050. Application procedure. (a) It is the responsibility of each Retailer to be informed of all laws applicable to Retailing, including those laws affecting the issuance of a Permit. No Retailer may rely on the issuance of a Permit as a determination by the City or County of Santa Clara that the Retailer has complied with all laws applicable to Retailing. A Permit issued contrary to this Chapter, contrary to any other law, or on the basis of false or misleading information supplied by a Retailer shall be revoked pursuant to Section 4.64.060 of this Chapter. (b) All Permit applications shall be submitted on a form supplied by the Department. (c) A permitted Retailer shall inform the Department in writing of any change in the information submitted on an application for a Permit within 14 calendar days of a change. (d) All information specified in an application pursuant to this section shall be subject to disclosure under the California Public Records Act (Government Code Section 6250 et seq.) or any other applicable law, subject to the laws’ exemptions. 4.64.060. Permit issuance, denial, and revocation. (a) Upon the receipt of a complete application for a Permit, the application fee, and the annual Permit fee, the Department shall issue a Permit unless substantial evidence demonstrates that one or more of the following bases for denial exists: (1) The information presented in the application is inaccurate or false. (2) The application seeks authorization for Retailing at a location for which this Chapter prohibits issuance of a Permit. (3) The application seeks authorization for Retailing by a Person to whom this Chapter prohibits issuance of a Permit. *Not Yet Approved* 13 20200520_ts_24_206 (4) The application seeks authorization for Retailing that is prohibited pursuant to this Chapter (e.g., mobile vending, Electronic Cigarette Products) or that is unlawful pursuant to any other law. (b) A Permit shall be revoked if the Department finds that one or more of the bases for denial of a Permit under this section existed at the time application was made or at any time before the Permit issued. Such a revocation shall be without prejudice to the filing of a new Permit application. 4.64.070. Permit term, renewal, and expiration. (a) Term of Permit. The term of a Permit is one year. A Permit is invalid upon expiration. (b) Renewal of Permit. The Department shall renew a Permit upon timely payment of the annual Permit fee provided that the Retailer is in compliance with this Chapter, as amended. The Department may, in its discretion, agree to renew any expired Permit within the three-month period following expiration if the Retailer pays the annual Permit fee and applicable late charges. For every calendar month, or fraction thereof, that a Retailer fails to renew an expired Permit, a late charge equal to 20 percent of the annual Permit fee shall be assessed. A Permit renewed within three calendar months of expiration shall be treated as if timely renewed. (c) Issuance of Permit after revocation or expiration of Permit. To apply for a new Permit more than three calendar months after expiration of a Permit or following revocation of a Permit that was wrongly issued, a Retailer must submit a complete application for a Permit, along with the application fee and annual Permit fee. The Department shall issue a Permit pursuant to the requirements of Section 4.64.060 of this Chapter. 4.64.080. Permits nontransferable. (a) A Permit may not be transferred from one Person to another or from one location to another. Whenever a new Person obtains Ownership in a business for which a Permit has been issued, a new Permit shall be required, but any exemption granted pursuant to Section 4.64.040 of this Chapter shall cease to apply. (b) Notwithstanding any other provision of this Chapter, prior violations of this Chapter at a location shall continue to be counted against a location and Permit ineligibility and suspension periods shall continue to apply to a location unless: (1) One hundred percent of the interest in the stock, assets, or income of the business, other than a security interest for the repayment of debt, has been transferred to one or more new owners; and *Not Yet Approved* 14 20200520_ts_24_206 (2) The City is provided with clear and convincing evidence, including an affidavit, that the business has been acquired in an Arm’s Length Transaction. 4.64.090. Permit conveys a limited, conditional privilege. Nothing in this Chapter shall be construed to grant any Person obtaining and maintaining a Permit any status or right other than the limited, conditional privilege to act as a Retailer at the location in the City identified on the face of the Permit. All Permits are issued subject to the City’s right to amend this Chapter, and Retailers shall comply with all provisions of this Chapter, as amended. 4.64.100. Fees. The Department shall not issue or renew a Permit prior to full payment of any applicable fees. The City shall, from time to time, establish by resolution or ordinance the fees to issue or to renew a Permit. The fees shall be calculated so as to recover the cost of administration and enforcement of this Chapter, including, for example, issuing a Permit, administering the Permit program, Retailer education, Retailer inspection and compliance checks, documentation of violations, and prosecution of violators, but shall not exceed the cost of the regulatory program authorized by this Chapter. All fees and interest earned from such fees shall be used exclusively to fund administration and enforcement of this Chapter. 4.64.110. Compliance monitoring. (a) Compliance with this Chapter shall be monitored by the Department. In addition, any peace officer may enforce the penal provisions of this Chapter. The City Manager may designate any number of additional individuals to monitor and facilitate compliance with this Chapter. (b) The Department or other individuals designated to enforce the provisions of this Chapter shall check each Retailer at least once per 12-month period to determine if the Retailer is complying with all laws applicable to Retailing, other than those laws regulating underage access to Tobacco Products. Nothing in this paragraph shall create a right of action in any Retailer or other Person against the City, the County of Santa Clara, or its agents. 4.64.120. Prevention of underage Sales. (a) The Department or other departments or individuals designated to enforce the provisions of this Chapter shall, in conjunction with the Police Department, check each Retailer at least twice per 12-month period to determine whether the Retailer is conducting business in a manner that complies with laws regulating youth access to Tobacco Products. Nothing in this paragraph shall create a right of action in any Retailer or other Person against the City, the County of Santa Clara, or its agents. *Not Yet Approved* 15 20200520_ts_24_206 (b) The City shall not enforce any law establishing a minimum age for Tobacco Product purchases against an individual who otherwise might be in violation of such law because of the individual’s age (“Youth Decoy”) if the potential violation occurs when: (1) The Youth Decoy is participating in a compliance check supervised by a peace officer or a code enforcement official of the City or County of Santa Clara; (2) The Youth Decoy is acting as an agent of a Department or individual designated by the City or County of Santa Clara to monitor compliance with this Chapter; or (3) The Youth Decoy is participating in a compliance check funded in part, either directly or indirectly through subcontracting, by the City, the County of Santa Clara, or the California Department of Public Health. 4.64.130. Penalties for a violation by a Retailer with a Permit. (a) Administrative fine. In addition to any other penalty authorized by law, an administrative fine shall be imposed and a Permit shall be suspended if any court of competent jurisdiction determines, or the Department finds based on a preponderance of the evidence that the Retailer, or any of the Retailer’s agents or employees, has violated any of the requirements, conditions, or prohibitions of this Chapter, has pled guilty, “no contest” or its equivalent to such a violation, or has admitted to a such a violation. (b) Amount of fine. The amount of the administrative fine for each such violation shall be as follows: (1) A fine not to exceed $100.00 for a first violation within a 12-month period; (2) A fine not to exceed $200.00 for a second violation within a 12-month period; and (3) A fine not to exceed $500.00 for each additional violation within a 12-month period. (c) Time period for Permit suspension. The period of the suspension shall be as follows: (1) For a first violation of this Chapter at a location within any 60-month period, the Permit shall be suspended for up to 30 calendar days. (2) For a second violation of this Chapter at a location within any 60-month period, the Permit shall be suspended for up to 90 calendar days. *Not Yet Approved* 16 20200520_ts_24_206 (3) For each additional violation of this Chapter at a location within any 60-month period, the Permit shall be suspended for up to one year. (d) Waiver of penalties for first violation. The Department may waive any penalties for a Retailer’s first violation of any requirement, condition, or prohibition of this Chapter, other than a violation of a law regulating youth access to Tobacco Products, if the Retailer admits the violation in writing and agrees to forego a hearing on the allegations. Regardless of the Department’s waiver of penalties for a first violation, the violation will be considered in determining the penalties for any future violation. (e) Corrections period. The Department shall have discretion to allow a Retailer a period of time to correct any violation of any requirement, condition, or prohibition of this Chapter, other than a violation of a law regulating youth access to Tobacco Products. If the Department exercises its discretion to provide a corrections period, and a Retailer’s violation is corrected within the time allowed for correction, no penalty shall be imposed under this section. (f) Written notice of penalties. Whenever a fine is issued and/or a Permit is suspended based on a violation of this Chapter, the Department shall provide the Retailer written notice of the violation and the fine and suspension, including when the suspension shall take effect. 4.64.140. Penalties for Retailing without a Permit. (a) Administrative fine. In addition to any other penalty authorized by law, an administrative fine and an ineligibility period for application or issuance of a Permit shall be imposed if a court of competent jurisdiction determines, or the Department finds based on a preponderance of evidence, that any Person has engaged in Retailing at a location without a valid Permit, either directly or through the Person’s agents or employees, has pled guilty, “no contest” or its equivalent to such a violation, or has admitted to such a violation. (b) Amount of fine. The amount of the administrative fine for each such violation shall be as follows: (1) A fine not to exceed $100.00 for a first violation within a 12-month period; (2) A fine not to exceed $200.00 for a second violation within a 12-month period; and (3) A fine not to exceed $500.00 for each additional violation within a 12-month period. // *Not Yet Approved* 17 20200520_ts_24_206 (c) Time period for Permit ineligibility. The ineligibility period shall be as follows: (1) For a first violation of this section at a location within any 60-month period, no new Permit may be issued for the Person or the location (unless Ownership of the business at the location has been transferred in an Arm’s Length Transaction) until 30 calendar days have passed from the date of the violation. (2) For a second violation of this section at a location within any 60-month period, no new Permit may be issued for the Person or the location (unless Ownership of the business at the location has been transferred in an Arm’s Length Transaction) until 90 calendar days have passed from the date of the violation. (3) For each additional violation of this section at a location within any 60-month period, no new Permit may be issued for the Person or the location (unless Ownership of the business at the location has been transferred in an Arm’s Length Transaction) until one year has passed from the date of the violation. (d) Waiver of penalties for first violation. The Department may waive any penalties for a Retailer’s first violation of this section, unless the violation also involves a violation of a law regulating youth access to Tobacco Products, if the Retailer admits the violation in writing and agrees to forego a hearing on the allegations. Regardless of the Department’s waiver of penalties for a first violation, the violation will be considered in determining the penalties for any future violation. (e) Written notice of penalties. Whenever a fine is issued and/or a Permit is suspended pursuant to this section, the Department shall provide the Retailer written notice of the fine and suspension, including when the suspension shall take effect. (f) Appeals. Any penalties imposed under this section may be appealed pursuant to Section 4.64.150 of this Chapter. A timely appeal shall stay enforcement of the appealed penalties while the appeal is ongoing. 4.64.150. Appeals. (a) Any Retailer served with a written notice of penalties may request an administrative hearing to appeal the existence of the violation, the amount of the fine, and/or the length of the suspension by returning a completed hearing request form to the Office of the County Hearing Officer within 10 days from the date of the written notice of penalties. (b) The Retailer shall include the following in or with the hearing request form: (1) A statement indicating the reason the Retailer contests the written notice of penalties; *Not Yet Approved* 18 20200520_ts_24_206 (2) Any evidence the Retailer wants the Hearing Officer to consider; (3) An advance deposit of the amount of any fine challenged; and (4) The address of the Retailer and, if available, an email address that can be used for contact and correspondence by the Office of the County Hearing Officer and the Department. The Retailer may request service of notice by mail. (c) The hearing request form shall be deemed filed on the date received by the Office of the County Hearing Officer. A timely appeal shall stay enforcement of the appealed penalties while the appeal is ongoing. (d) After receiving a timely hearing request form, the Office of the County Hearing Officer shall notify the Department as soon as practicable and then shall schedule an administrative hearing. The Office of the County Hearing Officer shall provide the Retailer and the Department at least ten calendar days’ written notice of the date, time, and place of the administrative hearing and the name of the Hearing Officer who will conduct the hearing. The notice shall be given to the Retailer either by email, if requested, or by first class mail, postage prepaid. (e) Between the time the Retailer requests the administrative hearing and the time of the Hearing Officer’s decision, the Retailer, the Department, and each of their representatives shall not engage in ex parte communications with the Office of the County Hearing Officer or the Hearing Officer regarding the matters at issue in the hearing. (f) The hearing shall be conducted by the Hearing Officer on the date, time, and place specified in the notice to the Retailer. A Retailer’s failure to appear at the hearing shall constitute an abandonment of the hearing request and a failure to exhaust administrative remedies as a precedent to judicially challenge the existence of the violation and the imposition of the fine and suspension. (g) At the hearing, the Retailer and the Department shall have the opportunity to present evidence, including witnesses, relevant to the Hearing Officer’s determination of the matter. Neither the provisions of the Administrative Procedure Act (Government Code Section 11500 et seq.) nor the formal rules of evidence in civil or criminal judicial proceedings shall apply to such hearing. The Hearing Officer may admit any evidence, including witnesses, relevant to the determination of the matter, except as otherwise provided in Section 4.64.160(c). (h) The written notice of penalties and any other reports prepared by or for the Department concerning the violation shall be admissible and accepted by the Hearing Officer as prima facie evidence of the violation and the facts stated in those documents. *Not Yet Approved* 19 20200520_ts_24_206 (i) The Hearing Officer may continue the hearing from time to time, in his or her sole discretion, to allow for its orderly completion. After receiving the evidence submitted at the hearing, the Hearing Officer may further continue the hearing and request additional information from either the Department or the Retailer. (j) After considering the evidence and testimony submitted the Hearing Officer shall issue a written decision regarding the matters properly raised in the request for administrative hearing. The Hearing Officer’s decision shall: (1) Be based on a preponderance of the evidence. (2) Include a statement of the reasons for the decision. (3) Be issued within 20 calendar days of the close of the hearing. (4) Be served on both the Retailer and the Department. The decision shall be given to the Retailer either by email, if requested, or by first class mail, postage prepaid. (k) Based on the Hearing Officer’s decision, the Office of the County Hearing Officer shall promptly refund to the Retailer any amount of the advance fine deposit the Department is not entitled to and shall provide the remainder to the Department. (l) The Hearing Officer’s written decision shall constitute the final administrative decision of the City. 4.64.160. Enforcement. (a) Any violation of this Chapter is hereby declared to be a public nuisance. (b) Causing, permitting, aiding, abetting, or concealing a violation of any provision of this Chapter shall also constitute a violation of this Chapter. (c) Whenever evidence of a violation of this Chapter is obtained in any part through the participation of an individual under the age of 21 years old, such an individual shall not be required over his or her objection to appear or give testimony in any civil or administrative process brought to enforce this Chapter and the alleged violation shall be adjudicated based upon the sufficiency and persuasiveness of the evidence presented. (d) Violations of this Chapter may be remedied by a civil action brought by the City Attorney or Santa Clara County Counsel, including, but not limited to, administrative or judicial nuisance abatement proceedings, civil code enforcement proceedings, and suits for injunctive relief. For the purposes of the civil remedies provided in this Chapter, each day on which a Tobacco Product is offered for Sale in violation of this Chapter, and each *Not Yet Approved* 20 20200520_ts_24_206 individual retail Tobacco Product that is Sold or Distributed in violation of this Chapter, shall constitute a separate violation of this Chapter. (e) Any Person found guilty of violating any provision of this Chapter shall be deemed guilty of an infraction, punishable as provided by California Government Code § 25132. (f) The remedies provided by this Chapter are cumulative and in addition to any other remedies available at law or in equity. 4.64.170. No conflict with federal or state law. Nothing in this Chapter shall be interpreted or applied so as to create any requirement, power, or duty that is preempted by, or in conflict with, federal or state law, rules, or regulations. SECTION 3. If any section, subsection, clause or phrase of this Ordinance is for any reason held to be invalid, such decision shall not affect the validity of the remaining portion or sections of the Ordinance. The Council hereby declares that it should have adopted the Ordinance and each section, subsection, sentence, clause or phrase thereof irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid. SECTION 4. The Council finds that this project is exempt from the provisions of the California Environmental Quality Act (“CEQA”), pursuant to Section 15061 of the CEQA Guidelines, because it can be seen with certainty that there is no possibility that the ordinance will have a significant effect on the environment. // // // // // // // // // *Not Yet Approved* 21 20200520_ts_24_206 SECTION 5. This ordinance shall be effective on the thirty-first day after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ____________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ____________________________ Deputy City Attorney City Manager ____________________________ Director of Public Works ____________________________ Chief of Police ____________________________ Director of Administrative Services City of Palo Alto (ID # 11404) City Council Staff Report Report Type: Action Items Meeting Date: 6/16/2020 City of Palo Alto Page 1 Council Priority: Climate/Sustainability and Climate Action Plan, Transportation and Traffic Summary Title: 2020 SCAP Update Planning Title: Direct Staff to Continue with the 2020 Sustainability and Climate Action Plan (S/CAP) Update and Evaluate the 2020 S/CAP Potential Goals and Key Actions From: City Manager Lead Department: Public Works Recommendation Staff recommends that City Council direct staff to continue with its work on the 2020 Sustainability and Climate Action Plan (S/CAP) Update and the evaluation of 2020 S/CAP Potential Major Goals and Key Actions related to greenhouse gas emissions reduction (Attachment A). Executive Summary Consistent with the Council’s adoption of “Sustainability, in the context of climate change” as one of the top three priorities for CY 2020, Staff is developing a 2020 Sustainability and Climate Action Plan (S/CAP) Update to help the City meet its sustainability goals, including its goal of reducing greenhouse gas (GHG) emissions 80 percent below 1990 levels by 2030. Staff presented the 2020 Sustainability and Climate Action Plan (S/CAP) Update Process1 to Council at an April 13, 2020 Study Session. Council directed staff to return to Council before the City’s consultant (AECOM) begins its analysis of Potential Key Actions. Attachment A shows the Potential Major Goals and Key Actions with the highest potential for reducing GHG emissions. The Major Goals and Key Actions are intended to ensure that enough emissions and cost data are prepared to ultimately formulate multiple scenarios to meet the 80 x 30 goal, giving Council choices among scenario packages. The full list of the Potential Goals and Key Actions, both those that relate to GHGs and those that relate to other program areas are captured in the 1 https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=53475.02&BlobID=76048 City of Palo Alto Page 2 2020 S/CAP Updated Potential Goals and Key Actions DRAFT2. These Potential Goals and Key Actions were modified based on 109 pages of comments on an earlier version presented to the community on March 26, 2020. City Council discussion and feedback will be sought on the Major Goals and Key Actions. In particular, staff is requesting Council feedback on the level of intervention necessary to achieve Palo Alto’s S/CAP goals. This will help staff refine the planned approach to community awareness and engagement. Background In April 2016, City Council adopted the ambitious goal of reducing GHG emissions to 80 percent below 1990 levels by 20303 - 20 years ahead of the State of California 80 x 50 target. In November 2016 Council adopted the S/CAP Framework4, which has served as the road map for achieving Palo Alto’s sustainability goals. In December 2017, Council accepted the 2018-2020 Sustainability Implementation Plan “Key Actions” as a summary of the City’s work program5. In early 2020, the City launched a 2020 S/CAP Update to determine the goals and key actions needed to meet its sustainability goals, including its goal of reducing GHG emissions 80 percent below 1990 levels by 2030. Staff drafted 2020 S/CAP Potential Goals and Key Actions as a starting point for discussion. Since then, the City has solicited feedback from the community through a virtual on-demand 2020 S/CAP Community Engagement Workshop (March 31 – April 14, 2020), the City of Palo Alto Sustainability website, and at the April 13, 2020 City Council Meeting. Staff reviewed all feedback received between January 22, 2020 and April 30, 2020 and incorporated it into updated 2020 S/CAP Proposed Goals and Key Actions. Now staff is proposing that Council direct staff to continue with the 2020 S/CAP Update and evaluate the 2020 S/CAP Potential Major Goals and Key Actions Related to GHG reduction (Attachment A) before it goes to AECOM for impact analysis. The full list of the Potential Goals and Key Actions, both those that relate to GHGs and those that relate to other program areas are captured in the 2020 S/CAP Updated Potential Goals and Key Actions DRAFT. Discussion For the City to continue progress towards its climate and sustainability goals and targets, a 2020 S/CAP Update is necessary to further study the highest impact actions to take. The 2016 S/CAP Framework provided direction and overall goals through 2020. The intent was for staff to update the S/CAP every five years and develop more granular five-year work plans and short- term programs, rather than attempt to build a detailed 14-year work plan. In preparation for the 2020 S/CAP Update, staff reviewed the goals and actions in the 2016 S/CAP Framework, the 2018-2020 Sustainability Implementation Plan, the 2018 Zero Waste 2 https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=58649.63&BlobID=76860 3 https://www.cityofpaloalto.org/news/displaynews.asp?NewsID=3534&TargetID=268 4 https://www.cityofpaloalto.org/civicax/filebank/documents/60858 5 https://www.cityofpaloalto.org/civicax/filebank/documents/63141 City of Palo Alto Page 3 Plan, the 2030 Comprehensive Plan, the Urban Sustainability Directors Network Greenhouse Gas Reduction High Impact Practices, and the Carbon Neutral Cities Alliance Game Changers list to draft 2020 S/CAP Potential Goals and Key Actions. These Potential Goals and Key Actions were meant to be a starting point for discussion. Staff initiated a community engagement effort and received feedback between January 22, 2020 and April 30, 2020 on the 2020 S/CAP Potential Goals and Key Actions from 204 people who participated in the 2020 S/CAP Community Engagement Virtual Workshop, 7 people who responded to the Virtual Workshop invite, 3 people who reviewed the materials on the sustainability website, and 21 people who submitted comments for the April 13 Council Study Session. Staff reviewed 109 pages of feedback from the community, which included many helpful suggestions for improvement. Several themes surfaced in the input received: - The commenters are generally supportive of the 2020 S/CAP and do not want to delay action on climate change, despite the uncertainties created by the current coronavirus pandemic. - The 2020 S/CAP needs to include more aggressive but achievable goals, measurable targets, and accessible reporting, with more focus on electrifying buildings, transportation, and equipment. - The commenters are not supportive of counting natural gas offsets in our overall greenhouse gas emissions reductions. Offsets are meant to be a bridging strategy and should be phased out. - The coronavirus pandemic has shown that it is possible to work from home regularly. The City should explore remote work strategies as a way to reduce transportation- related GHG emissions. - Housing, land use, and education are areas of focus that are missing from the 2020 S/CAP. A summary of all input received on the 2020 S/CAP Potential Goals and Key Actions and the 2020 S/CAP Community Engagement Virtual Workshop can be found in Attachment B. The full unedited text of all input received can be found in the Compilation of All Input Provided between 1/22/2020 to 4/30/20206. Staff presented the 2020 S/CAP Potential Goals and Key Actions to the Utility Advisory Commission (UAC) on May 20, 2020. The UAC was generally supportive of the first draft of the 2020 S/CAP Potential Goals and Key Actions and provided several recommendations for improvement related to electrification of appliances and buildings, including City buildings; financing tools such as on-bill financing; inclusion of e-bikes, e-scooters, and other personal electric vehicles in mobility discussions; and electric vehicle group buy programs and infrastructure. The UAC also posed the questions of how the Key Actions will be financed, whether we can achieve our targets through incentives alone, and whether natural gas offsets should count towards our emissions reductions goal. While no action was taken by the UAC on 6 https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=68527.83&BlobID=76499 City of Palo Alto Page 4 the 2020 S/CAP Potential Goals and Key Actions, the UAC voted 7-0 to recommend maintaining the Carbon Neutral Gas Program supplied by carbon offsets as part of another agenda item, the FY 2021 Budget. Staff incorporated community input to update the 2020 S/CAP Potential Goals and Key Actions, which will be the foundation for the 2020 S/CAP. The 2020 S/CAP Potential Goals and Key Actions cover seven sustainability areas - Energy, Mobility, Electric Vehicles, Water, Climate Adaptation and Sea Level Rise, Natural Environment, and Zero Waste. While all seven areas are important, staff is highlighting Potential Major Key Actions in three areas for Council to evaluate – Energy, Mobility, and Electric Vehicles. Staff is presenting more Key Actions than needed to get to the 80 X 30 goal, so that Council will have choices in what Key Actions are ultimately selected. Staff is including Key Actions that will be difficult, expensive, and/or inconvenient to achieve. Some of these Potential Key Actions will require additional legal analysis and coordination with other agencies, such as the California Energy Commission, before being presented to Council for final selection. Others may require voter approval, and could ultimately be included in a potential Ballot Measure. Each of the 2020 S/CAP Update Potential Key Actions falls along a Spectrum of Tools for Achieving Climate Goals (See Figure 1) below. The Spectrum ranges from market-driven solutions that require low intervention but also low certainty of achievement, such as voluntary programs, to government-driven solutions that require higher intervention but yield high certainty of achievement, such as city-wide voter-approved mandates. Once Council directs staff to proceed with the evaluation of the 2020 S/CAP Potential Goals and Key Actions, our consultant (AECOM) will estimate the GHG reduction potential, the costs, and the sustainability co-benefits (such as improved local air quality or reduced cost of living) of the Potential Key Actions. This impact analysis will provide a range of costs per GHG reductions that will have various options along the Spectrum of Tools for Achieving Climate Goals. Staff envisions using the impact analysis to come up with a set of potential Key Actions that allow multiple options to get us to our 80 x 30 goal, as well as trigger points for when more interventions are needed to achieve the targets for the Key Actions. Figure 1. Spectrum of Tools for Achieving Climate Goals City of Palo Alto Page 5 As an example, City of Palo Alto Utilities currently has several Electrification Programs, one of which focuses on electric heat pump water heaters. The Heat Pump Water Heater Program provides rebates for residents to voluntarily replace water heaters with electric heat pump water heaters. These rebates are an example of a tool with low intervention – the rebates are voluntary – and low certainty – the number of residents who have voluntarily replaced their water heaters is far lower than the goal. In order to reach the targeted number of water heaters that need to be replaced, the City may need to explore development of a Reach Code Ordinance7 to provide more certainty to meet the target, or whether a mandate would be a legally viable option to ensure that the target is reached. It should be noted that should the Council believe that “high” level intervention is needed and supportable to advance Palo Alto’s S/CAP goals, a different approach to community awareness and engagement may be warranted. For example, should a 2022 voter measure to finance electrification (or other purposes) be a possibility, staff could orient our workplan to begin building community awareness of the value and options for electrification, developing cost estimates and delivery options, and evaluating voter support for the various forms such a measure could take. In fact, should a citywide measure for electrification be pursued, coordination and potential economies of scale with electrical undergrounding and fiber-to-the- home could also be concurrently evaluated. Staff requests Council discuss and provide feedback on the potential for such long lead-time strategies. 7 Development of a “Reach Code” ordinance that would exceed California Building Energy Efficiency Standards (the Energy Code) requires a showing that the measures would be cost effective, and findings by the California Energy Commission that the proposed Reach Code requires buildings to be designed to use less energy than permitted by the Energy Code. City of Palo Alto Page 6 Staff will schedule a Council Study Session in early fall to present the results of the AECOM and staff analysis. Stakeholder Engagement Staff developed, and is implementing, a 2020 S/CAP Update Engagement Plan which identified relevant stakeholders, proposed materials, and desired meeting milestones and outcomes. Key steps to date have been a March 31 – April 14, 2020 Community Engagement Virtual Workshop and an April 13, 2020 Council Study Session. Further, Council reviewed the opportunities for engagement in the 2020 S/CAP Update Proposed Process and the Community Engagement section of the 2020 – 2021 Sustainability Work Plan. Policy Implications The 2020 S/CAP Update aligns with two of the top three Council Priorities for CY 2020: “Sustainability, in the context of climate change” and “Improving mobility for all.” Resource Impact Appropriate resources are already in place to develop the 2020 S/CAP Update. Contract Number C20176783 With AECOM Technical Services, Inc., for Professional Services Related to the 2020 Sustainability and Climate Action Plan Update and SB743 Implementation was approved on February 24, 2020 (CMR 11112). Funding is included in the operating budgets from City Manager’s Office – Office of Sustainability and the Office of Transportation. Any additional appropriation of necessary funding is subject to City Council approval. Environmental Review Directing staff to continue with the 2020 S/CAP Update does not require California Environmental Quality Act review, because this action is not a project under section 21065 of Public Resources Code and section 15378(b)(5) of CEQA Guidelines, as an administrative governmental activity which will not cause a direct or indirect physical change in the environment. A CEQA analysis of the Update itself will be presented with the final 2020 S/CAP Update. Attachments:  Attachment A - 2020 Sustainability and Climate Action Plan Potential Major Goals and Key Actions  Attachment B - Summary of Input on 2020 S/CAP Potential Goals and Key Actions and Community Engagement Workshop through April 30 2020 Last Updated May 27, 2020 2020 Sustainability and Climate Action Plan Potential Major Goals and Key Actions For Greenhouse Gas Reduction DRAFT Page 2 of 6 The 2020 Sustainability and Climate Action Plan (S/CAP) Potential Major Goals and Key Actions for Greenhouse Gas Reduction listed on the following pages are a subset of the full list of updated 2020 S/CAP Potential Goals and Key Actions. Staff is highlighting the 2020 S/CAP Potential Goals and Key Actions that have the highest potential Greenhouse Gas (GHG) reduction for Council to evaluate. These Key Actions are from the Energy, Mobility, and Electric Vehicles (EVs) areas. The 2020 S/CAP Potential Major Key Actions listed in the following pages do not represent all the work that the City is doing or will be doing related to climate change and sustainability. These are the actions we will potentially be prioritizing. They are numbered to make it easier to refer to specific Key Actions and are numbered the same as the Key Actions in the full list of 2020 S/CAP Potential Goals and Key Actions. They are NOT numbered based on priority. Each of the 2020 S/CAP Update Potential Key Actions falls along a Spectrum of Tools for Achieving Climate Goals (See Figure 1) below. The Spectrum ranges from market driven solutions that require low intervention but also low certainty of achievement, such as voluntary programs, to government driven solutions that require higher intervention but yield high certainty of achievement, such as city-wide voter-approved mandates. Once Council provides input on the updated 2020 S/CAP Potential Goals and Key Actions, a consultant (AECOM) will estimate the GHG reduction potential, costs, and sustainability co-benefits (such as improved local air quality or reduced cost of living) of the Potential Key Actions. This impact analysis will provide a range of costs per GHG reductions that will have various options along the Spectrum of Tools for Achieving Climate Goals. Staff will use the impact analysis to come up with a set of potential Key Actions that allow multiple options to get us to our 80 x 30 goal, as well as trigger points for when more interventions are needed to achieve the targets for the Key Actions. Some of these measures will require additional legal analysis and potential coordination with other agencies, such as the California Energy Commission, before being presented to Council for final selection. Figure 1. Spectrum of Tools for Achieving Climate Goals Page 3 of 6 POTENTIAL MAJOR GOALS FOR GREENHOUSE GAS REDUCTION  Reduce Greenhouse Gas (GHG) emissions from the direct use of natural gas in Palo Alto’s building sector by1: a. 40% below 1990 levels by 2030 (or 24% below 2018 level) OR b. 60% below 1990 level by 2030 (or 50% below 2018 level) OR c. 80% below 1990 level by 2030 (or 76% below 2018 level)  Reduce transportation related GHG emissions 80%, from 300,000 MT CO2e/year to 60,000 MT CO2e /year by: a. Increasing the mode share for active transportation modes (walking, biking, and transit) from 19% to 40% of local work trips by 2030 b. Increasing the availability of transit and shared mobility services from 61% to 100% by 2030 by increasing the proportion of residents within a quarter-mile walkshed of frequent transit corridors to 30% and by providing on- demand transit options to the rest of the City c. Utilizing development regulations and standards to continue creating a housing density and land use mix that supports transit and non-SOV transportation modes d. Utilizing pricing, fees, and other program and policy tools to encourage reductions in GHGs and VMT  Reduce transportation related GHG emissions 80%, from 300,000 MT CO2e /year to 60,000 MT CO2e /year by: a. Increasing the EVs registered in Palo Alto from 4,500 (2019) to 42,000 (80% of vehicles) b. Increasing the share of EV commute vehicles from single digits to 80% by 2030 c. Develop a public and private charging network to support these levels of EV penetration. 1 Prior to the AECOM analysis, there are 3 alternative goals to choose from for the Energy Sector, based on 40%, 60% and 80% of GHG reduction from the direct use of natural gas in the building sector. The AECOM analysis will determine the least cost bundle of GHG reduction measures across the different sectors to meet the 80x30 goal, which in turn will establish the goal for the Energy sector. Page 4 of 6 POTENTIAL MAJOR KEY ACTIONS FOR GREENHOUSE GAS REDUCTION2 Energy: Potential Major Key Actions for GHG Reduction Residential 5. Retrofit all gas wall furnaces in multifamily buildings to electric heat pump systems for space heating by 2030 (Estimated total reduction of 5,600 MT CO2e) 7. Electrify gas appliances in single family homes upon home sale beginning in 2025 a. Water heating only (Estimated total reduction of 7,800 MT CO2e) b. Space heating only (Estimated total reduction of 10,800 MT CO2e) c. Full electrification (Estimated total reduction of 19,600 MT CO2e) 8. Electrify water heating on replacement in all single family homes by 2030 (Estimated total reduction of 20,000 MT CO2e) 9. Phase out fossil fuel use in existing buildings starting with areas that have older gas lines that need to be repaired or replaced. Disconnect natural gas distribution service to residential areas by 2030. a. Target only single family homes with PVC gas line (Estimated total reduction of 1,400 MT CO2e) b. Target 50% of single family homes (Estimated total reduction of 24,500 MT CO2e) c. Target 50% of residential buildings (Estimated total reduction of 36,000 MT CO2e) d. Target 100% of single family homes (Estimated total reduction of 49,000 MT CO2e) e. Target 100% of residential buildings by 2030 (Estimated total reduction of 72,000 MT CO2e) Non-Residential 11. Electrify water heating and space heating in all K-12 facilities by 2030 (Estimated total reduction of 3,300 MT CO2e) 12. Convert all rooftop gas packs on non-residential buildings to electric heat pump systems by 2030 (Estimated total reduction of 1,100 MT CO2e) 13. Require all-electric non-residential new construction projects starting in 20213 (Estimated total reduction of 2,300 MT CO2e) 14. Electrify 80% of existing city-owned buildings by 2030 15. Require all commercial buildings above 25,000 sq ft to meet a carbon emissions intensity target by occupancy class with a goal of reducing carbon emissions by 40%4 (Estimated total reduction of 16,200 MT CO2e) 2 A Consultant, AECOM, will determine the GHG reductions and associated costs for each of these Key Actions. 3 City Council adopted an all-electric mandate for residential new construction projects effective 4/1/2020. Expanding this mandate to non-residential construction will require an additional cost effectiveness study and coordination with the CEC. Estimated total reduction of 2,100 MT CO2e Page 5 of 6 Mobility: Potential Major Key Actions for GHG Reduction 1. Reduce the current transportation mode split of 64%5 Single Occupancy Vehicle (SOV) use for work trips to increase active transportation modes (walking, biking, and transit) by implementing the Bicycle + Pedestrian Transportation Plan, the Complete Streets policy, Vision Zero, and other programs to create safe streets for all road users, particularly vulnerable road users 2. Reduce SOV use by eliminating free parking and adjusting parking requirements 3. Implement key transportation Capital Improvement Projects to significantly increase transit use coverage, service quality, frequency, speed and/or access 4. Enhance traffic signals to improve traffic flow and reduce idling and associated GHG emissions. 5. Update and strengthen public and private Transportation Demand Management (TDM) programs g. Reduce Vehicle Miles of Travel (VMT) by mandating telework two days per week. (Includes both new and existing development.) 6. Use land use strategies to reduce VMT d. Accommodate new housing and employment growth in areas walkable to retail and Caltrain or corridors that meet requirements for VTA-provided transit via zoning standards, consistent with state law. Electric Vehicles: Potential Major Key Actions for GHG Reduction 3. Continue to electrify municipal fleet as opportunities arise, and by 2021 develop a comprehensive fleet electrification workplan and associated EV charging needs6. Replace City’s fleet vehicles with EVs at end of life, whenever suitable EVs are available in the market.7 (Estimated total reduction of 250 - 500 MT CO2e/yr) 10. Require at least 50% of all parking spaces at Palo Alto’s 800+ multi-family properties (~10,000 units) install EV chargers, with the City providing rebates and technical assistance. 11. Require an appropriate percentage of EV charger installations at all commercial parking spots. (e.g. 25 to 50% of all parking spaces) 12. Consider a Palo Alto-specific Internal Combustion Engine (ICE) vehicle fee, tax and/or assessment to provide a disincentive for the ownership or use of a fossil fuel vehicle. Consider application of the fee, tax, or assessment to both residential households and workplaces8 and utilize the revenue to incentivize VMT reduction and EV adoption.9 4 Buildings > 25,000 sqft represent 75% of total nonresidential square footage in Palo Alto, or around 19,000,000 total sqft. This strategy is modeled after NYC’s Local Law 97 (Building Emissions Law) and may need a Green Building Code amendment. 5 US Census, American Community Survey, 5-Year Estimates, 2018 6 Study would assess what it would take to electrify 252 Light Duty Vehicles (LDV) in the City fleet - including needs of Police and Fire LDV, age of vehicles and replacement timelines, budgets, location and # of necessary EVSE’s and staffing availability to implement projects 7 This is the emission reduction potential if 90% of 252 Light Duty Vehicles could be electrified. Due to lower miles traveled by city vehicles, each vehicle switched assumed to lower GHG by 1 to 2 MT/year. 8 For example, a residential assessment or tax might apply to each household unless they produce evidence of EV ownership or attest to not owning a vehicle. A workplace fee might be imposed on gasoline vehicles parking at a workplace under a transportation demand management program. 9 For example, a $50/month fee, on the estimated 50,000 vehicles driving into Palo Alto, could raise $30 million/year Page 6 of 6 13. Require private bus fleets serving Palo Alto office campuses to electrify by 2030. 14. Evaluate programs to reduce the number of fossil fuel vehicles in Palo Alto. Ban the registration of gasoline vehicles in Palo Alto by 2030. (Estimated total reduction of 150,000 MT CO2e/yr) Attachment B Input on the 2020 Sustainability and Climate Action Plan Potential Goals and Key Actions, and Community Engagement Workshop #1 - Summary of All Input Provided between 1/22/2020 to 4/30/2020 In early 2020, the City of Palo Alto launched a 2020 Sustainability and Climate Action Plan (S/CAP) Update to determine the Goals and Key Actions needed to meet its sustainability goals, including its goal of reducing greenhouse gas (GHG) emissions 80 percent below 1990 levels by 2030. City staff proposed priorities in seven areas: Energy, Mobility, Electric Vehicles, Water, Climate Adaptation and Sea Level Rise, Natural Environment, and Zero Waste, which are summarized in the 2020 Sustainability and Climate Action Plan Potential Areas and Priorities document (More details can be found in Staff Report 10941). After reviewing different City of Palo Alto Plans and external Climate Action Plans, Staff drafted 2020 S/CAP Potential Goals and Key Actions as a starting point for discussion. Since then, the City solicited feedback from the community through a virtual on-demand 2020 S/CAP Community Engagement Workshop (March 31 – April 14, 2020), the City of Palo Alto Sustainability website (http://cityofpaloalto.org/sustainabilityplan), and at the April 13, 2020 City Council Study Session (More details can be found in Staff Report 11201). Staff received feedback from 204 people who participated in the Virtual Workshop, 7 people who responded to the Virtual Workshop invite, 3 people who reviewed the materials on the website, and 21 people who submitted comments for the April 13 Council Meeting. Staff received 109 pages of feedback from the community between January 22, 2020 and April 30, 2020, including many helpful suggestions for improvement. Several themes surfaced in the input received: - The commenters are generally supportive of the 2020 S/CAP and do not want to delay action on climate change, despite the uncertainties created by the current coronavirus pandemic. - The 2020 S/CAP needs to include more aggressive but achievable goals, measurable targets, and accessible reporting, with more focus on electrifying buildings, transportation, and equipment. - The commenters are not supportive of counting natural gas offsets in our overall greenhouse gas emissions reductions. Offsets are meant to be a bridging strategy and should be phased out. - The coronavirus pandemic has shown that it is possible to work from home regularly. The City should explore remote work strategies as a way to reduce transportation-related GHG emissions. - Housing, land use, and education are areas of focus that are missing from the 2020 S/CAP. - The commenters appreciated the opportunity to provide input on the 2020 S/CAP Potential Goals and Key Actions, but would have preferred a webinar with an option to pause, rewind, and fast-forward with a link to a survey, over the ability to provide feedback during the webinar. Staff are incorporating the feedback received to-date and will post an updated version of the 2020 S/CAP Potential Goals and Key Actions on our website for further input. In addition, Staff will bring the updated list to City Council in early June, to review before it goes to AECOM for an impact analysis to estimate the GHG reduction potential of the proposed actions, estimated costs, and additional sustainability co-benefits (such as improved local air quality or reduced cost of living). We hope to host a 2020 S/CAP Summit in the early fall to prioritize which of the Key Actions are needed to get us to our 80 x 30 goal & other goals so that we can draft the 2020 S/CAP by the end of the year. The following pages include a longer summary of the input provided between January 22, 2020 and April 30, 2020. The full unedited text of all input provided can be found here1. 1 https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=68527.83&BlobID=76499 Go Back to Contents Page Page 2 of 30 Contents – Summary of Input provided between 1/22/2020 to 4/30/2020 (You can jump to any of the highlighted sections by hovering your mouse over the section and holding down CTRL while clicking on your mouse) - General Feedback o Supportive Feedback o Items that Need to Be Addressed o Suggestions for Improvement o 80 x 30 Goal o Airport o Education o Housing o Webinar Feedback - Energy o Feedback on Potential Goals o Suggestions for New Goals o Potential Key Actions to explore further o Feedback on Potential Key Actions o Suggestions for New Key Actions o General Feedback - Mobility o Feedback on Potential Goals o Suggestions for New Goals o Potential Key Actions to explore further o Feedback on Potential Key Actions o Suggestions for New Key Actions o General Feedback - Electric Vehicles o Feedback on Potential Goals o Suggestions for New Goals o Potential Key Actions to explore further o Feedback on Potential Key Actions o Suggestions for New Key Actions o General Feedback - Water o Feedback on Potential Goals o Suggestions for New Goals o Potential Key Actions to explore further o Feedback on Potential Key Actions o Suggestions for New Key Actions o General Feedback - Climate Adaptation and Sea Level Rise o Feedback on Potential Goals o Suggestions for New Goals o Potential Key Actions to explore further o Feedback on Potential Key Actions o Suggestions for New Key Actions o General Feedback - Natural Environment o Feedback on Potential Goals o Suggestions for New Goals o Potential Key Actions to explore further o Feedback on Potential Key Actions o Suggestions for New Key Actions o General Feedback - Zero Waste o Feedback on Goals o Key Actions to explore further o Feedback on Key Actions o Suggestions for New Key Actions o General Feedback Go Back to Contents Page Page 3 of 30 General Feedback Supportive Feedback  Climate Change is urgent, and action is needed now. Addressing climate change must remain a top priority for Palo Alto. (+ 16 similar comments)  I support the Sustainability and Climate Action Plan (+ 12 similar comments)  There are similarities between the pandemic and the climate crisis (and listening to scientists). Both are worldwide problems where local corrective measures are needed. In both cases early actions are needed to get the problems under control. (+ 3 similar comments)  Thank you for your time and effort in working on this, especially in light of the difficult circumstances that we are all in right now due to the pandemic. (+ 2 similar comments)  The impacts of city initiatives have ripple impacts that are orders of magnitude greater than the direct GHG reductions within Palo Alto.  We are pleased that staff has adopted the philosophy of SMART goals (Specific, Measurable, Achievable, Relevant, Time-Bound).  Sustainability means walkability, workability, rentability and SHARING. Sustainability means we have to house, at least, seniors, local essential workers, homeless AND more.  The City municipal accomplishments seem robust. Items that need to be addressed  Palo Alto's natural gas emissions and overall emissions have remained relatively unchanged from 2013 to 2018 (without offsets). Palo Alto should shift its emphasis towards real emissions reductions within City boundaries, rather than bridging strategies such as offsets, with a timeline for when offsets will be phased out. (+ 14 similar comments)  Present programs that can actually reach our GHG reduction goals. The City should measure all fossil fuel reduction programs against meaningful annual targets. (+ 6 similar comments)  Follow the strategies of the 2016 S/CAP, specifically with respect to transportation and electrification. (+ 1 similar comment)  There are many more important items to deal with. We should be addressing the REAL needs of society and not elitist action to address hypothetical, computer modeled climate change. (+ 1 similar comment)  Palo Alto’s “sustainability” goals are not realistic. Doing away with natural gas for heating and fireplaces is not practical, any more than expecting all cars to be EV by 2030.  Unless Palo Alto's actions can be repeated by other communities, we are too small to make a real difference  Educate residents about the pollution they create and the magnitude of the consequences.  The finance committee has a general investment principle that encourages some amount of divestment from fossil fuel content in the City's holdings, but more actionable goals around fossil free finance are needed going forward.  Palo Alto's general planning/zoning process has led to a segregated community split between "residential" and "industrial/commercial." There should be more mixed-use developments and denser housing near transportation to minimize transit, encourage resilience, and reduce GHGs.  Cement is the source of about 8% of the world's carbon dioxide (CO2) emissions. Why aren’t we requiring the use of CO2 trapping cement? Go Back to Contents Page Page 4 of 30 Suggestions for Improvement  Include big (but achievable) numbers for each goal, a range of key actions to support them, and clear metrics and measurable targets, with transparent reporting. (+ 18 similar comments)  Make the use of all gasoline powered equipment, aside from automobiles, illegal with proper enforcement. (+ 4 similar comments)  Greatly enhance community involvement and input in the planning process, with annual study sessions with Council. (+ 3 similar comments)  Adopt a metric of dollars per carbon unit avoidance, including increasing energy efficiency investments – the most cost-effective ways to reduce GHG emissions. (+ 2 similar comments)  Continue to grow resources such as Cool Block which foster neighborhood interaction and behavior change while building community. Provide more online tools and data so households can track their footprints and understand ways to reduce their impacts. (+ 2 similar comments)  Prohibit burning of firewood. (+ 1 similar comment)  Develop a holistic Plan that simultaneously addresses GHG reduction, increased resilience, enhanced emergency response, and public health goals. (+ 1 similar comment)  Integrate sustainability in City operations. State how Capital Improvement Projects address 2020 S/CAP Goals and including a sustainability section in staff reports. (+ 1 similar comment)  Review other Climate Action Plans and coordinate regional efforts (+ 1 similar comment)  Include options that work for lower-income people, renters, and people in multi-unit housing.  Be careful about the reliability of our power (even a perception problem can hurt adoption of electric water heaters and especially space heaters).  Contemplate whether a golf course and/or a city airport are compatible with our vision of a sustainable city. It's not clear we are being good stewards of the space we have.  Build relationships with organizations engaged with the same issues.  Utilize City Commissions as a conduit for community feedback for each of the sustainability areas during the community engagement cycle. Develop a communication strategy to ensure effective coordination and cooperative effort between various commissions, staff, and City Council.  Implement programs that leverage resources beyond city staff with a focus on near term implementation of the on-bill financing program for retrofit electrification of existing buildings.  Safer chemicals (and safer materials, more broadly) is an area of focus that should be added as a standalone part of the plan on the same level as energy, mobility, water, etc.  Prohibit construction of basements. 80 x 30 Goal  The goal of 80% reduction of GHG’s by 2030 is reasonable. However, we need to be very aggressive to get there. (+ 3 similar comments)  2050 seems like a more likely goal to achieve GHG emission limits without causing a serious economic dislocation. (+ 3 similar comments)  Many of these climate goals require funding. Consider a municipal carbon tax to fund climate mitigation and new programs. (+ 1 similar comment)  Consider a “reach goal” of 100 x 30 rather than 80 x 30.  Consider explaining how non-incremental policies (policies that reduce > 10%) will be required to achieve 80 x 30. Non-incremental policies often require difficult-to-enact legal mandates. Go Back to Contents Page Page 5 of 30  Consider dedicating staff for leadership among nearby cities, the county, and the region to advocate for non-incremental policies. Some policies will be easier to enact regionally.  Consider polling residents on different baskets of policies (with different forecasted 2030 GHG reductions), including Business As Usual.  Backcast from 80 x 30. Work backwards to identify policies and programs that will get us there. Airport  Acknowledge the full environmental cost of running the airport, especially with regard to the greatest local impact: training operations that involve circling planes practicing take-off/landing for hours on end.  No effort or progress has been made to ban the sale of leaded aviation gas at Palo Alto Airport.  Add jet emissions as part of the climate priority and prioritize airplane noise in 2020. Education  Prioritize education as part of the S/CAP and create a multi-faceted educational campaign (+ 3 similar comments)  Hang a big banner down from City Hall, using a tree outline to signify our progress towards 80 x 30. Every six months, color in more branches, until our "Palo Alto goal" is filled in completely. Housing  The built environment and land use, including policies for increasing affordable housing and supporting urban infill, should be included and integrated into the S/CAP (+ 9 similar comments)  While urban infill in general is important, ADU and JADU construction should be included in the S/CAP. In addition to its climate benefits, this is a substantially less expensive and faster to market approach than large projects for both more and more affordable housing. (+ 1 similar comment) Webinar Feedback  Thank you for all the effort you put into the virtual Community Engagement Workshop and the innovative approach you have taken to get community input, despite the challenges of our current COVID-19 emergency. (+ 16 similar comments)  It would help a lot if you could pause and rewind the webinars. (+ 13 similar comments)  Indicate how much time is remaining in the webinar (+ 1 similar comment)  8-minute videos are great, very nice size and easy to do. Energy Potential Goals  Reduce greenhouse gas emissions from the direct use of natural gas in Palo Alto’s building sector by 40% below 1990 levels by 2030  Increase Heat Pump Water Heater adoption to 25% by 2030  Increase all-Electric homes to 20% of all residential single-family homes by 2030 Go Back to Contents Page Page 6 of 30 Energy: Feedback on Potential Goals  The goals need to be more ambitious (+ 2 similar comments)  These are very ambitious goals, but are they realistic? (+ 1 similar comment)  We seem to be prioritizing the most expensive options, and options that do not apply to renters or people in larger buildings. (+ 1 similar comment)  Residents are increasingly concerned with the reliability of our electricity, and that will make conservation and efficiency more appealing than electrification. (+ 1 similar comment)  While ambitious, these goals are doable and essential.  Reduce greenhouse gas emissions from the direct use of natural gas in Palo Alto’s building sector by 40% below 1990 levels by 2030  This goal should be more aggressive. 70% by 2030 or reaching 40% earlier (+ 1 similar comment)  Do not eliminate natural gas in homes for heating, cooking and hot water. The other options are not cost effective. Natural gas is an important backup to electricity and is the preferred method to cook for many. A better option is to replace natural gas with renewable natural gas. (+ 2 similar comments)  Increase Heat Pump Water Heater adoption to 25% by 2030  Do you mean 25% of new water heaters are heat pump or ALL are by 2030? Is this residential only or also commercial? Need clarification. (+ 1 similar comment)  The Heat Pump Water Heater (HPWH) adoption rate should be 70% not 25%. All water heaters, on failure, must be required to be replaced with a HPWH when possible. (+ 1 similar comment)  An infrastructure of reliable and available plumbing and electrical contractors for this conversion work needs to be developed. (+ 2 similar comments)  The HPWH goal is good, but not all homes can use HPWH and Heat Pump heaters.  Heat Pump Water Heater conversion is an important component of reducing natural gas usage, but based on personal experience, it's not an easy sell and it's not so easy to get done.  Increase all-Electric homes to 20% of all residential single-family homes by 2030  This goal needs to be more aggressive to make a difference. (+ 1 similar comment) Energy: Suggestions for New Goals  Increase use of Renewable Natural Gas (Biomethane) to replace conventional Natural Gas usage (20% by 2030)  Goal around efficiency and/or conservation, except as implied by the 40% reduction goal.  Goal around retrofit electrification, not just new building electrification.  1 house in 10 (proportionately for other buildings) have the energy to power a refrigerator, water pump, and emergency communications. Go Back to Contents Page Page 7 of 30 Energy: Potential Key Actions to explore further (These potential Key Actions do not represent all the work that the City is doing or will be doing related to climate change and sustainability. These are the actions we will be prioritizing. They are numbered to make it easier to refer to specific Actions. They are NOT numbered based on priority.) # of Votes Potential Key Actions 5 1. Meet or exceed City Council-adopted energy efficiency targets 7 2. Explore electrification of city-owned facilities with the goal of phasing out fossil fuel use in existing municipal buildings 9 3. Phase out fossil fuel use in new and existing buildings through a combination of programs & mandates (includes partnerships and collaborations to support market transformation) 4 4. Increase awareness and adoption of efficient electric alternatives to gas appliances and all-electric buildings through community engagement 3 5. Implement an all-electric utility rate 8 6. Explore opportunities to increase energy resilience (e.g. energy storage, microgrids) 3 7. Explore the impact of building decarbonization on City’s gas utility and develop mitigation strategies 2 8. Continue to purchase carbon offsets to match natural gas emissions as a transitional measure. Evaluate potential local offset purchases Energy: Feedback on Potential Key Actions  Given that furnaces last 30 years, and an estimated 800 gas furnaces are replaced in Palo Alto every year, what is Palo Alto's plan to convert 40% of furnaces to heat pumps by 2030?  Widespread adoption of heat pumps and all-electric homes requires ways to make it easier for homes to increase their electrical capacity.  We need to mandate some of these measures in order to meet our goal.  Focus exclusively on space and water heating and ignore appliances, which have relatively little impact. An easy action is detecting and repairing leaks (pipelines, gas meters).  I am very much opposed to the Action Items that are aimed to phase out natural gas appliances and natural gas usage in homes. 1. Meet or exceed City Council-adopted energy efficiency targets  Increase energy efficiency wherever possible (+ 2 similar comments) 2. Explore electrification of city-owned facilities with the goal of phasing out fossil fuel use in existing municipal buildings  Change "Explore electrification of city-owned facilities" to "Electrify City-owned facilities" (+ 3 similar comments)  Electrifying municipal buildings will give staff firsthand experience of the hurdles to do so.  Amend #2 to also explore use of renewable natural gas (Biomethane) in concert with electrification efforts, with goal of phasing out fossil fuel use in existing municipal buildings Go Back to Contents Page Page 8 of 30 3. Phase out fossil fuel use in new and existing buildings through a combination of programs & mandates (includes partnerships and collaborations to support market transformation)  The most important Key Action is the phase out of fossil fuel use in residential and commercial buildings, including new construction, remodels, and appliances. (+ 11 similar comments)  Well-intentioned electrification policies such as natural gas bans in new construction will leave many seniors, lower income residents, and renters responsible for outstanding costs of maintaining legacy natural gas delivery systems (+ 2 similar comments).  Incentivize retrofits from natural gas to electric by providing concrete steps and making it cost effective. Consider raising natural gas utility fees to show the environmental cost of usage (based on the Reach Code discussions). (+ 1 similar comment)  Add “Ensure that installation of rooftop solar panels does not result in loss of existing trees.”  Do not move away from natural gas for heating and cooking. It's too expensive for limited benefits.  Train CPAU staff to install retrofits and assist residents in planning their retrofits. 4. Increase awareness and adoption of efficient electric alternatives to gas appliances and all-electric buildings through community engagement  Take advantage of existing community partners such as non-profits.  In addition to awareness, we should be working on funding support. 5. Implement an all-electric utility rate  We strongly support an all-electric utility rate (+ 1 similar comment)  The city should also consider changing the solar net meter rates to the old net meter program (more favorable) for homes that go all electric as an incentive to do so.  This is redundant and regressive. It would disproportionately hurt those living in older dual fuel homes and require seniors and lower income residents to pay more to keep the existing infrastructure properly maintained. It is a misguided policy. 6. Explore opportunities to increase energy resilience (e.g. energy storage, microgrids)  Transition to more distributed energy systems (microgrids) and local storage that support the integration of renewable energy technologies. This will result in reduction of GHG emissions and improve the resiliency of our power system. (+ 5 similar comments)  Explore ways to make energy storage more affordable, including piloting approaches for using electricity stored in EVs during supply disruptions or natural emergencies. (+ 1 similar comment)  Include local solar farms in these opportunities. Developing methods to allow for both solar panels and trees can be achieved by batching solar panels in local solar farms. 7. Explore the impact of building decarbonization on City’s gas utility and develop mitigation strategies  Add: for the phasing out of the city gas system to the home.  Consider (during exploration of impact on City's gas utility) the benefits of replacing conventional natural gas with renewable natural gas as a renewable source of baseload power. Go Back to Contents Page Page 9 of 30 8. Continue to purchase carbon offsets to match natural gas emissions as a transitional measure. Evaluate potential local offset purchases  Continue efforts to meet emission reduction goals without relying on natural gas offsets. (+ 7 similar comments)  Reword: “Shift the primary strategy to reduce natural gas emissions from carbon offsets to real- world infrastructure emission reductions within the City.”  Put the funds used for purchasing offsets into an aggressive retrofit program to switch out gas- burning water- and space heaters, stoves, clothes dryers, and industrial scale equipment. Energy: Suggestions for New Key Actions  Add an action around conservation (e.g., lowering the thermostat), and other universal solutions with low upfront cost.  Add an action about understanding the barriers to electrification to determine the best programs and incentives to drive electrification.  Evaluate whether or not key actions are proving useful or impossible to meet. Maybe the need for carbon offsets means there is a problem with the goal that carbon offsets are meant to meet.  New homes should be wired so that an EV can run the house, known as “home to grid”.  More effort on distributed PV Energy: General Feedback  Undertake a plan to phase out all natural gas use and eliminate the old and likely leaking gas pipes that are threaded under our streets. (+ 3 similar comments)  Streamline the permitting process and reduce fees for retrofit permits. Some contractors will not work in Palo Alto due to the burdensome permitting process. (+ 2 similar comments)  On bill financing for HPWH and space heating of homes will be critical in getting electrification of existing homes to happen. (+ 2 similar comments)  Local renewable energy production, including domestic solar, is an important priority for reducing both building and transportation GHG emissions. (+ 2 similar comments)  Passionate advocates who believe climate change must be tackled quickly at any cost may be less receptive to hearing that transitioning generation resources will take time or that innovations by natural gas suppliers and equipment manufacturers may, in some cases, actually reduce GHG emissions sooner. Enable consumer choice and avoid coercion. (+ 2 similar comments)  Electrify everything does not take into account that our electricity overnight comes from gas generation. (+ 2 similar comments)  It is better to use all sorts of energy as opposed to just electric. If there is an issue with the electric grid we have another source of energy. (+ 1 similar comment)  Promote the installation of solar water heating systems. (+ 1 similar comment)  Palo Alto should strive to reduce ALL Energy use, not only energy from fossil fuels.  Focus electrification incentives and mandates on high consumption facilities.  The #1 thing Palo Alto can do to mitigate building-related climate change is “negawatts” – dramatically increasing building energy efficiency.  We would truly be innovative leaders if we support biogas, anaerobic digestion, or pyrolysis which have other environmental benefits. Maintain the Measure E site as a possible location. Go Back to Contents Page Page 10 of 30  Palo Alto is one of only a few cities in California to not have Advanced Meter Infrastructure.  Palo Alto needs to have true accounting for natural gas use. The global warming potential for natural gas should be 86 times that of CO2 (not 20) and natural gas leakage must also be accounted for including the entire natural gas supply chain and not just within city boundaries.  Standardize Palo Alto’s building codes to match those in PG&E’s area to reduce retrofit costs.  Set up a group buy discount for heat pump water heaters, space-heaters, stove tops, and dryers.  Enforce Palo Alto laws forbidding natural gas leaf blowers. Mobility Potential Goals  Increase active transportation mode share to 25% for local work trips by 2030  Increase availability of transit and shared mobility services by increasing to 75% the proportion of residents within a quarter-mile walkshed of frequent transit by 2030  Implement Complete Streets and build out the Bicycle and Pedestrian Transportation Plan Mobility: Feedback on Potential Goals  These are great goals (+ 5 similar comments)  The top goal here should be better supporting e-bikes, scooters, and bikes, which are relatively quick, and are quite usable by many in our flat, temperate area (+ 1 similar comment).  This could be simplified to a single “Reducing the number of SOV mode use/VMT by X (eg 80%)” with supportive sub goals as appropriate.  There are no specific targets that directly tie these goals and actions to measurable results.  Transit and "shared mobility services" should not be lumped together; they serve vastly different audiences and the priority should be transit, resulting in a reduced percentage of people driving.  This doesn't take into account EVs if the goals are to reduce climate change.  We will never reduce our transportation emissions enough until we build more housing near transit, and more housing in general. Climate goals and housing goals are completely linked.  Stop building more parking structures. That money should be used to implement these goals.  The city should not spend any more time and money on bicycle plans and implementations.  Increase active transportation mode share to 25% for local work trips by 2030  These are great goals (+ 5 similar comments)  Please explain what active transportation mode share means (+ 5 similar comments)  The 10% mode share goal for 2020 was not reached. What will be done differently to achieve the 25% mode share goal for 2030?  Active Transportation needs more of a carrot (vs stick) approach. We need a green network of walkable and bikeable streets where cars are the LAST priority.  Goals should be directed towards commuters coming into Palo Alto from other cities. One possibility is to tax local businesses based on the number of drivers commuting to Palo Alto.  Increase availability of transit and shared mobility services by increasing to 75% the proportion of residents within a quarter-mile walkshed of frequent transit by 2030 Go Back to Contents Page Page 11 of 30  This is a good goal, but public transportation has been poor for a long time in Palo Alto, and service needs to be every 15 minutes (+ 1 similar comment).  What percentage of the population does this comes out to be (1/4 mile of transit)? Adjust if necessary, with real GHG reduction numbers so this can be tracked.  Implement Complete Streets and build out the Bicycle and Pedestrian Transportation Plan  Complete Streets is a good concept and very important to separate engine-powered modes from human-powered modes, with streets categorized as 1. Pedestrian priority, 2. Auto priority, or 3. Mixed traffic for all modes (+ 4 similar comments)  Council should modify its 'No closed streets" decision which has impacted negatively the options for the Bicycle and Pedestrian Plan. As a result, Transportation created a 'Bicycle Boulevard" along Ross Road that has caused opposition to the Bicycle Plan. Instead, Bicycle Infrastructure should have priority of creating Low Stress Bicycle Routes. Mobility: Suggestions for New Goals  Please add the goal of incentivizing local companies to reduce car trips per day by asking employees to work from home several days per week. (+ 2 similar comments) Mobility: Potential Key Actions to explore further (These potential Key Actions do not represent all the work that the City is doing or will be doing related to climate change and sustainability. These are the actions we will be prioritizing. They are numbered to make it easier to refer to specific Actions. They are NOT numbered based on priority.) # of Votes Potential Key Actions 2 1. Fund the Transportation Management Association (TMA) with the goal of reducing Single-Occupancy Vehicle commute trips downtown by 30% 4 2. Make transit investments that significantly enhance coverage, service quality, frequency, speed and/or access 7 3. Expand and improve bicycle and pedestrian facilities, connectivity, convenience, and/or safety in a manner that significantly increases the percentage of trips taken by walking or biking 1 4. Adopt Transportation Demand Ordinance per Comprehensive Plan Policy 0 5. Increase the number of City Employees utilizing commute benefits 3 6. Encourage the use of bike and/or scooter sharing, and the provision of required infrastructure throughout Palo Alto, especially at transit stations and stops, job centers, community centers, and other destinations 2 7. Enhance traffic signals to improve traffic flow and reduce idling and associated greenhouse gas emissions 6 8. Increase the number of bike facilities, including bike parking and signalized intersections with bicycle accommodations (e.g. bicycle signal heads, bicycle detection, colored bicycle lanes) Go Back to Contents Page Page 12 of 30 Mobility: Feedback on Potential Key Actions  Include pricing of parking and congestion as major approaches to equitably reduce GHGs. Stop subsidizing single-occupancy vehicles (+ 2 similar comments)  This is a good list, but needs to be expanded and then pared down based on impact/effectiveness (+ 1 similar comment)  Consider lifecycle emissions of e-scooters due to manufacture, charging and daily pick-up and delivery for charging.  Ride hailing vehicles emit nearly 70 percent more carbon dioxide on average than the other forms of transportation they displace and increase vehicle travel and congestion. If ride hailing vehicles are included as part of the mobility plan, please encourage use of electric vehicles, increased pooled trips, and focus on complementing mass transit. 1. Fund the Transportation Management Association (TMA) with the goal of reducing Single-Occupancy Vehicle commute trips downtown by 30%  The multiprong approach of the TMA should be a model for the city Transportation department and should be expanded throughout the city. (+ 3 similar comments)  Edit: Fund the Transportation Management Association (TMA) with the goal of reducing Single- Occupancy Vehicle commute trips to downtown and Cal Ave areas by 30%  Add: Make 25% of City Streets Pedestrian and bike friendly with maximum speed limit of 15mph.  TMA goal of reducing single-occupancy vehicle commute trips should be for gasoline only vehicles. EV, Hybrid, Hydrogen cars should be excluded.  The Transportation Management Association should be funded through a business license tax. 2. Make transit investments that significantly enhance coverage, service quality, frequency, speed and/or access  The availability of transit is only a portion of the issue. Transit needs to go to destinations that people actually go to, be more efficient, and coordinate better between various routes and providers (+ 5 similar comments)  Stay away from investing too much in transit because it won’t ever work well in our area given peoples’ busy lifestyles. No one wants to ride on the current & planned equipment. We should aim to get people on bikes or e-bikes or scooters, or in EVs. (+ 1 similar comment)  Add: Have secure bike parking at train stations.  Add: Public transit should be free. Pursue dense service walkable communities connected by micro mobility to other walk zones.  Need regulatory measures. Perhaps a toll on Central or Embarcadero or phasing out free parking. 3. Expand and improve bicycle and pedestrian facilities, connectivity, convenience, and/or safety in a manner that significantly increases the percentage of trips taken by walking or biking  Prioritize completion of the Bike and Ped Transportation Plan. We need to thoughtfully plan new infrastructure support for bicycles including increased facilities and accommodations, including separated bicycle lanes and bicycle parking (+ 1 similar comment) Go Back to Contents Page Page 13 of 30  Prioritize thoughtful integration of native plants and shade trees along pathways for both enhanced community experience and increased carbon sequestration. (+ 1 similar comment)  Bicycle lanes should be extended beyond school routes. (+ 1 similar comment)  Add: Close Churchill and Alma grade crossings and have bike/ped tunnel. Install bike counters around the city to monitor bike/ped use.  Add measurable goals such as, "Expand and improve bicycle and pedestrian facilities, connectivity, convenience, and safety in a manner that increases the percentage of trips taken by walking or biking by 25% of 2019 levels by 2025 and 50% of 2019 levels by 2030.  Include making bicycle facilities "Low Stress" Routes so that more people will be willing and able to use bicycles.  No more bicycle investments. 4. Adopt Transportation Demand Ordinance per Comprehensive Plan Policy  The Transportation Demand Ordinance must be adopted and enforced.  A Transportation Demand Ordinance should include taking an inventory of existing Transportation Demand Management plans as part of project approvals and enforcing them, including penalties for failure to perform. 5. Increase the number of City Employees utilizing commute benefits  Consider making all commute benefits available to all employees, regardless of what primary site they work at. (+ 1 similar comment)  Provide free transit passes and/or very low rental rates, or 0% loans for the purchase of various forms of micro-mobility. Micro-mobility should be available for rent for visitors to the City. 6. Encourage the use of bike and/or scooter sharing, and the provision of required infrastructure throughout Palo Alto, especially at transit stations and stops, job centers, community centers, and other destinations  Add: Increase bike parking and estimate the GHGs from sharing solutions. (+ 1 similar comment)  Add: Required renewal of business permits  More bike locking around commercial areas. Bike/ped only roads. 7. Enhance traffic signals to improve traffic flow and reduce idling and associated greenhouse gas emissions  "Improving traffic flow" favors automobiles and should be deleted. Reducing idling is a fine goal but increasing capacity for more cars isn't a sustainability goal. Improved traffic flow should favor pedestrians, bicycles, and micro-mobility. (+ 2 similar comments)  Traffic signal improvement should be aimed at minimizing acceleration as well as idling. For minimal emissions, we want smooth flow at modest speed. If possible, traffic signals should be fitted with reliable bicycle detectors that are well-advertised. Too many cyclists press the pedestrian button to request a green, which gives an unnecessarily long cycle, making stops (acceleration, idling) on the cross street more likely. (+ 2 similar comments)  Add: Install cameras for light switching that also do bike and ped counts as well. Go Back to Contents Page Page 14 of 30 8. Increase the number of bike facilities, including bike parking and signalized intersections with bicycle accommodations (e.g. bicycle signal heads, bicycle detection, colored bicycle lanes)  Top priority as it addresses 25% Active Transportation goal. Blocking off some streets to motorized through traffic would make a huge difference. (+ 2 similar comments)  Increase the number of low stress bicycle facilities to encourage more ridership.  Don't do this. Enough has been done already. It serves too few people at the expense of everyone else. Mobility: Suggestions for New Key Actions  We have learned during this COVID-19 crisis that a lot of the work of companies can be done from home. Encourage Expansion of Remote Work Options, such as: incentivize companies to allow 70% of their work force to work from home 2-3 days/week; when approving new office developments, consider if the company is open to more work-from-home; make office space smaller; and, create shared work centers for the community. (+ 9 similar comments)  Develop incentive and disincentive programs, including congestion pricing, to accelerate the reduction in gasoline powered vehicle use by residents and commuters. (+ 4 similar comments)  Prioritize thoughtful integration of trees in the implementation of Complete Streets programs and in the maintenance and retrofit of existing streets. (+ 1 similar comment)  Measure the environmental impact of ride share vehicles on the road which contribute to more GHG emissions. (+ 1 similar comment)  Update Palo Alto’s street design guidelines to include shared micro mobility services and active transportation to create protected and safe spaces for users and riders. Walkable development should be prioritized within ¼ mile of transit with emphasis on service density. (+ 1 similar comment)  There is a big missing key action: urban infill. Land use reform, TOD, and housing near transit are needed actions (+ 1 similar comment)  Recognize public street right-of-way as the largest public environmental asset and use more effectively  Enact a moratorium on building in the 2050 inundation zone. Mobility: General Feedback  Stop privileging autos over people and subsidizing single passenger vehicles at the expense of our climate goals. Prioritize completion of the Bike and Ped Transportation Plan. Make improvements to bike and pedestrian infrastructure, including bike parking, and consider vehicle-free streets. Promote road changes that locally make riding/walking quicker than driving. Expand bicycle/scooter/car-sharing. (+ 19 similar comments)  Electrify all transportation, including shuttles, public transit, Caltrain, and sanitation vehicles (+ 8 similar comments)  Ensure that bicycle parking is plentiful, including secure bicycle storage at workplaces, Caltrain stations, and shopping centers. (+ 5 similar comments)  Increase parking cost in downtown and on California Ave to encourage people to take different modes of transportation. Embrace a variable, dynamically-priced system for motor vehicle parking on all streets in the City (+ 5 similar comments)  Provide and encourage the use of more and better public transit, including a connection between SFO and SJC and expanded shuttle bus service. (+ 4 similar comments) Go Back to Contents Page Page 15 of 30  Add more education and oversight provisions for people who ignore traffic rules and are overly aggressive, including cyclists and scooter-sharing participants (+ 4 similar comments)  Make zoning easier for high density residences around public transit. (+ 3 similar comments)  Make it easier for everyone (including seniors) to get around without getting in their cars. Bicycles don’t work for everyone (+ 2 similar comments)  End any future construction of parking garages as they encourage increased use of low occupancy vehicles. (+ 1 similar comment)  Support planning and research for travel routes, parking, and policy guidelines for new and future mobility modes, including “Mobility as a Service”. (+ 1 similar comment)  There should be both a methodology involving Vehicle Miles Traveled and Level of Service. Adopt Menlo Park’s significance criteria for Level of Service.  Require companies to have charging points for electric bicycles, offer cash credit for riding a bike and/or buying a bicycle instead of driving, and contribute to bicycling and walking infrastructure and public transit when building/opening an office.  All occupants and businesses of new office buildings that are required to provide their own parking should not be allowed to purchase RPP permits.  Use special taxes for people who live here but work elsewhere.  Work with PAUSD on these items to reduce car traffic and promote biking and walking to schools  Autonomous vehicles will go a long way to these goals, without government input, if affordable. Electric Vehicles Potential Goals  Increase the number of electric vehicles (EVs) registered in Palo Alto, as a share of total vehicles registered, from 7% in 2018 to 50% by 2030  Target to facilitate 50% of vehicles owned by low income households to be EVs by 2030  Ensure there are adequate numbers and types of EV chargers in Palo Alto to support the growing number of EVs registered in and commuting to Palo Alto  Expand the number of EVs in the City’s fleet as the EV fleet market evolves Electric Vehicles: Feedback on Potential Goals  Prioritize charging infrastructure and the focus on lower-income households.  Increase the number of electric vehicles (EVs) registered in Palo Alto, as a share of total vehicles registered, from 7% in 2018 to 50% by 2030  50% seems overly ambitious and difficult to achieve. Effort would be better spent electrifying public transportation vehicles instead of a system that favors solo drivers (+ 2 similar comments)  Is the goal 50% EV market penetration for 2030 new car sales or 50% of the entire owned residential fleet to be EVs in 2030?  Target to facilitate 50% of vehicles owned by low income households to be EVs by 2030  Prioritize local and free infrastructure to ensure that low-income households have sufficient resources to own and maintain an EV. Go Back to Contents Page Page 16 of 30  The City could negotiate a subsidized insurance program for qualifying low-income residents.  Adopt San Francisco’s goal of achieving 100% emission-free transportation by 2040.  Ensure there are adequate numbers and types of EV chargers in Palo Alto to support the growing number of EVs registered in and commuting to Palo Alto  Expand the number of EVs in the City’s fleet as the EV fleet market evolves  To demonstrate its commitment to EVs, the City should lead with its fleet, at least with passenger cars. Another possibility is garbage trucks. If the City can set specific goals (50% EV penetration) for the public, it should do the same for itself. (+ 2 similar comments) Electric Vehicles: Suggestions for New Goals  All multiple use dwellings (apartment and condo buildings) must install electric vehicle chargers. Electric Vehicles: Potential Key Actions to explore further (These potential Key Actions do not represent all the work that the City is doing or will be doing related to climate change and sustainability. These are the actions we will be prioritizing. They are numbered to make it easier to refer to specific Actions. They are NOT numbered based on priority.) # of Votes Potential Key Actions 1 1. Ensure that at least 75% of the community is aware of the environmental and economic benefits of electric vehicles and the programs available to them 4 2. By 2022 quantify the public and private EV charger network needed within the community to support 50% EV penetration in Palo Alto, and develop an implementation plan to establish that charging network 3 3. Develop programs to assist and incentivize private EV charging installations in hard to reach locations such as multifamily properties, non-profits, and small commercial sites to ensure adequate and diverse EV charging infrastructure 0 4. By 2022, develop a strategic plan to encourage charging of inbound EVs within Palo Alto 1 5. Continue to electrify municipal fleet as opportunities arise, and by 2021 develop a comprehensive fleet electrification workplan and associated EV charging needs Electric Vehicles: Feedback on Potential Key Actions  Move each target to be one year early (+ 1 similar comment)  Most of the community is aware of EV and its benefits. You need to make sure the chargers are there. Is there any way to situate charging spots near existing gas stations? (+ 1 similar comment)  Incentivize e-bikes instead of or in addition to electric cars.  Share your EV leadership experience with other cities to magnify your savings  These are all too vague and unmeasurable. The City needs to do something here, not just plan. 1. Ensure that at least 75% of the community is aware of the environmental and economic benefits of electric vehicles and the programs available to them Go Back to Contents Page Page 17 of 30  We need a ‘total cost of ownership’ approach for EVs – the upfront cost is or could be higher, but the cost to operate is much lower.  Make the target closer to 90% 2. By 2022 quantify the public and private EV charger network needed within the community to support 50% EV penetration in Palo Alto, and develop an implementation plan to establish that charging network  Prioritize daytime charging at workplaces, when electricity is generally cheaper and cleaner.  We should already know this. We need to start putting in more charging stations, especially at multifamily residences and low-income residences.  Change to Goal Date from 2022 to 2020 3. Develop programs to assist and incentivize private EV charging installations in hard to reach locations such as multifamily properties, non-profits, and small commercial sites to ensure adequate and diverse EV charging infrastructure  I like the focus on multi-family chargers.  I would very much like to see support for chargers at low income residential facilities.  How will this be addressed for tenants? They make up about 40% of the city, so it depends on their landlord to go along with it. 4. By 2022, develop a strategic plan to encourage charging of inbound EVs within Palo Alto  Change to Goal Date 2022 to 2021 (+ 1 similar comment) 5. Continue to electrify municipal fleet as opportunities arise, and by 2021 develop a comprehensive fleet electrification workplan and associated EV charging needs  We are past discussion and should be more action focused. Add: “Palo Alto shall convert 50% of their fleet to EVs by 2025”. (+ 3 similar comments) Electric Vehicles: Suggestions for New Key Actions  Shift 80% of car charging within the City to daytime hours: 8am-3pm, in order to take advantage of cheap, abundant solar energy.  Require electric construction equipment on municipal projects and large commercial projects.  Require commercial fleet operators to convert 50% of their fleet to EVs by 2025.  Educate and encourage CARB to set a ZEV mandate that supports Palo Alto's EV goals. Electric Vehicles: General Feedback  Adopt policies to increase EV accessibility for all residents, include electric vehicle infrastructure in all buildings (multi-family, non-profits, small commercial sites, rentals), EV charger networks, and a comprehensive electrification plan (+ 4 similar comments)  The EV goals and key actions are a good starting point but don’t go far enough. (+ 1 similar comment) Go Back to Contents Page Page 18 of 30  The City should subsidize installation costs, through a discount for a "group buy" of EV chargers, paying for trenching or other electrical work, or a reduced permit price (+ 1 similar comment)  Numbers of EVs instead of EV-miles-traveled is a questionable metric. EVs don’t solve parking and congestion problems. We need to focus on reducing VMT and SOV as well. (+ 1 similar comment)  We are going to need stronger incentives for moving to EVs; perhaps an added gas tax, cheaper rates for utilities for supporting them, or a “climate tax” on fossil fuel powered cars, depending on their carbon emissions/mile if they are driven within city limits. (+ 1 similar comment)  The City should encourage EV charging during the day when solar energy is most available. And incentivize EV chargers at workplaces (+ 1 similar comment)  Incentivize the use of electric bicycles and electric buses.  Consider electric motorcycles for the Police Departments.  Expand to include Hydrogen vehicles.  In coordination with other cities with similar climate goals, encourage the California Air Resources Board to adopt a more stringent Zero Emission Vehicle regulation in both increasing the EV numbers and types  Require that all parking spaces have the requisite conduit for EV charging for new construction in addition to the rules enacted by Palo Alto in 2014.  Reconvene the Electric Vehicle Task Force to develop a proposal for remodels of existing buildings.  This topic should also take autonomy into account. Low income households and older residents, with the right incentives, might prefer to use shared vehicles.  The issue of the impact on the electrical grid needs to be front and center. Water Potential Goals  Reduce per capita water use compared to 2019  Increase the percentage of recycled water used (volume of recycled water/recycled water filter capacity) by 10% in 2022 compared to 2019  Reduce the total dissolved solids by 50% compared to 2019 base year  Manage stormwater to slow the flow to receiving waters and improve water quality to protect the SF Bay, while also treating it as a beneficial resource for alternative uses Water: Feedback on Potential Goals  Reduce per capita water use compared to 2019  Add a measurable target such as “Reduce per capita water use by x% (or to xx gal/day) by 202x compared to 2019” (+ 3 similar comments)  Conservation is always a good thing.  Increase the percentage of recycled water used (volume of recycled water/recycled water filter capacity) by 10% in 2022 compared to 2019  Increase recycled water used by more than 10% in 2022. (+ 3 similar comments)  Reduce the total dissolved solids by 50% compared to 2019 base year Go Back to Contents Page Page 19 of 30  What is the water that you are addressing? Incoming water, wastewater, recycled water? What are dissolved solids and what are the consequences of this? (+ 2 similar comments)  Add a date for the phase out of ground water pumping for home building.  Remove Potential Goal #3. Does this goal affect greenhouse gas emissions? While worthy of work in improving sustainable water infrastructure, perhaps it is lower priority than the climate goals.  Manage stormwater to slow the flow to receiving waters and improve water quality to protect the SF Bay, while also treating it as a beneficial resource for alternative uses Water: Suggestions for New Goals  Add water reuse capability as a long-term goal (gray and blackwater for example) and incentivize graywater to landscaping for fruit trees and native plants. (+ 2 similar comments)  Use the concept of bioswales for storm water and measure this metric to see how much water can be reduced in storm water drains and go instead to landscape and ground water storage.  Goals related to groundwater (continue ensuring emergency supply).  Purple pipes installed whenever possible when a utilities project requires digging.  Complete ban on basement construction and ground water waste. Water: Potential Key Actions to explore further (These potential Key Actions do not represent all the work that the City is doing or will be doing related to climate change and sustainability. These are the actions we will be prioritizing. They are numbered to make it easier to refer to specific Actions. They are NOT numbered based on priority.) # of Votes Potential Key Actions 3 1. Maximize cost-effective water conservation & efficiency 4 2. Expand the use of effluent from the Regional Water Quality Control Plant through Non-Potable Reuse, Indirect Potable Reuse, or Direct Potable Reuse 5 3. Establish quantifiable baseline and targets for implementation of green stormwater infrastructure on private property, municipal facilities and public rights-of-way by 2024 1 4. Design and build a salt removal facility for the Palo Alto Wastewater Treatment Plant 6 5. Develop a "One Water" Portfolio for Palo Alto Water: Feedback on Potential Key Actions  We applaud the clear delineation of the water-related goals and key actions (+ 1 similar comment).  If no water is allocated to backyard habitat and fruit trees, these Key Actions can lead to desertification of our beautiful city. 1. Maximize cost-effective water conservation & efficiency  Too general. Metrics? Who is going to do this, how will they do it and when will we know it’s been achieved? (+ 1 similar comment)  Please include a basic educational component on water conservation for Palo Alto residents Go Back to Contents Page Page 20 of 30 2. Expand the use of effluent from the Regional Water Quality Control Plant through Non-Potable Reuse, Indirect Potable Reuse, or Direct Potable Reuse  I am most excited by #2. Recycled water in toilets is such a great idea. 3. Establish quantifiable baseline and targets for implementation of green stormwater infrastructure on private property, municipal facilities and public rights-of-way by 2024  It is always helpful to have a quantifiable baseline in order to manage goals, but not sure what this means in this context. (+ 2 similar comments)  This is very important (+ 1 similar comment)  Expand stormwater and wastewater outreach and education efforts, including on social and earned media. (+ 1 similar comment)  Add: “By including incentives, it is more likely that private property owners will implement green stormwater infrastructure such as rainwater catchment, permeable hardscape, and bioswales.”  Encourage creation of "rain garden" type runoff catchments  Needs to be done quicker. Atherton has had a plan since 2013. 4. Design and build a salt removal facility for the Palo Alto Wastewater Treatment Plant  What is this addressing - recycled water, wastewater, incoming water to the plant? Is this to be a desal plant? How much energy will this take? Where does the salt go? How much will this cost? More explanation is needed. (+ 2 similar comments)  Remove Potential Key Action #4: This action appears to support Goal #3. (+ 1 similar comment) 5. Develop a "One Water" Portfolio for Palo Alto  This is very important because its focus is systemic. It should drive all the other key actions. When we embrace the belief that water in all its forms has value, the full water life cycle can be optimized to build strong economies, vibrant communities, and healthy ecosystems. All other aspects of water planning fall under the “One Water Portfolio”. (+ 2 similar comments)  What is a "One Water" Portfolio? How it is helpful? (+ 1 similar comment)  Value shallow groundwater as an important part of our water portfolio. Water: Suggestions for New Key Actions  Allow for the wide-scale use of gray water on private property. All new homes should have two pipes 1) for grey water and 2) for sewer water. (+ 2 similar comments)  Require climate-appropriate, drought-tolerant native species in public and private plantings. Expand the requirements of the Water Efficient Landscape Ordinance (WELO) to further the S/CAP goals. (+ 2 similar comments)  Develop a model to distinguish home water use vs. irrigation vs. water to grow edibles. Develop a program for properties to support backyard habitat and vegetable/fruit gardens (and reduce transportation miles associated with the food we eat). (+ 1 similar comment)  Ensure that water conservation measures in the landscape during drought and at all times adhere to California State “Save our Water and our Trees” principles to ensure existing trees are not lost. Go Back to Contents Page Page 21 of 30  Create streamlined design guidelines and permitting process with minimal fees for onsite potable and non-potable water reuse on private (residential and commercial) property.  Include actions related to groundwater, particularly resilient emergency supply.  Add rainwater collection as a key action for both residential and commercial.  Pair GSI projects with road diets and more protected (class IV) bike lanes. Water: General Feedback  Focus efforts on educational programs on climate change and water-waste, water conservation, and the safety of our tap water. (+ 2 similar comments)  Palo Alto has been doing a good job on water conservation and management, and the goals and actions outlined are good ones. (+ 1 similar comment)  Prioritize and start development of green stormwater infrastructure (+ 1 similar comment).  Accelerate Direct Potable Reuse so it is available when it becomes absolutely needed. Cooperate with San Jose and others in this effort.  Incentivize recycled water use, low-volume flush toilets, and greywater for outside watering.  Encourage the use of drought-resistant and native California plants in commercial and residential plots to restore and improve the environment and reduce outdoor water usage.  The City should outlaw the pumping of groundwater for residential basement construction.  Use less water sprinkling in city parks. Many parks over watered.  Since there are no direct GHG reductions that will result from these goals and actions, I would put other parts of the S/CAP at a greater priority. Climate Adaptation and Sea Level Rise Potential Goals  Develop a multi-year Sea Level Rise Adaptation Plan for Council Review by April 2021 to include a sea level rise vulnerability assessment and a community engagement strategy for plan development and implementation Climate Adaptation and Sea Level Rise: Feedback on Potential Goals  It would be good to see more specific goals.  Develop a multi-year Sea Level Rise Adaptation Plan for Council Review by April 2021 to include a sea level rise vulnerability assessment and a community engagement strategy for plan development and implementation  Expedite this goal - sooner than April 2021.  Groundwater levels rise with sea level rise and may double the extent of impact. Climate Adaptation and Sea Level Rise: Suggestions for New Goals  Preserve the wetlands. No more residential or commercial development in FEMA flood-prone areas. Go Back to Contents Page Page 22 of 30 Climate Adaptation and Sea Level Rise: Potential Key Actions to explore further (These potential Key Actions do not represent all the work that the City is doing or will be doing related to climate change and sustainability. These are the actions we will be prioritizing. They are numbered to make it easier to refer to specific Actions. They are NOT numbered based on priority.) # of Votes Potential Key Actions 2 1. Begin Sea Level Rise Vulnerability and Risk Assessment in Spring 2020 (includes related groundwater impacts) 1 2. Develop a multi-year Sea Level Rise Adaptation Plan and community engagement strategy. 2 3. Council consideration of regional levee alignment projects 2 4. Alignment with existing local and regional efforts that address sea level rise Climate Adaptation and Sea Level Rise: Feedback on Potential Key Actions  There may be other climate adaptation actions beyond sea level rise that should be considered: wildfire, risks to the urban forest, extreme heat, etc. (+ 2 similar comments)  Zero content in these actions. Sounds expensive with nothing really to do. (+ 1 similar comment)  Include flooding of homes from creeks as a climate risk caused by more intense rains  Our biggest risk as a City with sea level rise is that our only substation that handles all electricity coming into the city is at a site next to the bay and below grade.  All are important and I would keep them in that order of importance. 1. Begin Sea Level Rise Vulnerability and Risk Assessment in Spring 2020 (includes related groundwater impacts)  The vulnerability assessment should already be completed. 2. Develop a multi-year Sea Level Rise Adaptation Plan and community engagement strategy.  Needs a date associated with this action, ideally in the next 3 -6 months  Have a competition with the goal of participants providing ideas for what/how Palo Alto should address sea level rise risks. Something like what was done for electricity. 3. Council consideration of regional levee alignment projects 4. Alignment with existing local and regional efforts that address sea level rise Climate Adaptation and Sea Level Rise: Suggestions for New Key Actions  Notify property owners, both existing and prospective, that their property is located in an inundation zone and is expected to flood by years 20xx per data available.  Include specific vision language calling for the protection of wetlands from development, as they are both a source of carbon sequestration and sea level rise protection.  Create a Managed Retreat plan using Transfer of Development Rights.  Build a second transmission connection and substation on the other side of town Go Back to Contents Page Page 23 of 30 Climate Adaptation and Sea Level Rise: General Feedback  Maintain high priority for the SLR project and all aspects of developing the SLR Adaptation Plan. This is a long-term effort and any delays will likely be very costly in the long run. Protecting ecosystems is critically important. We should not be spending millions on undergrounding utilities, rebuilding Cubberley, roads, other structures and infrastructure, etc. unless we know that money won’t literally be money down the drain. We need a Plan with data and modeling studies to guide building decisions and to protect life and property. (+ 7 similar comments)  Work with adjacent cities and counties to develop a comprehensive regional plan and make sure all sea level rise efforts do not privilege one area over another. (+ 2 similar comments)  Conduct targeted awareness campaigns that include what is projected to happen to any particular property/parcel in Palo Alto from the different sea level rise projections. (+ 1 similar comment)  Collaborate with the San Francisquito Creek Joint Powers Authority and Valley Water in their work with the Army Corps of Engineers and California State agencies in studying Sea Level Rise adoptions for Palo Alto.  Engage the real estate businesses. It is in their financial interest to act on sea level rise resilience.  Enact a nature preservation plan (targeting areas such as sand dunes and wetlands) in preparation for major action by 2040-2050.  Groundwater level rises as the sea level rises. Buildings and infrastructure are usually designed to last decades but will have a much shorter lifespan than expected when infiltrated by water.  Palo Alto is a sea-level community that acts like it's on a mountain. Rising sea levels threaten our golf course and airport.  Consider supporting a Golden Gate Dam to protect the entire bay and delta.  Develop a “3℃/4℃ Risk Assessment, Management, and Mitigation Plan.” These plans may be self- standing or could be incorporated into ongoing climate/sustainability planning. Natural Environment Potential Goals  Renew, restore, and enhance resilience of our natural environment  Maximize biodiversity and stewardship of flora, fauna, and air, soil, and water resources  Reduce environmental impacts of our actions  Increase tree canopy to 40% city-wide coverage by 2030  Expand the designation of pesticide-free parks and city facilities Natural Environment: Feedback on Potential Goals  While all of the goals in this section are laudable, no specific objectives are outlined, except in regard to increasing city-wide tree canopy 40% by 2030. (+ 1 similar comment)  Prioritize ensuring that we have the right trees and other flora in the right places to (a) last 50-100 years; (b) absorb carbon; and (c) support wildlife. (+ 1 similar comment)  Make sure residents and/or their landscapers don't use pesticides and herbicides  For trees, suggest including native and/or drought tolerant trees.  Something must be done about the “standard” Mow blow and go “gardening” for homes in Palo Alto. The leaf blower ban has done almost nothing. Go Back to Contents Page Page 24 of 30  Renew, restore, and enhance resilience of our natural environment  We can continue to preserve existing undeveloped land by exercising infill, mixed-use development to help abate the housing crisis and transportation emissions.  Maximize biodiversity and stewardship of flora, fauna, and air, soil, and water resources  Reduce environmental impacts of our actions  Increase beneficial environmental impact of our actions. (+ 1 similar comment)  This is not a S.M.A.R.T. goal --what impact are you looking at for reducing environmental impact of our actions?  Increase tree canopy to 40% city-wide coverage by 2030  Prioritize native species for tree canopy, incentivize removal of invasive species, and increase pollinator-friendly plants. (+ 8 similar comments)  This is an excellent goal that should be prioritized because of the multiple benefits that trees provide: shade, carbon sequestration, habitat for birds and invertebrates, beauty, and higher property values. (+ 3 similar comments)  The tree canopy could include fruit trees to add resiliency to the foodshed and can be harvested for food banks, food insecure residents or neighbors, and schools for cooking and environmental courses. (+ 1 similar comment)  If funding needs to be prioritized, increasing tree canopy should be the highest priority of proposed actions within this area because trees have such a beneficial impact on GHG reduction.  This goal conflicts with Key Action #6 of ensuring no net tree canopy loss. It has to be clear that tree canopy equity shall be achieved by increasing canopy cover in lesser canopied neighborhoods.  Consider a public/private/non-profit incentive for native plant and food growing gardens.  Make sure that tree planting and maintenance is part of the design for all new developments.  Focus on tree canopies that minimize damage to objects (e.g. vehicles) below them. And bear in mind the impact on photovoltaic generation equipment.  Expand the designation of pesticide-free parks and city facilities  Move towards 100% pesticide-free Palo Alto. Natural Environment: Suggestions for New Goals  Help support a market for sustainable wood (FSC certified) and thereby protect forests and reduce reliance on concrete and steel.  Switch away from all fossil fuel-based gardening equipment by 2030.  Maintain and protect the health of existing trees in addition to increasing the number of trees.  Increase education programs for adults and children to teach the roles trees and other parts of the natural environment play in climate-change mitigation and human health and how individual decisions in plant selection and care, and water and chemical use, affect our natural environment. Go Back to Contents Page Page 25 of 30 Natural Environment: Potential Key Actions to explore further (These potential Key Actions do not represent all the work that the City is doing or will be doing related to climate change and sustainability. These are the actions we will be prioritizing. They are numbered to make it easier to refer to specific Actions. They are NOT numbered based on priority.) # of Votes Potential Key Action 4 1. Explore programs and policies that use Palo Alto’s public and private natural capital (e.g., canopy, soils, watersheds) to provide local carbon offsets and other environmental benefits 8 2. Evaluate and modify plant palette selection to maximize biodiversity and soil health to adapt to the changing climate, and incorporate buffers for existing natural ecosystems 4 3. Coordinate implementation of the Urban Forest Master Plan and Parks Master Plan to create pathways to parks and encourage appreciation of natural ecosystems 3 4. Explore expanding the requirements of the Water Efficient Landscape Ordinance (WELO) to further the S/CAP Goals 3 5. Implement the Green Stormwater Infrastructure plan 4 6. Ensure No Net Tree Canopy Loss 3 7. Develop methods to allow for both solar panels and trees 2 8. Reduce the toxicity and the total amount of pesticides used in the city 6 9. Ensure the protection of our ecosystem through the plan review and permitting process 8 10. Restore degraded areas and channelized creeks and create wildlife corridors Natural Environment: Feedback on Potential Key Actions  Need more specifics on canopy, which we want to maximize to increase CO2 absorption and provide heat protection for people and habitat for animals. Simple things might include sizable trees in all dog parks and school yards. Do away with “shade structures” and use trees instead.  Consider more trees in the Baylands and some of the meadow-like areas in Foothills Park, consistent with those ecosystems.  Encourage development with FSC wood and without concrete/steel.  Is Palo Alto’s golf course consistent with the city’s sustainability goals? Can we turn it into a much more usable, sustainable ecosystem that will also support wildlife?  Is a city airport consistent with our goals?  Add Key Performance Indicators: 1) Tree canopy cover should be assessed locally rather than city- wide. The S/CAP should explain how canopy coverage will be assessed and how often; 2) Inclusion of tree protection, planting, and maintenance plans in all property development plans approved by the city; 3) Dedication of sufficient resources to ensure an effective Urban Forestry program and developer compliance with tree protection, planting, and maintenance plans. 1. Explore programs and policies that use Palo Alto’s public and private natural capital (e.g., canopy, soils, watersheds) to provide local carbon offsets and other environmental benefits  Focusing on tree canopy for health and environmental benefits is more important than carbon offsets. (+ 1 similar comment) Go Back to Contents Page Page 26 of 30  Do not specify local carbon offsets. The end goal is net gains in permanent carbon sequestration and environmental benefits. In GHG trading markets, carbon sequestration policies need to ensure that sequestration is additional to what would have occurred in the normal course of business.  Explain to the public what you mean by carbon offsets. That practice needs to be explained and examples provided of how this is occurring already in practice. 2. Evaluate and modify plant palette selection to maximize biodiversity and soil health to adapt to the changing climate, and incorporate buffers for existing natural ecosystems  Maximizing biodiversity is not clear, should focus on native plants, and eradication of invasive, non-native species (+ 1 similar comment) 3. Coordinate implementation of the Urban Forest Master Plan and Parks Master Plan to create pathways to parks and encourage appreciation of natural ecosystems  Reword as “Ensure that all city-sponsored sustainability-related committees, guide documents, and departments are synchronized. Coordinate boards, commissions, and subcommittees and their functional review; the Comprehensive Plan, S/CAP, Urban Forest Master Plan, city tree ordinances, zoning ordinances, municipal code, parks master plan, and fire management plan; and all department projects and functions to increase synergies and decrease inconsistencies.”  Edit: Coordinate implementation of the Urban Forest Master Plan, Parks Master Plan, and Sustainable Green Streets Network to create pathways to parks, safe active transportation connected network, Safe Routes to School, and to encourage appreciation of natural ecosystems. 4. Explore expanding the requirements of the Water Efficient Landscape Ordinance (WELO) to further the S/CAP Goals  Reword as “Require climate-appropriate, drought-tolerant species in public and private plantings. Expand the requirements of the Water Efficient Landscape Ordinance (WELO) to further the S/CAP goals.” Add to the Water area as well, thereby linking the Water and Natural Environment areas.  Add: Explore expanding the requirements of the Water Efficient Landscape Ordinance (WELO) to further the S/CAP goals and to reduce wastewater going to sewage treatment by 30% (using diversion of washing machine water and tub/shower water)  No - this is too much paperwork. You should simplify this approach and have examples in the City of low water gardens. A low water garden should be a requirement for each new home build. 5. Implement the Green Stormwater Infrastructure plan 6. Ensure No Net Tree Canopy Loss  See Goal #4 above. Specific actions for each neighborhood should be developed such that no neighborhoods lose tree canopy cover. Neighborhoods that have less than 40% canopy cover should have annual tree-planting plans, with progress reported annually.  Ensuring no net tree canopy loss seems inconsistent with the previous goal of increasing canopy by 40%. Also, how is canopy loss defined?" 7. Develop methods to allow for both solar panels and trees Go Back to Contents Page Page 27 of 30  Develop smart policy for the placement of solar panels. Batch solar panels in local solar farms. Don’t allow the needless loss of natural environment for solar panels. (+ 1 similar comment) 8. Reduce the toxicity and the total amount of pesticides used in the city  Add: “including by planting species that are well-suited for the local environment.”  All parks should be pesticide free. Pesticides damage our groundwater and other environments.  Should also be concerned with eliminating herbicides as well as pesticides 9. Ensure the protection of our ecosystem through the plan review and permitting process  Reword as “Ensure the comprehensive protection of our ecosystems through improved and clear development review criteria, consistent with the Landscape and Tree Technical Manual. Ensure tree planting and maintenance are an integral part of the approval process for all new residential and business developments in the city. Monitor and enforce compliance with approved plans.” 10. Restore degraded areas and channelized creeks and create wildlife corridors  Reword as “Incentivize public and private landowners to restore degraded areas of land and channelized creeks, and to create wildlife corridors.”  This is very important. Lose the concrete in channelized creeks. Restore natural environment. Add many treelined, natural environment walk/bikeways in Palo Alto. Natural Environment Suggestions for New Key Actions  Ensure access to open space or a park within a 10-minute walk for every resident.  Implement a Sustainable Green Streets network throughout the City that prioritizes implementing green stormwater infrastructure as the backbone of an integrated network for a connected active transportation master plan and green ecology network.  Protect the natural environment outside Palo Alto. When we fail to provide housing for the people who work in our community, we promote sprawl and the destruction of natural resources elsewhere. Urban infill needs to be part of Palo Alto's plan.  Expand urban gardening amenities and incentivize commercial/industrial clients (e.g, companies big enough for cafeterias) to grow some of their food on site.  Create programs to incentivize eating lower on the food chain (less meat and dairy, emphasis on local/organic produce).  Maintain buffer areas along creeks and restore natural floodplain where possible Natural Environment: General Feedback  Properly protecting, managing, and increasing our urban tree canopy, as outlined in the Urban Forestry Master Plan, offers very high bang-for-the-buck value in reducing our overall GHG emissions. Ensure that the Urban Forestry Master Plan is properly evaluated and considered a critical component of the S/CAP, rather than as a separate plan. (+ 2 similar comments)  Partner with leading organizations in conservation. (+ 1 similar comment) Go Back to Contents Page Page 28 of 30  Increase the responsibility and visibility of the Palo Alto Youth Council, empowering youth to contribute to the planning process and raising awareness for the teen community.  Support school and other public garden spaces.  Increase the usage of programs and policies that utilize public and private natural capital, offering a sustainable alternative to the purchase of natural gas carbon offsets.  Ensure that our urban forest stays protected by strengthening protections for trees and expanding the list of protected trees and tree sizes. Trees are often overlooked as a sustainability asset.  Educate about and incentivize a Homegrown National Park.  Expand designation of parks to make them ecology "patches" by introducing rich native high-value habitat that supports multiple species. Include retaining leaf litter to improve soils.  Designate Zero Waste Parks  Create a full-time staff position dedicated to researching and writing grants for sustainability projects. The Urban Forest and Parks Master Plans include a range of unfunded projects which will significantly benefit sustainability goals if implemented.  Create a resource list for Integrated Pest Management in contrast to pesticides and proactively market that material through CPAU bill inserts and by contacting condominium associations. Include information on proper disposal of hazardous materials, including pesticides.  Increase the speed of under-grounding electric and communication lines. This is important such that trees are not butchered to clear lines.  Soil provides many benefits including retaining and storing stormwater, yet we discard it when building underground or cover it with pavement. No Net Soil Loss. Zero Waste Goals  Divert 95% of waste from landfills by 2030, and ultimately achieve zero waste  Implement short- and medium-term initiatives identified in the 2018 Zero Waste Plan Zero Waste: Feedback on Goals  Palo Alto is on the cutting edge of Zero Waste goals. Great job! (+ 3 similar comments)  The City needs to education residents about the lifecycle of ALL goods that are consumed. Many residents are happy because their recycling bins are full -- that's not success!  Divert 95% of waste from landfills by 2030, and ultimately achieve zero waste  Supporting waste-to-energy deployment locally would not only help with this goal, it would help with energy reliability. (+ 1 similar comment)  We need city laws that require all packaging to come in either recyclable or compostable packages. And the containers should be much easier to read. (+ 1 similar comment)  Since both food and material waste contributes significantly to the climate crisis, Council should prioritize the 95% waste diversion goal for 2030.  In learning from the State's mistakes in passing and implementing SB 1383 (2016), we need to give thought to 1) where organic waste is diverted to; 2) who is responsible for collection and Go Back to Contents Page Page 29 of 30 management of diverted organics; and 3) what is ultimately done with diverted organic wastes which will naturally produce methane.  Educate residents about the benefits of composting.  Zero is a low number. This feels like something that must be undertaken at the federal level, at the least, in order to make much progress.  Implement short- and medium-term initiatives identified in the 2018 Zero Waste Plan Zero Waste: Key Actions to explore further (These Key Actions do not represent all the work that the City is doing or will be doing related to climate change and sustainability. These are the actions we will be prioritizing. They are numbered to make it easier to refer to specific Actions. They are NOT numbered based on priority.) # of Votes Key Actions 7 1. Expand the Deconstruction and Construction Materials Management Ordinance 5 2. Eliminate single-use disposable cups and containers by expanding the Disposable Foodware Ordinance 9 3. Require food waste prevention and edible food recovery measures for commercial food generators 4 4. Promote residential food waste reduction 4 5. Incentivize the use of reusable diapers 5 6. Champion waste prevention, reduction, reusables, and the sharing economy Zero Waste: Feedback on Key Actions  Coordination with nearby cities will help prevent leakage. 1. Expand the Deconstruction and Construction Materials Management Ordinance  Great Key Action that should be expanded as much as possible. It makes a huge difference in the waste stream. (+ 1 similar comment)  Discourage demolition of beautiful old architecture to build monstrosities.  This Key Action should be taken after full consultation with construction professionals. 2. Eliminate single-use disposable cups and containers by expanding the Disposable Foodware Ordinance  Eliminate plastic as much as possible, starting with awareness about how much plastic each household uses and tosses into the recycling bin.  Eliminate single-use water bottles. Implement San Francisco’s policy - No sports teams and construction crews can bring non-reusable water bottles to parks or construction sites.  A lot of companies bring food from other cities that might not have such ZW goals. How should the city provide incentives/punishments to guide these businesses? 3. Require food waste prevention and edible food recovery measures for commercial food generators  This has large GHG reductions, with many co-benefits for participants. (+ 1 similar comment) Go Back to Contents Page Page 30 of 30  On food waste, it would be great to get as much as possible of the edible food to food banks or other places where it can be used directly instead of composting. (+ 1 similar comment) 4. Promote residential food waste reduction  This has large GHG reduction potential.  Teach this at school so kids and then their families understand how much waste occurs in the city. 5. Incentivize the use of reusable diapers  This Key Action is really important. Publicize diaper services.  How much better are diapers that are washed with bleach over non-reusable diapers?  Will this Key Action include adult diapers? We may have more adults in diapers than babies.  This feels a bit big-brother-y. This can be done, but be careful to not force people to do this. 6. Champion waste prevention, reduction, reusables, and the sharing economy  Need to educate the public, including students, better about how much waste is produced and how it should be properly sorted. (+ 1 similar comment)  Promote Sustainable supply chain management at city and businesses with examples and educational support. (+ 1 similar comment)  Encourage keeping clothing for a long time, not so many fashion changes. Zero Waste: Suggestions for New Key Actions  Manage street and other public trees throughout their entire lifecycle by creating or partnering with an urban wood reuse program. Zero Waste: General Feedback  Include educational initiatives in short-term plans, and broaden goals to reach businesses and schools, including partnering with local non-profits and PAUSD, and integrating appropriate messaging into City summer camp programming (+ 3 similar comments).  Influence packaging and work with nearby cities. (+ 2 similar comments)  Work on local food. Incentivize commercial clients to start food gardens on site. Expand urban gardening amenities. Increase victory gardens and fruit trees. (+ 2 similar comments)  Work with restaurants, stores, and residents to minimize food waste. (+ 1 similar comment)  Promote composting by businesses and multifamily housing dwellers within Palo Alto.  Require all City catering to be vegetarian or vegan.  Measurable objectives need to be designed for the goals and proposed actions in this section.  There’s really good technology for anaerobic digestion of solid waste and it’s conversion to fuel.  Consider billing of residential waste pickup by actual pickups. This would be an incentive to reduce waste.  Try a good neighbor policy where you put your containers next to your neighbors. This makes for fewer stops and faster pickups for all.  Identify and publicize "cradle to grave" products and encourage citizens to buy these. City of Palo Alto (ID # 11328) City Council Staff Report Report Type: Action Items Meeting Date: 6/16/2020 City of Palo Alto Page 1 Summary Title: Various FY 2020 Budget Adjustments to Address COVID-19 Impacts & Q3 Financial Report Title: Review of the Third Quarter Financial Report and Approval of Various FY 2020 Budget Adjustments to Address Projected COVID-19 Impacts From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the City Council review the financial report for the third quarter of Fiscal Year 2020 and amend the Fiscal Year 2020 Budget Appropriation for various funds and various capital projects, as identified in Attachment C (requires five votes for approval). Executive Summary On March 16, 2020, the State of California and the County of Santa Clara ordered a Shelter in Place and the City of Palo Alto transitioned a majority of its workforce to remote (telework) status in order to slow the spread and contain the novel coronavirus (COVID-19). The financial impacts of this public health emergency are presenting challenges not only for the City but worldwide. The third quarter financial results are not yet materially affected but significant impacts on the coming months and potentially years are expected. The revenues for categories such as transient occupancy tax, sales tax, documentary transfer tax, and revenue from licenses, permits, and charges for services are forecasted to decrease. This has prompted the City to defer non-essential spending such as travel, training, meals, and others expense categories in FY 2020. This report differs from the normal quarterly financial report by also providing the 4th quarter revised forecast to show the most likely actual performance for FY 2020 and recommended budget amendments in the General Fund for FY 2020 based on current projections. These projections address the impacts of COVID-19 including a recommended $23.7 million reduction in estimated revenues. These adjustments will bring various revenue sources in-line with current year-end projections for FY 2020 as well as account for expense savings to partially City of Palo Alto Page 2 offset the revenue reductions and minimize the impact to the General Fund Budget Stabilization Reserve (BSR). Overall, this report recommends a draw on the General Fund Budget Stabilization Reserve of $11.6 million in FY 2020, a decrease to $32.7 million or 14.2 percent of the FY 2020 budgeted expenses. Background Considering the disruptions caused by the current COVID-19 public health emergency, staff has been working with the City Council on a modified budget process for the development of the FY 2021 proposed operating and capital budgets. Based on the action approved by the City Council on March 23, 2020, CMR #11208, and in accordance with the City Charter, staff provided a baseline budget on April 20, 2020 for both the operating and capital budgets. At the time of the development of the FY 2021 budget, the world continues to grapple with the global ramifications of the COVID-19 pandemic. The financial implications of this public health emergency are significant, with regional, national and global impacts on economies in response to shelter in place orders required by the State of California and the County of Santa Clara and related social distancing restrictions. Staff provides quarterly financial reports to provide information on the financial condition of the City’s General Fund and Enterprise Funds. During the third (3rd) quarter of fiscal year (FY) 2020, the City Manager, acting as the Director of Emergency Services, issued a Proclamation of Local Emergency regarding the presence and community spread of COVID-19 in Santa Clara County and our region on March 12, 2020. On Sunday, March 15, 2020, the City Manager activated the Emergency Operations Center (EOC) and since that time, the City has managed the EOC virtually through a cross-functional multi-departmental team. On March 16, 2020, the City Council ratified the Proclamation of Local Emergency which continues today. This quarterly financial report has been augmented and includes information and recommended actions based on forecasted performance in the fourth (4th) quarter of FY 2020 in addition to the normal quarterly reporting. Staff initially provided an estimated FY 2020 financial impact of $15 million to $20 million in the General Fund as a result of preliminary estimated impacts due to COVID-19. City of Palo Alto Page 3 Discussion This report summarizes the actual financial activity of the General and Enterprise Funds for the nine-month period from July 1, 2019 through March 31, 2020, which includes the initial weeks of the Shelter in Place orders as issued by the State and Santa Clara County, and compares those amounts to the FY 2020 Adjusted Budget and to the report for the same period in FY 2019. In addition, this report recommends budget adjustments in the General Fund and several other funds to address impacts of COVID19 in FY 2020. These adjustments will bring various revenue sources in-line with current year-end projections for FY 2020 as well as accounting for expense savings to partially offset the revenue reductions and minimize the impact to the General Fund Budget Stabilization Reserve (BSR). General Fund revenues (excluding operating transfers) for the 3rd quarter FY 2020 total $133.1 million, which is 3.1 percent higher than the same period in FY 2019 and comprises 62.5 percent of the current year Adjusted Budget. The 4th quarter or year-end revised operating revenue forecast for FY 2020 total is estimated to fall $23 million to $25 million below budgeted levels of $233.6 million, which is approximately 10 percent lower than the Adjusted Budget. General Fund expenses (excluding operating transfers) for the 3rd quarter total $138.6 million, which is 4.4 percent higher than the prior year. The expenses are in line with the Adjusted Budget at 65.6 percent of the full-year budgeted amounts which is similar to the prior year trend. The 4th quarter revised operating expenditure forecast for FY 2020 is expected to fall below budgeted levels as a result of prudent management, through a hiring freeze, management of capital contributions, as well as savings due to the pausing or canceling of specific initiatives. Overall, this report recommends recognition of a net $12.0 million reduction in expense budget in the General Fund. Following is a detailed discussion of: 1) General Fund significant revenue and expense items for the 3rd quarter actual financial activities and the 4th quarter or year-end projections in FY 2020; 2) A summary of the recommended budget adjustments in FY 2020 to address the current year-end projected forecasted revenues and expenses; and 3) Enterprise Fund 3rd quarter actual activity and year-end projections summary Attachment A provides a breakdown of revenues by source and expenses by function, with separate columns for the Adopted Budget and the Adjusted Budget. The Adjusted Budget column includes prior year commitments that were carried forward into this fiscal year and Council approved budget amendments to the FY 2020 Adopted Budget through March 31. Encumbrances and actual expenses for the nine-month period are also reported. Attachment B provides details on public safety overtime through the 3rd quarter. Attachment C provides details on the specific transactions recommended to amend the FY 2020 budget by department and program. City of Palo Alto Page 4 GENERAL FUND Revenue Highlights for 3rd Quarter Actual Activities and Year-end Projections in FY 2020 Following is a table which highlights the City’s major revenue sources for the 3rd quarter, compared to the same quarter of the prior year. The first three quarter’s revenue is expressed as a percentage of the Adjusted Budget for each year. % change FY 2020 %FY 2019 % Property Tax 2.1% 50,576$ 59.4%$46,232 63.7% Sales Tax (4.7%)36,085 57.2%31,746 68.3% Charges for Services 10.6% 30,267 59.0%28,419 56.9% Transient Occupancy Tax 7.4% 26,555 61.7%25,390 60.1% Utility User Tax 2.4% 17,572 67.8%16,092 72.2% Permits and Licenses (26.2%)9,027 49.9%8,545 71.5% Documentary Transfer Tax 20.2% 8,100 71.2%8,034 59.8% All Other Revenue Sources 8.1% 34,629 74.9%32,875 73.0% Total Revenue 3.1% $212,811 62.5%$197,333 65.4% (000's) Table 1 City of Palo Alto General Fund Revenue FY 2020 3nd Quarter Actuals 3rd Quarter Actuals Adjusted Budget FY 2020 FY 2019 30,054$ 29,429$ 20,645 21,674 17,872 16,157 16,378 15,251 11,908 11,626 $133,064 $129,031 4,506 6,107 5,770 4,801 25,931 23,984 Property tax revenue – at the close of 3rd quarter Property Tax Revenue received was $30.1 million, an increase of 2.1 percent over the same period in the prior year. Property tax is received from the County of Santa Clara during the 2nd, 3rd and 4th quarters of the year. The receipts are at 59.4 percent of the adjusted budget which is lower than prior year due to mid- year adjustment of $1.9 million attributable to excess ERAF to be collected in 4th quarter. The past five-year compound annual growth rate (CAGR) for this revenue has been 6.4 percent due to higher assessed values because of continued robust commercial and residential real estate markets prior to the COVID-19 impacts materializing. City of Palo Alto Page 5 FY 2019 actual property tax revenue was $47.3 million which included unusual receipts of $2.7 million for Excess Educational Revenue Augmentation Fund (ERAF)1 distributions from the County of Santa Clara. Though Excess ERAF receipt has steadily grown the last five years, it’s not considered a permanent local revenue source. Historically, during an economic downturn such as a recession and/or COVID-19, impact to property tax are delayed by at least a year. As a result, the pre-COVID-19 projected receipts for FY 2020 is not expected to be impacted so the revised forecast is $50.9 million, $0.3 million or 0.6 percent higher than the adjusted budget. The FY 2020 adjusted budgeted amount is $50.6 million which include $3.9 million in Excess ERAF, 7.0 percent higher than the prior year’s actual revenue. Though the expectation is the budgeted revenue estimate will be met, there remains uncertainty on the horizon. The State is asserting the five counties (Marin, Napa, San Francisco, San Mateo, and Santa Clara) that have Excess ERAF are calculating excess ERAF in ways that are contrary to state law and shift too much property tax revenue from schools to other local agencies. Per the County of Santa Clara, if the State were to prevail and in a worst-case scenario, the loss of Excess ERAF could be up to 40 percent or $1.5 million for Palo Alto. The resolution of this dispute is expected to occur in FY 2021. Sales Tax revenue – as of the 3rd quarter Sales Tax revenue is down by $1.0 million or 4.7 percent, from the same period last year. Due to the timing delay in sales tax collection by the State and remittance to the City, this only represents seven months’ sales tax activity. The seventh and eighth-month’s payments (the latter received in April) were estimated advance payments and not based on actual sales tax collection. Actual performance for this fiscal year will not be known until August/September. As of the writing of this report, April sales tax is down by $2.4 million or 9.9 percent. Though there remain many uncertainties in future sales tax performance resulting from COVID-19, the current forecast for the FY 2020 receipts anticipates a decline by $5.5 million, reducing the adjusted budget to $30.6 million, approximately $5.9 million below the FY 2019 receipts. The full impact of COVID-19 will occur in the 4th quarter for which the actuals will not be fully known until next fiscal year. This estimate reflects significant reductions of up to a 75 percent loss in revenues in certain tax categories during the 4th quarter. This estimate has been developed in collaboration with the City’s sales tax consultant. A portion of this decline is due to timing difference in receipts rather than performance. For example, FY 2019 receipts are higher by $0.7 million due to delay of distribution in sales tax in fiscal year 2018 from California Department of Tax Fee Administration (CDTFA) resulting from transition of the new technology and collection process. 1 ERAF is the fund used to collect and disburse property taxes that are shifted to/from cities, the County, and special districts prior to their reallocation to K-14 school agencies. When the state shifts more local property tax than required to support schools these funds are returned and known as excess ERAF. City of Palo Alto Page 6 Transient Occupancy Tax (TOT) – TOT revenues reached $16.4 million through the end of the 3rd quarter, an increase of $1.1 million or 7.4 percent over the prior year. Due to the timing delay in receipts, this represents 7.5 months of TOT receipts. The increase is solely attributable to the 1.5 percent TOT rate increase that began in April 2019. The base TOT, which began to decline almost a year ago, has declined by 3.1 percent in the current fiscal year. As a result, a downward mid-year budget adjustment of $2.8 million was recommended and approved. In comparison, most northern California regions have also seen TOT declines during this period. The following table contains average room rates and occupancy percentage for northern California regions in December 2019 as well as the City of Palo Alto’s December data. For Palo Alto, daily average room rates increased by 1.5 percent from $277.13 per day to $281.36 per day while the occupancy rate declined by 1.2 percent from 76.5 percent to 75.6 percent during the first eight months of FY 2020 (July 2019 to February 2020). This is in line with a similar trend reported in December for local northern California regions. Table 2 Month of December only Avg. Daily Room Rate Occupancy Percentage 2019 ($) 2018 ($) Chg. 2019 2018 Chg. San Francisco $244.80 $229.03 6.9% 79.6% 77.8% 1.8% San Francisco Airport 175.39 173.29 1.2% 78.4% 77.2% 1.2% San Jose/Peninsula 199.44 195.08 2.2% 62.8% 64.2% -1.4% Oakland/East Bay 155.76 153.69 1.3% 66.9% 67.0% -0.1% Monterey/Carmel 238.53 234.85 1.6% 64.6% 60.8% 3.8% Central Valley 112.67 109.26 3.1% 62.7% 62.2% 0.5% Sacramento 138.59 138.28 0.2% 66.2% 72.5% -6.3% Marin County 171.37 159.59 7.4% 58.9% 64.0% -5.1% Napa County 200.82 199.78 0.5% 59.3% 56.8% 2.5% Sonoma County 170.37 169.24 0.7% 60.8% 62.3% -1.5% Other Northern California 142.72 134.76 5.9% 58.8% 65.5% -6.7% Overall Average 186.74 179.58 4.0% 68.2% 68.9% -0.7% City of Palo Alto (December only) 243.70 234.42 4.0% 60.6% 58.5% 3.6% Source: CBRE Hotels December 2019 report, Trends in the Hotel Industry except for Palo Alto As the most significant revenue source impacted by COVID-19, the year-end forecast for TOT is expected to be $19.6 million, a decline of $7.0 million or 26.2 percent over the adjusted budget, which is $5.8 million below FY 2019 receipts. As of May 2020, the City has received TOT revenue and related performance through March 2020. Therefore, staff used information from the San Mateo County/Silicon Valley Convention and Visitors Bureau, outreach to local hotels, and looking at regional and state actuals and projected performance. City of Palo Alto Page 7 Almost a dozen hotels, which represent 30 percent of available rooms, have fully suspended operations (see list below) while the remaining hotels’ occupancy rate are in the single digit and average room rates have dropped by nearly 2/3 prior levels. As such TOT receipts in the last three months are expected to decline by over 95 percent over the prior year. Palo Alto Hotels That Have Suspended Operation as of April 17, 2020 # of Rooms 1 Cardinal Hotel 63 2 The Clement Hotel 23 3 Cowper Inn 16 4 Garden Court Hotel 62 5 Glass Slipper Inn 25 6 Hotel Keen 42 7 The Nest 54 8 Nobu Hotel 72 9 Stanford Terrance Inn 55 10 Travel Lodge 29 11 The Westin 184 Utility User Tax revenue for the nine months ended March 31, 2020 totals $11.9 million, an increase of $282,000, or 2.4 percent, from the prior year. The utility commodity rate increases (e.g. electric, gas and water) have contributed to this growth while the telephone UUT has slightly declined. However, due to the COVID-19, the year-end results are expected to be below the adjusted budget and the prior year’s receipts. Utility User Tax revenue’s revised forecast for FY 2020 is $16.1 million, a decline of $1.4 million or 8.2 percent over the adjusted budget. Both the utility commodity and telephone UUT have declined. Documentary Transfer Tax cash receipts total $5.8 million, or 71.2 percent of the FY 2020 budgeted amount, and are $969,000 million higher than prior year receipts for the same period. Though cash receipts are up due to higher average sales price; the number of property sales is down by 3.3 percent. This revenue source is volatile since it is highly dependent on sales volume and the mix of commercial and residential sales. For example, in FY 2018, receipts were boosted due to large commercial sales resulting in total annual receipts of $9.2 million while FY 2019 had fewer and smaller commercial sales resulting in annual receipts of only $6.9 million. However, the COVID-19 impact in the last four months of the fiscal year is expected to result in a FY 2020 decline over (both) the adjustment budget and prior year’s actual. The year-end forecast for FY 2020 is $6.7 million, a decline of $1.4 million to the adjusted budget and $1.3 million below the prior year’s actuals. Besides the lower cash receipts, the number of property sales is down by 11.4 percent. Thus far, initial data suggests a 50 percent decline in these revenues during the shelter in place order. Again, this revenue source is volatile since it is highly dependent on sales volume and the mix of commercial and residential sales. City of Palo Alto Page 8 Charges for services reached $17.9 million through the end of the third quarter, an increase of $1.7 million or 10.6 percent from prior year. This increase is mainly due to the following items: • $1.8 million resulting from timing difference in the billings to Stanford University for fire and emergency services • Zoning plan check fees, inspection fees, and plan check fees for the 3rd quarter have increased by $742,000 from same period prior year due to a higher volume of activity. • Paramedic service fees have increased $211,000 over the same period last year due to an increased number of trips billed and increased average amount billed per account. • The increases explained above were partially offset by a $1.1 million decrease in class program fee and registration fee. This was due to change in income recognition this year which is set to be deferred until the respective activities commences. However due to COVID-19 some of the fees have been refunded in the 4th quarter. Permits and Licenses revenue for 3rd quarter is down $1.6 million, or 26.2 percent from prior year, primarily due to a $1.3 million and $300,000 decrease in new construction permit and street open permit revenues, respectively. The new construction revenue category will be adjusted at year-end to defer a portion of revenue to FY2021 that are in progress and to recognize revenue for those permits issued in prior years that are completed at June 30. Between Charges for Services and Permits and licenses, year-end revenues are projected to fall by $7.6 million and several department budget adjustments are recommended to align with anticipated FY 2020 actual revenue: • Community Services will be reduced by $3.6 million to account for reduced programs and classes ($2.3 million) as well as the closure of the golf course ($1.3 million) during the initial phases of the COVID19 Shelter in Place order and limited operations during the more recent phases. • Planning and Development Services will be reduced by $3.8 million to account for fewer plan reviews and inspections being performed as a result of the COVID-19 Shelter in Place order. • Revenue in the Administrative Services Department is recommended to be reduced by $0.2 million as a result of the Council’s decision to reimburse all business registration fees in FY 2020 (CMR 11289). Overall, staff is recommending reducing the FY 2020 revenue in the General Fund by $23.7 million which will bring the adjusted budget excluding transfers in to $189.1 million. The adjustments by department and revenue category are detailed further in Attachment C. Expense Highlights for 3rd Quarter Actual Activities and Year-end Projections in FY 2020 Following is a table which highlights the City’s expenses by function for the 3rd quarter, compared to 3rd quarter of the prior year. Each quarter’s expense is expressed as a percentage of the Adjusted Budget for each year. City of Palo Alto Page 9 FY 2020 FY 2019 % change FY 2020 %FY 2019 % inc (dec) Police 32,974$ 31,546$ 4.5% 45,249$ 72.9%42,336$ 74.5% Fire 26,859 24,511 9.6% 35,984 74.6%33,950 72.2% Community Services 21,649 21,659 (0.0%)32,517 66.6%30,314 71.4% Public Works 12,493 12,236 2.1% 19,983 62.5%18,440 66.4% Planning and Development Services 13,575 14,445 (6.0%)22,597 60.1%23,511 61.4% Library 7,388 6,814 8.4% 10,582 69.8%9,786 69.6% Administrative Services 5,985 5,600 6.9% 9,050 66.1%7,860 71.2% All Other Departments 17,668 15,982 10.5% 35,258 50.1%30,490 52.4% Total Expenses 138,591$ 132,793$ 4.4% 211,220$ 65.6%196,687$ 67.5% City of Palo Alto Table 3 3rd Quarter Actuals Adjusted Budget General Fund Expenses FY 2020 3rd Quarter Actuals (000's) Total expenses (excluding operating transfers) for the 3rd quarter of the fiscal year is 65.6 percent of full year budgeted and represents a $5.8 million, or 4.4 percent increase from the same quarter last year due to the following: • Disability / workers compensation expenses increased by $829,000 • Employer Pension expenses increased by $1.8 million • Additional $2.9 million pension contribution to Section 115 irrevocable Pension Trust (In prior years Section 115 contribution was recorded as Operating Transfer Out). This is based on a 6.2 percent discount rate for the Normal Cost approved by the City Council. • Retiree Premium expenses increased by $198,000. In FY 2020, the Office of Transportation was established as its own office in the City Manager’s Office: it was a division of the Planning and Community Environment Department. Additionally, the Development Services Department was combined with the Planning and Community Environment Department to form the Planning and Development Services Department. These reorganizations are reflected in the FY 2020 figures by reporting the Office of Transportation under “all other departments” and combining the two prior departments of Development Services and Planning. This is causing much of the year over year variances in that department. City of Palo Alto Page 10 Police and Fire comprises 43.2 percent of the total General Fund expenditures for the 3rd quarter, which is comparable to the prior year. Police and Fire expenses are up mainly due increase of pension expenses and the proactive funding strategy to Section 115 to contribute to the City’s Pension Trust assuming a normal cost for contribution with a 6.2 discount rate (CalPERS is currently at 7.0 percent discount rate). In order to partially offset the $23.7 million reduction in General Fund revenue and reduce the impact on the Budget Stabilization Reserve (BSR), reductions of $12.0 million in expenses are recommended. These reductions are detailed by department and category in Attachment C. Of this, approximately $3.8 million is expected as a result of departmental salary and non-salary savings. The remaining adjustments reflect reductions in transfers to the capital improvement fund and non-departmental expenses and are detailed below. Public Safety Overtime Following is a table which highlights Police and Fire salaries and overtime expenditures for the 3rd quarter. Police and Fire Salaries and Overtime Expense FY 2020 3rd Quarter YTD (000's) FY 2020 FY 2019 % change FY 2020 %FY 2019 % Inc (Dec) Police - Salaries 13,425$ 13,180$ 1.9% 19,484$ 68.9% 18,991$ 69.4% Police - Overtime 2,224 1,921 15.8% 1,842 120.7% 1,813 106.0% Total Police 15,649 15,101 3.6% 21,326 73.4% 20,804 72.6% Fire - Salaries 10,589 9,770 8.4% 14,131 74.9% 14,356 68.1% Fire - Overtime 1,749 2,580 (32.2%)2,087 83.8% 2,094 123.2% Total Fire 12,338 12,350 (0.1%)16,218 76.1% 16,450 75.1% Total Public Safety Salaries & Overtime 27,987$ 27,451$ 2.0% 37,544$ 74.5% 37,254$ 73.7% 3rd Quarter YTD Actuals Adjusted Budget Table 4 Police overtime has increased $303,000, or 16 percent from prior year due to the following: • Backfill for the workers’ compensation vacancies which is higher during the same period in FY 2019. • Additional patrol services for a shopping center and one retailer in the area in response to spikes in retail theft. This increase in overtime is offset by the increase in unbudgeted revenues from this activity. City of Palo Alto Page 11 • President of the United States (POTUS) visit ($26,000) and a major incident in first quarter. The department continues to manage its overtime in the fourth quarter with the suspension of the Parent Project and Citizen’s Academy. This will likely be offset by increased overtime due to the most recent protests for black lives matter. On a combined basis, salaries and overtime are 75 percent of the budget through the 3rd quarter of the fiscal year. The Department’s overtime analysis is included in Attachment B. Fire overtime is 33 percent lower than FY 2019 primarily due to fewer vacancies this year than the same period in prior year. On a combined basis, salaries and overtime are 76 percent of the budget through the 3rd quarter of the fiscal year. The Department’s overtime analysis is included in Attachment B. The Fire and Police salaries increases are due to new labor contracts and an increased number of filled positions when compared to this period in FY 2019. FY 2020 RECOMMENDED BUDGET ADJUSTMENTS As a result of the impacts of COVID-19 discussed in the year-end projections above, adjustments to the FY 2020 budget appropriations are recommended to more closely align revenues and expenses with projections. Overall, staff is recommending reducing the FY 2020 revenue in the General Fund by $23.7 million. In order to partially offset the reduction in General Fund revenue and reduce the impact on the Budget Stabilization Reserve (BSR), reductions of $12.0 million in expenses are recommended. These reductions are detailed by department and category in Attachment C. This results in a recommended draw on the General Fund Budget Stabilization Reserve (BSR) in the amount of $11.6 million in FY 2020, decreasing the reserve to $32.7 million or 14.2 percent of the FY 2020 budgeted expenses. General Fund revenue reductions, discussed in detail earlier in this report, are summarized below. These are in line with expectations shared with the City Council earlier when the Shelter in Place order was executed, and staff began revising the assumptions behind the FY 2021 proposed budget. At that time, staff estimated a net impact of $15 million to $20 million deficit in FY 2020 General Fund financial activities. With the limited additional data over the past month, staff has updated those early estimated and recommend this $23.7 million adjustment downward to revenues in the following categories. Details are outlined in Attachment C. City of Palo Alto Page 12 FY 2019 Actual Revenues FY 2020 Adjusted Budget FY 2020 Recommended Budget Adjustment Property Tax $47,327 $50,576 277 Sales Tax 36,508 36,085 (5,468) Transient Occupancy Tax 25,649 26,555 (6,959) Utility User Tax 16,402 17,572 (1,439) Charges for Services / Permits and Licenses & Other Revenue 35,756 39,294 (8,695) Documentary Transfer Tax 6,923 8,100 (1,424) Working diligently to closely manage expenses and the prioritization of projects and investments, staff recommends that we reduce FY 2020 General Fund expenses by $12.0 million to assist in offsetting the impact to the BSR as a result of the loss of revenues due to COVID-19. Below is a summary of the major actions recommended to recognize savings due to vacancies, lower than expected costs, or project cancellations. • Departmental salary and non-salary expense savings as a result of delays in projects, a citywide hiring freeze, and judicious management of non-essential services resulting in a reduction of $3.8 million. These projected expenses include current costs through May, including administrative leave usage and forecasts the final month of costs. Overall, citywide 27,800 hours of administrative leave have been used between March and May, $1.5 million across all funds. • Reduce the transfer to the capital improvement fund by $6.7 million, due to reduced TOT revenue dedicated for infrastructure improvements ($3.2 million) and a reversal of a FY 2020 Mid-Year action to transfer $3.5 million of FY 2019 savings to the Capital Improvement Fund. These were both assumed in the development of the FY 2021 proposed budget and are not expected to have an adverse impact on the current FY 2021 Proposed Capital Budget. • Reduce operational reserves in the amount of $1.6 million, specifically: eliminate remaining funding set aside for operations in FY 2020 ($0.5 million), eliminate and correspondingly stop work on a Retention and Recruitment Initiative ($0.5 million) and liquidate Development Services Reserve ($0.6 million) to help partially offset revenue losses from development related activities. • Recognize savings from the City Manager Employment contract (housing; CMR 10925) of $0.6 million, reducing the original appropriated level of $4.0 million that was approved by the City Council. These reductions will be slightly offset by two investments. The first is an allocation of $500,000 for the advancement of racial equity. In light of the current national and local movement, the recently approved resolution supporting racial equity, and the expected workplan to address system inequities for the Council review, this funding will be set aside to help fund these initiatives as directed by the City Council in the future. The second adjustment is $0.1 million in additional funding needed to be transferred to the Downtown Business Improvement District (BID) Fund. This funding is needed to offset expenses in that fund that City of Palo Alto Page 13 already occurred prior to the Council’s decision to rescind the levy of assessments for the Downtown BID and reimburse all business registration fees in FY 2020 (CMR 11289). General Fund Budget Stabilization Reserve (BSR) Balance The Fiscal Year 2020 General Fund Adopted Budget reflected a surplus position of $1.3 million. Based from the Fiscal Year 2019 Comprehensive Annual Financial Report (CAFR) there was $13.4 million of savings in Fiscal Year 2019 than previously anticipated (CMR 10644). As detailed in Attachment A, after giving effect to Budget Amendments including adjustments from the Mid-Year Budget Review (CMR 10959) approved by the City Council, the projected ending BSR balance was $44.4 million, or 19.2 percent of the Fiscal Year 2020 General Fund Adopted Budget. As a result of the impacts of COVID-19, and the recommended adjustments included in this report, the BSR would be reduced by $11.7 million to $32.7 million. This is below the City Council targeted range of 15 percent to 20 percent of General Fund budgeted expenses and is 14.2 percent. ENTERPRISE FUNDS Following is a summary of change in net position for each of the Enterprise Funds for the nine months ended March 31, 2020, including a comparison of results from the same period last year. City of Palo Alto Enterprise Funds Change in Net Position FY 2020 3rd Quarter 3rd Qtr 3nd Qtr Increase FY 2020 FY 2019 (Decrease)% Change Water 9,625$ 9,149$ 475$ 5.20% Electric 17,921 12,227 5,693 46.56% Fiber Optic 1,175 2,278 (1,103)-48.42% Gas 4,995 5,121 (126)-2.46% Wastewater collection 1,596 2,126 (530)-24.92% Wastewater treatment 5,278 14,547 (9,269)-63.72% Refuse 1,609 5,751 (4,142)-72.02% Storm Drainage 2,152 1,973 179 9.06% Airport 361 1,458 (1,097)-75.22% Total Change in Net Position 44,711$ 54,629$ (9,919)$ -18% Table 6 Water Fund increased $0.5 million from prior year due to a 4 percent rate increase effective July 1, 2019 and an increase in service connection fees offset by the increase in operating expenses. City of Palo Alto Page 14 Electric Fund increased $5.4 million from prior year as a result of 9 percent rate increase effective July 1, 2019, a decrease in interest expense and a refund from the Northern California Power Agency (NCPA) for FY18 and FY19 debt service payments offset by the increase in operations and maintenance costs and operating transfers out for supplemental pension costs. Fiber Optics Fund decreased $1.1 million from prior year due to a decrease in operating revenues mainly from the Dark Fiber Backbone Commercial Lease. Wastewater Collection Fund decreased $0.5 million from prior year due to an increase in sewer and treatment costs and operating and capital costs. Wastewater Treatment Fund decreased $9.3 million from prior year as a result of the decrease in State Revolving Fund Loan cost reimbursement of $8.5 million for the Dewatering & Loadout Facility Project and an overall increase in operating costs. Refuse Fund decreased $4.1 million from prior year due to a decrease in operating revenues and an increase in GreenWaste costs and vehicle replacement costs. Airport Fund decreased $1.1 million from prior year due mainly to operating and grant revenues for the Airport’s Apron Reconstruction Project. There is a lag in the collection of grant revenues as it is a reimbursement grant where the revenues are collected after the expenses are submitted to the granting agencies for reimbursement. In addition, increased operating costs and operating transfers out also contributed to the decrease in net position. Coronavirus (COVID-19) Impacts on Utilities and Public Works Enterprise Funds Due to shelter in place, the City of Palo Alto Utilities (CPAU) is projecting a 10% decrease in electric sales for the remainder of FY 2020. The revenue loss for the electric utility is roughly $3.75 million, which is partially offset by $2.25 million in supply cost savings for a net loss of $1.5 million. Other utilities (gas, water, and wastewater collection) have not seen significant decreases in sales, so CPAU is not projecting any revenue or expense decreases for FY 2020. Additional details for CPAU FY 2020 Financial Projections will be presented to Council on June 22, 2020 (CMR 11341). For the other Enterprise Funds, Wastewater Treatment, Storm Drain, Refuse and Airport funds, it was projected that there are no significant decreases in revenues for FY 2020. Refuse Fund revenues for FY 2020 are expected to be about 2% less than budgeted due to the pandemic impact on construction projects and debris box service including commercial service. Stakeholder Engagement This report has been prepared by the Accounting Division and reviewed by partner departments, the Treasury team and the Office of Management and Budget for certain sections. City of Palo Alto Page 15 Resource Impact The recommended actions in the report reflect a recommended $11.7 million draw on the General Fund BSR, funding of $500,000 for racial equity initiatives, a $70,000 subsidy to ensure financial solvency of the Downtown BID fund, and a reduction of $6.7 million in the General Capital Improvement Fund. These have all been assumed and included as part of the planning and balancing of the FY 2021 proposed budget scheduled for Council adoption on June 22, 2020. Environmental Review This is not a project for purposes of the California Environmental Quality Act (CEQA). Attachments: • Attachment A General Fund Third Quarter Financial Report • Attachment B Public Safety Overtime Analysis for Q3FY 2018 - 2020 • Attachment C Recommended FY20 Q3 Clean-up Actions CITY OF PALO ALTO GENERAL FUND THIRD QUARTER FINANCIAL REPORT FISCAL YEAR ENDING JUNE 30, 2020 (in thousands) BUDGET ACTUALS (as of 3/31/2020) Adopted Adjusted Pre % of Adj Categories Budget Budget Encumbr Encumbr Actual Budget* Revenues & Other Sources Sales Tax 34,346$ 36,085$ - - 20,645 57% Property Tax 48,634 50,576 - - 30,054 59% Transient Occupancy Tax 29,309 26,555 - - 16,378 62% Documentary Transfer Tax 8,369 8,100 - - 5,770 71% Utility Users Tax 17,581 17,572 - - 11,908 68% Motor Vehicle Tax, Penalties & Fines 2,032 2,032 - - 1,036 51% Charges for Services 30,127 30,267 - - 17,872 59% Permits & Licenses 8,667 9,027 - - 4,506 50% Return on Investment 1,388 1,388 - - 1,117 80% Rental Income 16,326 16,326 - - 12,824 79% From Other Agencies 2,756 3,302 - - 2,039 62% Charges To Other Funds 10,908 10,908 - - 8,457 78% Other Revenues 587 672 - - 458 68% Total Revenues 211,030 212,811 - - 133,064 63% Operating Transfers-In 20,999 20,840 - - 15,626 75% Encumbrances and Reappropriation 6,469 - - - - Contribution from Budget Stabilization Reserve - - - - - - Total Sources of Funds 232,029 240,120 - - 148,690 62% Expenditures & Other Uses City Attorney 3,387 3,896 60 302 2,632 68% City Auditor 1,235 1,347 41 36 681 51% City Clerk 1,346 1,451 - 51 820 57% City Council 498 542 - 89 236 44% City Manager 4,546 5,253 50 460 2,999 57% Administrative Services 8,519 9,050 55 488 5,985 66% Community Services 30,913 32,517 172 3,235 21,649 67% Fire 34,864 35,984 104 373 26,859 75% Human Resources 3,902 4,097 6 120 2,862 70% Library 10,314 10,582 7 220 7,388 70% Office of Emergency Services 1,728 1,853 6 186 950 51% Office of Transporation 2,312 3,044 174 420 1,262 41% Planning and Development Services 20,356 22,597 95 2,291 13,575 60% Police 44,666 45,249 4 476 32,974 73% Public Works 19,142 19,983 569 2,354 12,493 63% Non-Departmental 9,024 13,775 - 80 5,226 38% Total Expenditures 196,752 211,220 1,343 11,181 138,591 66% Operating Transfers-Out 5,023 7,978 - - 6,877 86% Transfer to Infrastructure 28,962 31,023 - - 23,267 75% Total Use of Funds 230,737 250,221 1,343 11,181 168,735 67% Net Change to BSR 1,292 (10,101)(20,435) ATTACHMENT A Q3 2018 2019 2020 POLICE DEPARTMENT Overtime Expense Adopted Budget $1,700,000 $1,776,500 $1,842,231 Modified Budget 1,700,000 1,812,931 1,842,231 Net Overtime Cost - see below 347,677 185,811 545,596 Variance to Budget 1,352,323 1,627,120 1,296,635 Overtime Net Cost Actual Expense $2,286,527 $2,604,366 $2,224,116 Less Reimbursements California OES/FEMA (Strike Teams)- 36,431 - Stanford Communications 75,275 91,001 92,956 Utilities Communications Reimbursement 38,227 46,158 45,752 Local Agencies (A)11,431 12,172 7,264 Police Service Fees 73,600 125,025 172,284 Total Reimbursements 198,533 310,787 318,256 Less Department Vacancies 1,740,318 2,107,768 1,360,265 Net Overtime Cost $347,677 $185,811 $545,596 Department Vacancies (number of days)5,777 7,538 4,790 Workers' Compensation Cases 8 24 2 Department Disabilities (number of days)219 217 183 Attachment B Public Safety Departments Overtime Analysis for Fiscal Years 2018 through 2020 FIRE DEPARTMENT Overtime Expense Adopted Budget $1,396,436 $1,911,761 $1,672,872 Modified Budget (B)1,571,436 2,093,761 2,086,872 Net Overtime Cost - see below 2,675,517 2,403,254 1,590,041 Variance to Budget (1,104,081) ($309,493)496,831 Overtime Net Cost Actual Expense $3,839,426 $3,047,510 $1,749,230 Less Reimbursements Stanford Fire Services (C)- California OES/FEMA (Strike Teams) (B)489,062 182,000 114,000 Total Reimbursements 489,062 182,000 114,000 Less Department Vacancies 674,847 462,256 45,189 Net Overtime Cost $2,675,517 $2,403,254 $1,590,041 Department Vacancies (number of days)5,293 1,229 103 Workers' Compensation Cases 4 26 2 Department Disabilities (number of days)732 343 109 NOTES: (A)Includes Animal Control Services contract with Los Altos and Los Altos Hills. (B)FY 2020 includes overtime adjustments recommended as part of the FY 2020 Mid-Year review for Strike Team reimbursements ($114,000) and to extend the cross-staffing of Medic 61 for six months ($300,000). Department Adjustment Adjustment GENERAL FUND (102) Administrative Services Permits and Licenses ‐ Business Registration Fee (175,000) ‐$ Administrative Services Non Salary General Expense Savings ‐ (50,000)$ Administrative Services Salaries & Benefits Savings ‐ (150,000)$ City Auditor's Office Salaries & Benefits Savings ‐ (190,000)$ City Clerk's Office Non Salary Contract Services Savings ‐ (50,000)$ City Manager's Office Salaries & Benefits Savings ‐ (185,000)$ Community Services Salaries & Benefits Savings ‐ (475,000)$ Community Services Charges for Service and Rental Income Revenue/Non Salary Savings (Excluding Golf) (2,600,000) (500,000)$ Community Services Charges for Service ‐ Golf Course Revenue (1,300,000) ‐$ Library Salaries & Benefits Savings ‐ (350,000)$ Library Penalties and Fines & Other Revenue/Non Salary Savings (115,000) (45,000)$ Non‐ Departmental Transient Occupancy Tax/Transfer to Capital Improvement Fund (6,959,000) (3,179,000)$ Non‐ Departmental Property Tax 277,000 ‐$ Non‐ Departmental Sales Tax (5,468,000) ‐$ Non‐ Departmental Utility Users' Tax (1,439,000) ‐$ Non‐ Departmental Documentary Transfer Tax (1,424,000) ‐$ Non‐ Departmental Transfer to Capital Improvement Fund (FY 2019 year‐end BSR surplus)‐ (3,500,000)$ Non‐ Departmental Transfer to Business Improvement District (BID) Fund ‐ 70,000$ Non‐ Departmental Eliminate Operations Reserve ‐ (475,000)$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET Revenues Expenses ATTACHMENT C Department Adjustment Adjustment GENERAL FUND (102) CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET Revenues Expenses ATTACHMENT C Non‐ Departmental Eliminate Reserve for Recruitment and Retenion Initiatives ‐ (500,000)$ Non‐ Departmental City Manager Employment Contract (Housing)‐ (600,000)$ Non‐ Departmental Advancing Racial Equity ‐ 500,000$ Office of Emergency Services Non Salary Contractual Expense Savings ‐ (275,000)$ Office of Transportation Salaries & Benefits Savings ‐ (170,000)$ Office of Transportation Non Salary Contractual Expense Savings ‐ (140,000)$ Planning & Development Services Charges for Services ‐ Planning (750,000) ‐$ Planning & Development Services Salaries & Benefits Savings ‐ Planning ‐ (290,000)$ Planning & Development Services Charges for Services ‐ Development Services (3,000,000) ‐$ Planning & Development Services Salaries & Benefits Savings ‐ Development Services ‐ (300,000)$ Planning & Development Services Development Services Reserve Fund (DSRF)‐ (595,000)$ Police Taxes, Penalties, and Fines (875,000) ‐$ Police Salaries & Benefits Savings ‐ (150,000)$ Police Non Salary Contractual Expense Savings ‐ (200,000)$ Public Works Salaries & Benefits Savings ‐ (250,000)$ Public Works Charges for Service ‐ Street Cut Fees 30,000 ‐$ Public Works Other Revenue ‐ EV Chargers 70,000 ‐$ Public Works Permits and Licenses ‐ Encroachment Fees 20,000 ‐$ Fund Balance Adjustment to Budget Stabilization Reserve ‐ (11,659,000)$ GENERAL FUND (102) SUBTOTAL (23,708,000) (23,708,000)$ Department Adjustment Adjustment CAPITAL IMPROVEMENT FUNDS GENERAL FUND CAPITAL IMPROVEMENT FUND (471) Capital Transfer from General Fund (6,679,000)$ ‐$ Fund Balance Adjustment to Infrastructure Reserve (6,679,000)$ GENERAL FUND CAPITAL IMPROVEMENT FUND (471) SUBTOTAL (6,679,000)$ (6,679,000)$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET Revenues Expenses ATTACHMENT C Department Adjustment Adjustment SPECIAL REVENUE FUNDS BUSINESS IMPROVEMENT DISTRICT FUND (220) Administrative Services Department Transfer from General Fund 70,000$ ‐$ Fund Balance Adjustment to Fund Balance ‐$ 70,000$ BUSINESS IMPROVEMENT DISTRICT FUND (220) SUBTOTAL 70,000$ 70,000$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2020 BUDGET Revenues Expenses ATTACHMENT C City of Palo Alto (ID # 11407) City Council Staff Report Report Type: Action Items Meeting Date: 6/16/2020 City of Palo Alto Page 1 Summary Title: Review, Discuss, and Recommend Establishment of a Pension Funding Policy Title: Discussion and Direction to Staff Regarding the Establishment of a Pension Funding Policy From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the City Council: 1) Provide input and guidance to staff on elements of a Pension Funding Policy to proactively fund the City’s long-term pension obligations. Executive Summary This report continues the City’s work on Fiscal Sustainability as an organization, specifically focused on addressing the City’s long-term pension obligations. The Finance Committee discussed this topic on October 15, 2019 as part of City Manager’s Report (CMR) 10645. CMR 10645 contains critical elements necessary to inform the conversation about a Pension Funding Policy with the City Council and is included as Attachment A with this report. Through the conversation on October 15, 2019, the Finance Committee provided general guidance to staff on elements to further explore for the development of a Pension Funding Policy. This report serves as a companion document to CMR 10645 and further explores the guidance provided by the Finance Committee for discussion with the full City Council. Staff is seeking direction from City Council to refine the elements of the Pension Funding Policy and approval of contract authority necessary for the continued analysis and modeling of potential pension impacts. Staff anticipates incorporating direction from City Council into a formal Pension Funding Policy and returning to City Council for the adoption of said policy at a later date. In October, the Finance Committee requested more information regarding reaching different funding levels between the next ten and fifteen years. Through work with Bartel Associates, the City’s outside actuarial consultant, staff analyzed the additional contributions that would be necessary to reach 90% of CalPERS’ calculated funding for the Miscellaneous and Safety plans City of Palo Alto Page 2 over different timeframes ranging from 15 years to 10 years. This was based on assets as of June 30, 2019 and is meant to be a framework for the discussion around additional contributions to the City’s long-term pension liability. This included as Attachment B to this report. It is noteworthy that CalPERS has experienced significant volatility in recent weeks which have significantly impacted the valuation of our assets. This volatility underscores the need for the City to pursue its own pension funding policy but was too recent to be included in the actuarial analysis that was performed to examine funding levels over the ten to fifteen year time horizon. Nonetheless, the actuarial analysis presents a model at a point in time for comparing anticipated fiscal impacts. The recent volatility of the market emphasizes the need for a flexible policy that is elastic and adaptable to the changing needs of the organization. The City has evidenced its commitment to funding its long-term liabilities through additional contributions using year-end savings each year since FY 2017. As discussed with the Finance Committee, the overarching goal of a pension funding policy is to minimize service delivery crowd-out from escalating pension costs by balancing near-term investments with anticipated long-term needs. As discussed in the Fiscal Sustainability Workplan, CMR 10267, and again with the Finance Committee in October, the development and establishment of a pension funding policy is just one element of the City’s overall fiscal sustainability. The fiscal sustainability ecosystem is comprised of service delivery, resources, and the cost of doing business. As the City establishes a Pension Funding Policy, it is important to keep the ecosystem balanced. Significant impacts on one area of the ecosystem, such as the cost of doing business, will have corresponding impacts on the other areas of service delivery and resources. As such, this item is being brought forward concurrent to the discussion of the FY 2021 Budget, which will greatly impact service delivery throughout the organization. Important to this discussion are the following attachments and a summary of the additional information provided within: Attachment A: As discussed above, CMR 10645 is included as Attachment A for review along with this report. That CMR also includes additional information regarding the City’s long-term pension obligations. Attachment B: The additional information requested by the Finance Committee regarding additional contributions necessary to reach 90 percent of CalPERS’ calculated funding over different timeframes ranging from 15 to 10 years is discussed in Attachment B. As discussed above, this is meant to be a framework for the discussion around additional contributions to the City’s long-term pension liability. Attachment C: A sample pension funding policy is drafted and is intended to spur discussion. It is anticipated that it will be refined based on City Council feedback and staff will return to the City Council for formal adoption. City of Palo Alto Page 3 Attachment D: A scenario that shows the impact of CalPERS achieving a 0 percent rate of return for FY 2020 is included as Attachment C with a brief discussion of that scenario. This scenario was created using CalPERS Pension Navigator tool. This is meant only to offer additional context for the conversation; many other factors will also impact the City’s contributions over the immediate future and long-term horizon. Background CMR 10645 (Attachment A) contains a comprehensive summary of conversations that had been held through October 2019 with the City Council and the Finance Committee. At their meeting on October 15, 2019 the Finance Committee discussed the example Pension Funding Policies that were outlined in Table 2 of Attachment A and discussed in greater detail in that report. There was consensus among the Finance Committee that the City should continue to make the Actuarial Determined Contributions (ADCs) as calculated by CalPERS, continue its current practice of using a more conservative discount rate to calculate the normal cost (pay-go) portion of pension obligations, and look to expand into additional funding options. Paying the ADC is the lynchpin of the City’s pension funding obligations. Continuing to pay the full ADC ensures that the City does not further worsen its funding ratio. Using a lower discount rate to calculate the normal cost is also an important element of the overall strategy. That methodology has been part of the City’s annual contributions to its irrevocable Section 115 Trust (PARS Trust) Fund, generating approximately $8.2 million in contributions through FY 2020. In addition, the City has also elected to make ad hoc contributions totaling $19.0 million to the PARS Trust since it was created in January 2017. This brings principal contributions to $27.2 million through FY 2020. Options available, as outlined in Table 2 of Attachment A, include tactics on a continuum with a variety of impacts to the long-term pension obligations and corresponding impacts on service delivery levels. One option with minimal service delivery impact would be to amend the existing BSR policy to include PARS contributions as an eligible use of excess BSR above 18.5% without City Council approval. This would enable greater discretion by the City Manager to allocate excess resources at year-end. On the other end of the spectrum are options such as a contractual ‘Fresh Start’ with CalPERS, which would legally obligate the City to meet a new, shorter amortization schedule. Although this would yield long-term savings by avoiding interest at the tail end of the current amortization schedule, it would have a drastic and immediate impact on service delivery levels by necessitating significant additional expenses for the annual ADC. In October 2019, the Finance Committee expressed interest in learning what additional levels of contributions would be necessary to reach a 90% funding level over different timeframes, ranging from 10 years to 15 years, and contextualizing what service delivery trade-offs would City of Palo Alto Page 4 be necessary to achieve that funding level within each timeframe. That analysis is transmitted as Attachment B to this CMR. Discussion As discussed in CMR 10645, it is important that the City not get too far ahead of CalPERS. Therefore it is recommended that the valuation of assets in a Pension Funding Policy be aligned with CalPERS. To do otherwise risks adverse impacts to the City’s credit rating, which could limit the City’s ability to borrow at favorable rates. However, given the recent volatility seen by CalPERS, largely due to the unforeseen impacts of COVID-19, it seems prudent to presume that CalPERS will not meet its 7% rate of return on an annual basis for the current year. This reinforces previous concerns voiced by the City Council regarding the optimistic rates of return presumed by CalPERS and the corresponding impacts of that optimism on the City’s long-term pension liability. Synthesizing these two concepts would mean that the City could use the 7% Discount Rate to determine its actuarial valuation but should not rely exclusively on the contribution rates specified under that projection alone to bolster its proactive pension contributions. The City has evidenced its commitment to proactively funding the long-term pension obligations by diligently preserving ad hoc transfers of excess revenue and year-end savings to the PARS Trust. Additionally, the City has contributed the difference in normal cost calculations to the PARS Trust fund since receiving corresponding guidance from the City Council. In order to institutionalize the City’s current practice and address the City Council’s desire to adopt a Pension Funding Policy it is recommended that a policy be adopted that codifies the City’s current practice of paying the CalPERS’ Actuarial Determined Contribution and confers flexibility to the City Manager to pursue both additional contributions and potential uses of the PARS Trust as part of the annual budget process. Elements of a Pension Funding Policy are discussed briefly below and more fully in Attachment A. Funding Goal and Timeframe The Pension Funding Policy should also clarify a desired funding goal to be reached in the PARS Trust and with CalPERS, and the timeframe to achieve that. The example Pension Funding Policy attached to this CMR (Attachment C) suggests a 15 year timeframe to reach a 90 percent funding level. Funding Components The Pension Funding Policy should include guidance and direction on funding components to achieve the funding goal within the specified timeframe. The example Pension Funding Policy City of Palo Alto Page 5 attached to this CMR includes continued calculation of the Normal Cost at a lower 6.2 percent Discount Rate as well as use of excess BSR above 18.5 percent as funding components. Additional discussion of potential funding components and their uses is included in CMR 10645 (Attachment A) as are additional options that are not recommended, such as investments in other City Reserves, Pension Obligation Bonds, and a Formal Fresh Start that would trigger an irrevocable contract amendment with CalPERS. Allowable Uses of Funding Another element of the Pension Funding Policy is clarifying the allowable uses of funding accumulated in the PARS Trust Fund and when those funds should be transferred to CalPERS. The example Pension Funding Policy includes the parameter that the funding components described above would be sent to the PARS Trust Fund on annual basis. The example Pension Funding Policy also clarifies that Additional Discretionary Payments (ADPs) from PARS to CalPERS would be articulated as part of the annual budget process. (In general, funding will yield a greater benefit to the City if it is invested with CalPERS since the funding does not impact the annual ADC until it is invested with CalPERS.) Contingencies, Service Delivery Outcomes, and Fiscal Impacts As discussed earlier in this CMR, the uncertainty that the City currently faces emphasizes the need for an elastic and flexible Pension Funding Policy. The Pension Funding Policy should clarify contingencies, service delivery outcomes, and fiscal impacts that are anticipated to allow for adaptive responses to changing circumstances. Contingencies could be included as ‘guard-rails’. Parameters for consideration could include requiring the City to continue using a lower discount rate to calculate the normal cost for pensions until a funding target of 90% is met, unless General Fund revenues decline by more than a certain percentage year-over-year. In these cases, the City Manager could be required to identify how a year of diminished contributions could impact the funding target and timeframe element and identify strategies for ‘making-up’ that payment in subsequent years. COVID-19 has impacted CalPERS rate of return for the current year, but it has also disproportionately impacted the City’s Fiscal Sustainability ecosystem by constraining resources as discussed with the transmission of the FY 2021 Proposed Operating and Capital Budgets on April 20, 2020 and though multiple subsequent status reports to the City Council. Given that the City is anticipating resource constraints that have not been seen since the Great Recession, pursuing a more aggressive pension funding policy would have even greater impacts on the City’s service delivery environment. Through the budget process, it is anticipated that service delivery impacts will be presented even without increased funding for additional proactive pension contributions. This environment emphasizes the importance of duly considering service delivery outcomes and fiscal impacts when developing a Pension Funding Policy. City of Palo Alto Page 6 An example Pension Funding Policy is included as Attachment B; it is meant to spur discussion and dialogue on this topic as the City works to adopt a policy in this time of heightened uncertainty. The sample Pension Funding Policy uses a 15 year timeframe to reach a 90% funding level of CalPERS calculated funding, using a lower discount rate (6.2 percent) to calculate the Normal Cost and transmitting that difference to the Section 115 PARS Pension Trust Fund on an annual basis. The sample policy would require any use of the Pension Trust Fund’s accumulated funding to be approved by the City Council. The City Manager would be required to identify the impacts of any temporary changes to the practices prescribed by the policy, including temporarily diminishing contributions to the PARS Trust, on the funding goal and timeframe to the City Council through the annual Budget process. Stakeholder Engagement The Administrative Services Department has engaged stakeholders throughout the organization, including Human Resources, the City Attorney’s Office, the Public Works Department, and the Police Department for feedback on this issue. As the City Council clarifies its desired path forward for a pension funding policy, staff will work to ensure that stakeholders remain informed of developments and changes. Additionally, the City’s interest in meeting its pension funding obligations necessitates ongoing engagement with the State Legislature to give cities more tools for managing those obligations. The State could choose to give cities tools such as defined contribution plans, which could significantly limit long-term obligations compared to the current system of defined-benefit plans. Resource Impact The FY 2021 Proposed Budget included the CalPERS required pension payments as well as additional proactive pension funding, calculated by taking the difference in Normal Cost annual payments between CalPER’s 7.0% Discount Rate and a 6.2% Discount Rate. If the City Council chooses to pursue additional funding, there will be corresponding changes necessary to the budget with resulting adverse service delivery impacts. Conversely, if the City Council decides to pare down or scale back contributions to the long-term pension obligations given the current financial outlook, it may allow for some positive service delivery impacts. A separate item for approval of a contract with Bartel Associates, the City’s outside actuarial consultant, is anticipated to be brought forward on June 22, 2020 for continued work on pension forecasting and analysis. No Budget Amendment will be necessary for the work with Bartel Associates. Staff will need to reallocate salary savings in the Administrative Services Department to fund elements of the amended scope of the contract. Environmental Review This report is not a project for the purposes of the California Environmental Quality Act. Environmental Review is not required. City of Palo Alto Page 7 Attachments: • Attachment A: CMR 10645 - Direction to Staff on Pension Funding Policy • Attachment B: Finance Committee Request for Information • Attachment C: Example Pension Funding Policy • Attachment D: Impact of 0% Investment Return for CalPERS for FY 2020 City of Palo Alto (ID # 10645) Finance Committee Staff Report Report Type: Action Items Meeting Date: 10/15/2019 City of Palo Alto Page 1 Council Priority: Fiscal Sustainability Summary Title: Review, Discuss, and Recommend Establishment of a Pension Funding Policy Title: Discussion and Direction to Staff Regarding the Establishment of a Pension Funding Policy From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the Finance Committee review and discuss the options for a Pension Funding Policy and recommends elements to include in the establishment of a Pension Funding Policy to be reviewed and adopted by the City Council. Executive Summary This report continues the City’s work on the City Council’s Fiscal Sustainability priority and corresponding workplan through the development of a pension funding policy. Four example policies, including a CalPERS example as a baseline, are outlined for discussion by the Finance Committee and refinement prior to returning to the City Council for adoption. A brief analysis of each example policy is included to inform the conversation and discussion regarding the impacts and outcomes of each. Also included is a list of the funding components and levers that the City can use to address its long-term pension liability. The development and establishment of a pension funding policy is just one element of City’s overall fiscal sustainability workplan. As discussed in CMR 10267, the City’s fiscal sustainability ecosystem is comprised of service delivery, resources, and the cost of doing business. As the City works to develop a pension funding policy, it is important to keep in mind that the goal is to keep the ecosystem balanced; significant impacts on one area of the ecosystem, such as reducing the cost of doing business, will have a corresponding impact on the other areas of service delivery and resources. This report contains a brief description of the work the City has already done to proactively address its long-term pension liability before presenting draft policies for consideration and ATTACHMENT A City of Palo Alto Page 2 discussion by the Finance Committee. Attachment A to this report provides additional background on the City’s pension liability, including a summary of the reports and discussions with the Finance Committee and City Council to date, and variables and factors that impact the City’s liability. When the CalPERS actuarial reports were transmitted to the Finance Committee on September 24th, the committee made a request to see the differences in the annual payments between the current CalPERS required payments and a “Fresh Start”, which would reamortize the Unfunded Accrued Liability over a shorter horizon. Attachment B provides a table showing the Fresh Start payment schedules, as calculated by CalPERS, for the Miscellaneous and Safety Plans. Background The City of Palo Alto has been discussing its options for prefunding its long-term pension obligations as part of its work towards addressing the ‘Fiscal Sustainability’ workplan. Significant progress has been made over the past three years towards better understanding the challenges the City faces and proactively identifying and implementing tools to better position the City to address its long-term liabilities. The establishment of a pension funding policy is an important segment of the City’s Fiscal Sustainability workplan and the City’s continued progress towards addressing long-term pension liability. The pension funding policy is a tool to guide pension funding decisions within the context of service delivery and resources. The ecosystem is depicted in the diagram below. It is important to remember that the City cannot work in isolation to address its pension obligations given our needs to remain a competitive employer and for our retirement benefits and costs to be understandable and relevant to the marketplace. As a part of the CalPERS system, the central actions that CalPERS takes impact our pension costs. To date, CalPERS has taken the following actions: - lowered their expectations for investment returns and inflation rates to better align with the rates they have experienced over the past ten years (from 7.5% to 7.0% discount rate); - changed how they calculate the annual payment for the Unfunded Accrued Liability (UAL) from a percentage of payroll to a flat-rate dollar amount thereby guaranteeing a certain level of contributions from member agencies; and ATTACHMENT A City of Palo Alto Page 3 - changed the timeline for amortizing new bases (gains/losses) from investment returns from 30 years to 20 years and eliminated the ramp-up and ramp-down of these bases beginning with the valuation reports as of June 30, 2019. These actions have resulted in increases to the City’s costs for funding the defined benefit pension plan but will better position the City on a long-term basis. Parallel to the actions being taken centrally by CalPERS, the City of Palo Alto has also individually implemented practices to better address its long-term pension liabilities. Actions taken by the City include: - No longer paying any portion of the employee share of pension costs (also referred to as “EPMC” or “Employer Paid Member Contribution”); - Employees now “pick-up” a percentage of the employer share of pension costs (also known as “cost sharing”); - Establishment of an irrevocable IRS Section 115 Pension Trust Fund; and, - Adoption of a more conservative discount rate than CalPERS (currently 6.2%) that is used to calculate the normal cost of pensions for all financial planning across all funds. These actions are described in further detail below. A chart showing the currently approved employee pick-up of the employer share rates at the end of the current labor agreements, as well as the expiration date of the current agreement, is shown below in Table 1. TABLE 1: Employee Pick-Up of Employer Share Labor Group Employee Cost Share Rate (by the end of Current Labor Agreements) Current Labor Agreement Expiration SEIU 2.0% 12/31/2021 UMPAPA 1.0% 6/30/2020 MGMT 1.0% 6/30/2020 FCA/IAFF 4.0% 6/30/2021 PAPOA 3.5% 6/30/2021 PAPMA 4.0% 6/30/2021 Additionally, the City Council authorized the establishment of an irrevocable Section 115 Supplemental Pension Trust Fund (“Pension Trust Fund”)with the Public Agency Retirement Service (PARS) through CMR 7553 in January 2017. The Pension Trust Fund is irrevocable because the City can deposit funds into this fund and those contributions may only be used for paying City’s pension costs. From January 2017 through FY 2020, the City will have invested more than $22.0 million in principal contributions into the PARS Trust. Contributions were initially made on an ad-hoc basis, using one-time savings or excess revenues. However, the City has since incorporated a structural change to its budgeting practice and financial planning. Per ATTACHMENT A City of Palo Alto Page 4 City Council direction on October 29, 2018 through CMR 9740, the City now calculates the normal cost, or “pay-as-you-go” cost of pensions using a lower Discount Rate than CalPERS, currently 6.2%. This change in methodology generated approximately $6.2 million in contributions for FY 2020 across the organization and is anticipated to generate approximately $5.0 million in ongoing contributions above those currently projected by CalPERS. Discussion Through staff’s work to extensively research the strategies and tools to draft and implement a policy to more proactively address growing pension costs, four guiding principles and questions have emerged. They are listed below and were used to inform the policy examples that follow. 1) What is the desired funding target? What is the desired timeline to achieve that target? (While 100% funding would be the presumptive goal, achieving this quickly could require drastic service reductions with corresponding workforce and community impacts. A balanced and thoughtful strategy is therefore necessary.) 2) The policy should be “evergreen” (similar to the Budget Stabilization Reserve (BSR) policy); it should guide staff and the Council when certain parameters are met and require action when those parameters are not met. The more conservative the policy, the more accountability will need to be included in the policy. 3) What can the City afford? What is the most efficient use of its funding? Based on those answers, what payment options and tools best align with those considerations? 4) It is important to remember that this is a state-wide issue and that CalPERS invests over a very long-term time horizon. Although the City is currently experiencing cost volatility and increases in its pension costs, it has also experienced “superfunded” status in the past. The City should position itself to take advantage of potential changes in the pension landscape over the medium- and long-terms. Overall, staff recommends that the goal of the City’s pension funding policy is to reach 100% of funding necessary for its pension liabilities as calculated by CalPERS. The goal of 100% funding is based on conversations with actuarial consultants; full funding provides the most resilience to changes in the market that would impact pension costs. Using CalPERS’ calculated funding requirements ensure that the City remains aligned with the fourth guiding principle. There are different timelines, mechanisms, and options available to pursue this goal. The purpose of a fiscal policy, which a potential pension funding policy would be effectively guiding, is to establish practices and procedures that will guide City Council and staff when certain parameters are met and require certain levels of action when those parameters have not yet been met. Staff has outlined example pension policies with variations between each based on research of other jurisdictions, conversations with actuaries, and reviews of existing best practices from industry publications. ATTACHMENT A City of Palo Alto Page 5 Each of the example policies makes progress towards addressing the City’s pension liabilities; the first example models the strategies that CalPERS is implementing while the remaining examples go above and beyond what CalPERS is currently requiring. The minimum funding level and the timeline to achieve that minimum funding level vary among the examples. As a result, the tools to reach the funding level over the desired timeframe differ slightly from example to example. Each example outlines different applied uses of the funding to align with the funding level and the timeline target. Finally, each of the different policies will have a different impact on the City’s Fiscal Sustainability ecosystem and require different levels of structural adjustment, service delivery impacts, and/or the generation of new revenue in order to meet the funding goal. These example policies are intended to prompt discussion among the Finance Committee and ultimately recommend a set of parameters for the basis of a draft policy. A brief analysis of each of the different options is detailed below Table 2. A further discussion of potential funding components follows after the analysis: some of the components are recommended, some of them are potential tools that could be used depending on the desired funding level and target, and still others are not recommended because of the disadvantages associated with them. Table 2 outlines examples of what a potential pension funding policy may include. Reading from left to right, the first column identifies the different elements of a pension funding policy. Moving from left to right the components of each element are building in the next. For demonstration, a policy under “example 3” would be inclusive of all elements and the components of them in Examples 1, 2, and 3. The elements to be contemplated as part of the adoption and implementation of a funding policy are described below. Funding Goal: The first element of a pension funding policy is articulating the funding goal of the policy, and staff recommends inclusion of an acceptable range as well as a target funded level (like the City’s General Fund Budget Stabilization Reserve “BSR” policy). The percent funded a plan is would be calculated by the total assets divided by the total liabilities. If the lower end of the range was not met (“floor”), the funding components section of the funding policy would be required to be invoked. In general, the higher the floor, the greater need the need for additional funding to be dedicated towards proactive pension contributions which will require structural adjustments (revenue increases, or expense reductions; the latter would have impacts on service delivery). Timeframe: The second element is the timeframe; this represents the timeframe to meet the desired funding level in the context of the many variables used in actuarial analysis and calculations. Examples of additional variables include but are not limited to demographic changes - the shift from a workforce comprised mostly of ‘Classic’ members to PEPRA members, mortality estimates, and workforce size and tenure. The shorter the timeframe, the greater structural adjustments would be necessary to achieve the goals. Funding Components: These are the actions that would be required when the funding “floor” was not met. As the examples move from Example 1 to Example 2, to Example 3, and Example ATTACHMENT A City of Palo Alto Page 6 4, the additional funding components are noted. As outlined above, each example includes the elements in the earlier examples. (Example 3 includes everything in Examples 1 and 2 as well as the additional components detailed in the Example 3 column.) Allowable Uses of Funding: This element of a pension funding policy details the allowable uses of the funding generated through the funding components. Depending on the ultimate policy goals here, further refinements such as investment strategy and reporting will need to be added. Service Delivery Outcomes: In order to implement the elements of each of the examples outlined, there will be implications on the organization. This section outlines the adjustments necessary to meet the policy elements outlined in each example; the impacts and actions needed to contribute sufficient funding to meet the goals. Any further structural adjustments will necessitate service delivery impacts. Fiscal Impacts: Any further structural adjustments will have additional impacts on the City’s fiscal sustainability; this element begins to articulate the scope or magnitude of structural adjustments necessary to achieve a funding goal. ATTACHMENT A City of Palo Alto Page 7 TABLE 2: Pension Funding Policy Examples Pension Funding Policy Elements Example 1: CalPERS (Baseline) Example 2: Lower Funding Target (Current Practice) Example 3: Medium Funding Target Example 4: Higher Funding Target % Fu n d e d Go a l (R a n g e ) 100%; no lower element of range 80% - 100%; Target of 85% 80% min - 100%; Target of 95% 90% - 100%+; Target of 100%+ Ti m e fr a m e 30 years Within 10 years Within 10 years Within 10 years Fu n d i n g C o m p o n e n t s Normal Cost (NC) calculated at 7.0% Discount Rate (+) Cost-sharing with employees (see table above for specific rates) (+) Additional cost- sharing with employees (+) Recalculate the UAL with the same lower DR (phase-in) Changes in actuarial assumptions amortized over 20 years (+) Using a more conservative discount rate (DR) for calculation of normal cost (+) Identify funding for the pension obligation through Budget (+) Amend existing BSR policy, 100% excess BSR allocated for pension costs (all funds contribute a commensurate amount) UAL amortized over 30 years for gains/ losses; calculated at 7.0% Discount Rate (20 years beginning 6/30/2019) (+) Amend existing BSR policy, 50% excess BSR can be allocated for pension costs (all funds contribute a commensurate amount) (+) Reach one-year of funding for CalPERS ADC in 115 Trust Fund (invest moderately conservatively); subsequent proactive funding to CalPERS as ADP Al l o w a b l e U s e s of F u n d i n g Co m p o n e n t s NC covers pay-go portion; UAL portion pays off unfunded liability in 30 years if CalPERS investment returns met (+) Use of 115 Trust Fund funding to be addressed through annual budget process or separate City Council approved action. Pension Rate Stabilization Program (+) Fresh start in concept for the Safety group, beginning in a target year (-) Contractual Partial Fresh Start for the Safety group beginning in a target year in-lieu of fresh start in concept Se r v i c e D e l i v e r y O u t c o m e s Continue services throughout the City including the ability to keep up with the cost of doing business as well as limited strategic investments. Continue current constraints and limitations on service delivery including an inability to keep up with the cost of doing business. Prioritization would continue to be necessary annually through the budget process. (+) City Manager to identify plan to address additional contributions to pension as part of annual budget process (+) Significant adverse impacts on service delivery levels; additional revenue (+) Impacts on Service Delivery and/or structural additional revenue Fi s c a l Im p a c t Savings to the City Continue $5.0 million structural adjustments necessary to maintain contributions Additional structural adjustments Estimated at ___%* of the General Fund Significant additional structural adjustments Estimated at ___%* of the General Fund (+) Indicates that this is in addition to the step to the left while (-) indicates that this is instead of the step to the left. * This information is not available at the time of the printing of the report; however, staff is working to provide a metric for context. ATTACHMENT A City of Palo Alto Page 8 Example 1: CalPERS Methodology Example 1 shows the baseline elements of CalPERS methodology. CalPERS has a funding goal of 100% of the City’s pension liability over the next 30 years. To meet this goal, it actuarially calculates what the City’s normal cost should be given the CalPERS actuarial assumptions, as well as the Unfunded Accrued Liability annual payment for the City. In a year when CalPERS meets its investment return the UAL will shrink since the City has made its payment, it will shrink more when CalPERS exceeds its investment return. Conversely, when CalPERS fails to meet its investment return, the UAL will grow. CalPERS will be changing its amortization timeline from 30 years to 20 years beginning with the June 30, 2019 valuation which will shorten the City’s horizon to pay off its UAL. If the City were to use this methodology, it would result in savings of approximately $5.0 million compared to the City’s current practice. These savings could be used for service delivery enhancements and/or to lower rates in the City’s enterprise activities. Example 2: Lower Target/More Flexibility Example 2 provides the most flexibility of any of the policies, with the lowest funding floor, fewest restrictions on budgetary additions, the least amount of additional impacts to the City’s service delivery, and the lowest additional fiscal impact of the three non-CalPERS examples. This example stipulates that the City Council has a range of between 80% and 100% funded, a target of 85%, and a minimum funding level of 80% necessary within 10 years. When the City’s overall funded status is less than 80%, the tools detailed under the option would be required actions. For Example 2, this would result in continued cost-sharing with employees, calculating the Normal Cost portion of the pension at a more conservative rate than CalPERS, and transmitting half of the excess BSR above City Council’s 18.5% target to either PARS or CalPERS. The recalculation of the Normal Cost portion is included under each pension funding policy Example other than the CalPERS example; it is recommended that the City Council set its desired discount rate to use in the calculation every two years to avoid excessive volatility. In Example 2, the City would transmit the costs beyond the CalPERS annual ADC to the PARS trust until one year’s worth of ADC was accumulated in the trust. In each option, the PARS Trust assets would still be invested in the PARS ‘moderately conservative’ portfolio. After one year of ADC funding was reached, the City would transmit the funding to CalPERS as an Additional Discretionary Payment to pay down the Unfunded Accrued Liability. Once the PARS fund reached its target, use of its accumulated funding would be discussed as part of the annual budget process or separately through a City Council approved action. This example would have a relatively low additional impact on Service Delivery, since it largely aligns with current practices, but it would maintain the ongoing structural adjustments and service delivery impacts articulated in the FY 2020 Operating Budget. As a result, although no additional restrictions would need to be enacted to restrict new services throughout the organization, they would likely need to be offset either by corresponding reductions of services that were lower priority or structural revenue changes. ATTACHMENT A City of Palo Alto Page 9 Example 3: Medium Funding Target Example 3 provides a combination of the elements seen in Examples 2 and 4. It would have a higher floor than Example 2 but have a more aggressive timeframe of 10 years. This option stipulates that the City Council has a desired range of between 80% and 100% funded, with a target funding level of 95%. As such, it would expand on the tools used in Example 2 by drawing on some of the funding components listed in Example 4. In addition to each of the tools described in Example 2, this policy would also include pursuing further cost-sharing with the labor groups through the standard negotiating process. This policy would also require the City Manager to identify additional funding for the pension obligation through the Budget process; to the extent that these were further expense reductions they would cause additional service delivery impacts. As with Example 2, the City would transmit the costs beyond the CalPERS annual ADC to PARS until one year of ADC was accumulated before transmitting the ongoing funding generated by the tools to CalPERS to reduce the UAL. This option also includes a fresh start in concept for the Safety group in a target year, which would allow the City to re-amortize specified bases over a certain timeline with CalPERS but not contractually obligate the City to make those payments to CalPERS. (The partial Fresh Start detailed in Example 4 would be contractually required payments). Given the higher funding floor for Example 3 than Example 2, further structural adjustments to the City’s revenue and expenses would be necessary. As such, it would be important for the City to carefully weigh the implications of service delivery changes against its pension obligation. Example 4: Higher Funding Target/Less Flexibility Example 4 provides the least flexibility of any of the policies, with the highest funding floor, most restrictions on budgetary additions, the greatest additional impacts on the City’s service delivery, and the greatest additional fiscal impact of the examples. This example stipulates that the City Council has a target range of between 90% and 100%+ funded, with a target level of 100%+. When the City’s overall funded status is less than 90%, the tools included in this policy would be required actions. In addition to each of the funding components included in Examples 2 and 3, this policy would also include a phase-in of calculating the City’s annual UAL payment at a more conservative discount rate (this would be tied to the same discount rate used for the Normal Cost). As with Examples 2 and 3, the City would transmit the costs beyond the CalPERS annual ADC to PARS until one year of ADC was accumulated before transmitting the ongoing funding generated by the tools to CalPERS to reduce the UAL. This option also includes a partial fresh start for the Safety group, which would require the City to re-amortize specified bases over a certain timeline with CalPERS and contractually obligate the City to make those payments. Since this option has the highest funding target, it correspondingly offers the least flexibility. It would ATTACHMENT A City of Palo Alto Page 10 effectively impair the City’s ability to add services and would have significant impacts on service delivery due to the further structural adjustments necessary to maintain contributions. The example policies included in this CMR are meant to be a starting point for discussion with the Finance Committee regarding the establishment of a pension funding policy. Further description of the funding components included in the chart and examples above and some of the allowable uses of those components, as well as additional funding components that are not recommended are included below. Pension Funding Policy Funding Components: Recommended The City is currently using some of these funding components, including ongoing expense reductions to fund contributions to the Pension 115 Trust Fund, as well as employee cost- sharing (employee pick-up of the employer share) to help limit the City’s exposure on the Unfunded Accrued Liability. Section 115 Trust Fund: In the FY 2020 Operating Budget, $6.2 million in contributions to the PARS Trust was included, bringing total contributions to the PARS Trust to more than $22.0 million since its inception in 2017. It is anticipated that approximately $5 million a year will be transmitted to the PARS Trust as a result of the City’s current practice of budgeting a lower, and thereby costlier, discount rate to calculate the Normal Cost contributions than the one CalPERS uses for its actuarial modeling. Cost share with Employees: The City has successfully negotiated employee pick-ups of the employer share of pension costs in its bargaining agreements with its pensioned employee groups. Each group in the Miscellaneous plans currently picks up 1%, while groups in the safety plan are transitioning from a 3% pick-up of the employer share to higher rates of between 3.5% and 4.0%. Additional Discretionary Payments: Another recommended tool would be to make Additional Discretionary Payments (ADPs) to CalPERS once the PARS Trust reaches a certain funding level. CalPERS does not recognize the funding in PARS in its actuarial analysis, as such once a certain level is reached in PARS funding the additional contributions should be transmitted to CalPERS. Once it is sent to CalPERS it could be applied to a specified amortization base, in essence paying down the principal on the City’s Unfunded Accrued Liability. This accomplishes two things simultaneously: 1) Transmitting the funding to CalPERS records the asset on CalPERS’ balance sheet, which lowers the City’s unfunded accrued liability, thereby lowering the future annual expenses as calculated by CalPERS, and 2) it limits the City’s exposure to future investment return volatility since the principal amount is lower. Fresh Start in Concept: The City could use the ADPs discussed above to either pay down specific bases (removing a specific liability from CalPERS completely) as discussed above or to re- amortize over a shorter time period. This latter option is what is referred to as a “Fresh Start in Concept” because it mirrors the action taken by a Fresh Start. However, a formal Fresh Start, as ATTACHMENT A City of Palo Alto Page 11 discussed below, requires a contract amendment and handcuffs the City to that new amortization schedule. A “Fresh Start in Concept” would confer many of the benefits of reducing the UAL without the disadvantages and risk. One-time Funding (Additional Revenues/Expense Savings): In certain instances, one-time funding may emerge that has not been appropriated for ongoing commitments. In such instances, whether from expense savings or Revenue windfalls, funding could be used to partially address the City’s long-term pension liability. Amend Existing Policies: The City Council has the authority to amend existing policies, such as the Budget Stabilization Reserve Policy. If it chose to amend that policy, the City Council could include pension pre-funding as an eligible item that excess BSR (above City Council’s target of 18.5%) could be spent on instead of Capital Infrastructure. Currently, Capital Infrastructure is the only allowable use of excess BSR. The revised policy could even be narrowed further to say that half of excess BSR remaining at year-end could be used for pension pre-funding and half could be used for Capital Infrastructure purposes. Pension Funding Policy Funding Components: Other Options There are other funding components that the City could choose to pursue to address its long- term pension liability. These tools are listed below along with a brief description. Partial Fresh Start (Formal): The City could choose to enter a partial Fresh Start with CalPERS. This would re-amortize certain specified bases over a shorter time period. However, it would be contractually binding and would be irreversible. If the City chose to pursue this instead of a “Fresh Start in Concept” it would be a significant work effort to identify which bases to include in a partial fresh start. Further Cost Sharing with Employees: Each employee bargaining unit currently includes an employee pick-up of the employer share in its bargaining agreement. If the City chose to continue to expand this tool it would need to negotiate in good faith with its bargaining units in order to develop the rate of the pick-up as well as the timeline. Revenue Generation: The City could choose to pursue the generation of additional revenue in order to fund some of the strategies discussed above. Options could include a parcel tax or other mechanism to generate additional income which could be earmarked specifically for addressing the City’s long-term pension liability. Further Expense Reduction: The City has taken steps to contain costs over the past few years. Any further reduction would have a corresponding impact on service delivery. However, if the City Council chose to prioritize additional pension pre-funding over current service levels then expenses could be reduced, and those reductions could be used to partially address the City’s long-term pension liability. ATTACHMENT A City of Palo Alto Page 12 Pension Funding Policy Funding Components: Not Recommended A brief explanation of the other pension funding policy funding components that are not recommended, including why they are not recommended, follows below. Investments in Other City Reserves: The City could choose to bolster its reserves and use them to address the City’s long-term pension liability. This action is not recommended because of the City’s investment policies, which could limit the growth of an asset when compared to a Section 115 Trust Fund administered by PARS, and because the investment in the City’s reserves is revocable. The funding put into a reserve could be repurposed for something else depending on the reserve polices. In contrast, funding paid into the Section 115 Trust Fund is irrevocable and cannot be used for any purpose other than addressing the City’s pension liability. Pension Obligation Bonds: The City Council could choose to issue Pension Obligation Bonds (POBs). POBs are taxable bonds that would be issued by the City, which would then invest the proceeds from the issuance and hope to achieve a greater rate of return on the investment than promised by the bonds. This is not recommended due to the inherent risk in such an investment and due to the increase, it would have on the City’s bonded debt burden and potential impacts on the City’s credit rating. Formal Fresh Start: The City could choose to formally alter its contract with CalPERS to enter into a “Fresh Start”. This would re-amortize the entire obligation for either the City’s miscellaneous plan or safety plan (or both) over a shortened time period. This is not recommended because once the contract with CalPERS is altered it cannot be rescinded. This could significantly impact costs and service delivery since the City would be obligated to pay according to the new schedule. Many of the benefits of the formal fresh start could be realized by a “Fresh Start in Concept” without the adverse impacts. Next Steps After discussing the potential draft policies with the Finance Committee, Staff hopes to refine a formal pension funding policy for consideration and adoption by the full City Council. Feedback on the example policies will be incorporated into the drafting and presentation of a formal pension funding policy. Engagement As staff incorporates feedback from the Finance Committee into the development of a pension funding policy, engagement will occur with both the workforce and the community to inform them of developments and solicit additional feedback. Additionally, the City's interest in meeting its pension funding obligations necessitates ongoing engagement with the State legislature to give cities more tools such as the ability to change benefits prospectively for current employees, and/or defined contribution plans. Staff examined pension prefunding policies from other jurisdictions and confirmed that the City ATTACHMENT A City of Palo Alto Page 13 of Palo Alto is among very few cities with sustained contributions to Section 115 Trust Funds built into their budgeting practice and their operations. Many other cities in California that are proactively funding pensions continue to do so on an ad hoc basis, using fund balance at year- end, or a certain portion of remaining fund balance above a minimum amount to generate their contributions. Some examples of other California cities that have ongoing contributions include Fountain Valley, which earmarked a portion of a local sales tax measure for unfunded pension liabilities, Sausalito, which uses a lower discount rate to calculate its pension obligation and transmits the difference to its Section 115 Trust Fund, and Pasadena, which transmits the savings from paying the UAL as a lump sum at the beginning of the year to its 115 Trust. Additionally, Staff consulted with its outside actuarial consultant, Bartel and Associates, as well as its pension modeling software vendor (GovInvest) regarding implications of various strategies. Staff also consulted with CalPERS to learn more about pension prefunding options. Industry groups for government finance, including the Government Finance Officers Association (GFOA) and the California Society of Municipal Finance Officers (CSMFO), were used as sources of emerging best practices for proactively funding long-term pension obligations. Each of these engagements informed the guiding principles and questions, which were placed into context for the City of Palo Alto to inform the creation of the different pension funding policy options. Resource Impact The resource impact from the development of a pension funding policy would be directly correlated to the parameters and requirements of the policy itself. To the extent changes to the City’s current budgeting practice (using a more conservative 6.2% Discount Rate for the calculation of the normal cost) are included in the policy corresponding changes would need to be included in the development of the City’s annual Long Range Financial Forecast and annual Operating Budget. It is anticipated that the establishment of a formal pension funding policy, including parameters for the use of funds beyond the CalPERS ADC, would have a beneficial impact on the long-term financial sustainability of the organization by limiting our risk from CalPERS long-term investment returns. Environmental Review This report is not a project for the purposes of the California Environmental Quality Act. Environmental review is not required. Attachments: • ATTACHMENT A: Additional Information and Background Regarding the City of Palo Alto's Pension Obligations • ATTACHMENT B: CalPERS Fresh Start Amortization Tables ATTACHMENT A ATTACHMENT A Attachment A Page 1 Attachment A: Additional Information and Background Regarding the City of Palo Alto’s Pension Obligations As discussed in the body of CMR 10645 the City of Palo Alto has been discussing its options to address its long-term pension liability. A brief timeline of the CMRs and discussions with the Finance Committee and the City Council over the past few years is included below to offer additional context. After the timeline, a few of the more critical inputs that impact the City’s long-term pension liability are discussed for further background on the subject. Timeline: • 9/2017 Finance Committee, “Review and Discuss CalPERS Pension Annual Valuation Reports as of June 30, 2016 Including Assumptions, Financial Disclosures and Next Steps” 8509 • 10/2017 Finance Committee, “Review and Recommend Strategies to Address the City’s Pension Liability” 8579 • 12/2017 Finance Committee “FY2019 - FY2028 Long Range Financial Forecast & City Pension Liabilities” 8676 • 1/2018 City Council, “Approval of the FY 2017 Comprehensive Annual Financial Report (CAFR) and Approval of Conforming Amendments to FY 2017 Budget in Various Funds; Acceptance of the FY2019 - FY2028 Long Range Financial Forecast; and Discussion and Potential Direction Regarding Budgeting for City Pension Liabilities” 8754 • 9/2018 Finance Committee, “Accept CalPERS Pension Annual Valuation Reports as of June 30, 2017 and Review and Confirm Pension Funding and Reporting Policy Guidelines” 9604 • 10/2018 City Council, “CalPERS Pension Annual Valuation Reports as of June 30, 2017 and Pension Funding and Reporting Policy Guidelines” 9708 • 10/2018 City Council, “Direct Staff to Amend Budget Assumptions for Pension Benefit Costs and Complete the Workplans to Address the City Council FY 2019 Adopted Budget Referral to Identify $4 Million in General Fund Savings” 9740 • 9/2019 Finance Committee, “Accept CalPERS Pension Annual Valuation Reports as of June 30, 2018” 10641 Through the various discussions, the City has been able to better understand and analyze many of the inputs and factors that impact the City’s pension liability. A few of the most important inputs are detailed below to offer additional context regarding the City’s long-term pension obligations. Inputs – Discount Rate: The CalPERS pension plan is built on the assumption that assets will generate a certain rate of return over the career of an individual; these returns make up the bulk of an individual’s pension benefit. The long-term investment assumption is called the Discount Rate. As a result, the assumptions for the discount rate have a significant impact on the City’s pension liability. If a higher investment return is assumed, the City’s contributions can be lessened compared to a lower investment return. The Discount Rate is comprised of both the “real” investment returns as well as inflation assumptions. If the inflation assumption changes, then there would also be an impact on the City’s liability. ATTACHMENT A ATTACHMENT A Attachment A Page 2 Salary Growth: The salary growth of the City is another important variable; to the extent that the City’s salary growth is higher or lower than CalPERS’ projections the City’s contributions would need to be higher or lower to ensure adequate funding. Mortality Rates: The mortality rates also impact the City’s long-term pension liability. This is because as individuals live longer, they draw on their pension for a longer period, thereby increasing the cost of the benefit. As CalPERS refines mortality rates to reflect people living longer, the changes adversely impact the City’s long-term liability. Maturity Measures: As pension plans mature, they become more susceptible to risk than less mature pans. One of the methods to show the maturity level of a CalPERS plan is to examine the ratio of actives to retirees. A pension plan that is just beginning will have a very high ratio of active to retired members. As the plan continues and members retire the ratio starts declining. CalPERS consider a plan to be mature when the ratio is near or below 1.0. The average support ratio for CalPERS public agency plans is 1.25, meaning that 1.25 active employees are supporting each retiree. For the City of Palo Alto, as an institution that was founded 125 years ago, the active:retiree ratio is 0.72 for Miscellaneous, and is .39 for the Safety group. PEPRA: The Public Employee Pension Reform Act (PEPRA) will have an impact on the City’s long-term pension liability because it mandates a different retirement formula to employees in the PEPRA tier and limits the maximum annual compensation eligible for pension calculations for employees in the PEPRA tier. Employees fall into the PEPRA tier if their first date of employment was after January 1, 2013 and they had no prior membership in another California Public Retirement System, or they have a break-in service of more than 6 months. As the City’s workforce continues to shift demographically from “Classic” members to PEPRA members, the City’s long-term liability will likely contract accordingly. Other: Other elements also impact the City’s long-term pension liability, including the upcoming change in CalPERS’ amortization policy. They will be shifting from a 30-year amortization with a 5-year ‘ramp-up’ at the beginning and a 5-year ‘ramp-down’ at the end to a 20-year amortization with a 5-year ‘ramp-up’ and no ‘ramp-down’. This will have an impact on the City’s annual Actuarial Determined Contributions (ADC) and the pension liability that will vary depending on whether it is a gain or a loss that is being amortized. ATTACHMENT A City of Palo Alto Unfunded Pension Liability - Safety As of June 30 2018 Unfunded Balance Payment Unfunded Balance Payment Difference From Current Unfunded Balance Payment Difference From Current 6/30/2020 176,810,640 11,210,740 176,810,640 13,079,551 1,868,811 176,810,640 15,947,209 4,736,469 6/30/2021 177,590,903 12,598,401 175,657,792 13,439,239 840,838 172,691,464 16,385,757 3,787,356 6/30/2022 176,990,378 13,825,697 174,052,181 13,808,818 (16,879) 167,830,308 16,836,365 3,010,668 6/30/2023 175,078,292 14,694,686 171,951,881 14,188,560 (506,126) 162,162,758 17,299,365 2,604,679 6/30/2024 172,133,468 15,421,340 169,311,752 14,578,746 (842,594) 155,619,549 17,775,098 2,353,758 6/30/2025 168,230,853 15,845,427 166,083,203 14,979,661 (865,766) 148,126,213 18,263,913 2,418,486 6/30/2026 163,616,378 16,258,249 162,213,945 15,391,602 (866,647) 139,602,709 18,766,170 2,507,921 6/30/2027 158,251,858 16,705,350 157,647,725 15,814,871 (890,479) 129,963,021 19,282,240 2,576,890 6/30/2028 152,049,340 17,164,748 152,324,036 16,249,780 (914,968) 119,114,729 19,812,502 2,647,754 6/30/2029 144,937,439 17,636,782 146,177,815 16,696,649 (940,133) 106,958,548 20,357,346 2,720,564 6/30/2030 136,839,428 18,121,791 139,139,115 17,155,807 (965,984) 93,387,845 20,917,173 2,795,382 6/30/2031 127,672,863 17,622,496 131,132,748 17,627,591 5,095 78,288,102 21,492,395 3,869,899 6/30/2032 118,381,115 17,537,542 122,077,918 18,112,350 574,808 61,536,364 22,083,436 4,545,894 6/30/2033 108,526,816 16,625,803 111,887,812 18,610,440 1,984,637 43,000,626 22,690,730 6,064,927 6/30/2034 98,925,829 16,285,453 100,469,170 19,122,227 2,836,774 22,539,196 23,314,725 7,029,272 6/30/2035 89,004,832 15,649,262 87,721,827 19,648,088 3,998,826 (15,649,262) 6/30/2036 79,047,446 14,573,328 73,538,215 20,188,410 5,615,082 (14,573,328) 6/30/2037 69,505,998 13,957,164 57,802,836 20,743,592 6,786,428 (13,957,164) 6/30/2038 59,934,015 13,296,089 40,391,696 21,314,041 8,017,952 (13,296,089) 6/30/2039 50,375,812 12,812,833 21,171,700 21,900,177 9,087,344 (12,812,833) 6/30/2040 40,648,424 12,595,936 (12,595,936) (12,595,936) 6/30/2041 30,464,477 10,720,552 (10,720,552) (10,720,552) 6/30/2042 21,507,566 10,084,590 (10,084,590) (10,084,590) 6/30/2043 12,581,512 9,249,935 (9,249,935) (9,249,935) 6/30/2044 3,894,010 2,256,558 (2,256,558) (2,256,558) 6/30/2045 1,832,389 1,008,317 (1,008,317) (1,008,317) 6/30/2046 917,644 949,218 (949,218) (949,218) 354,708,287 342,650,200 (12,058,087) 291,224,424 (63,483,863) Current Amortization 20 Year Amortization 15 Year Amortization Date ATTACHMENT B Attachment B Page 1 ATTACHMENT A City of Palo Alto Unfunded Pension Liability - Miscellaneous As of June 30 2018 Unfunded Balance Payment Unfunded Balance Payment Difference From Current Unfunded Balance Payment Difference From Current 6/30/2020 286,363,666 23,432,860 286,363,666 25,828,203 2,395,343 286,363,666 35,308,545 11,875,685 6/30/2021 282,169,983 25,768,686 279,692,222 26,538,479 769,793 269,885,680 36,279,530 10,510,844 6/30/2022 275,266,546 27,775,842 271,819,062 27,268,287 (507,555) 251,249,840 37,277,217 9,501,375 6/30/2023 265,803,649 29,093,334 262,639,861 28,018,165 (1,075,169) 230,277,476 38,302,340 9,209,006 6/30/2024 254,315,525 30,450,533 252,042,436 28,788,664 (1,661,869) 206,776,650 39,355,655 8,905,122 6/30/2025 240,619,337 28,631,100 239,906,181 29,580,352 949,252 180,541,209 40,437,935 11,806,835 6/30/2026 227,846,449 25,356,875 226,101,459 30,393,812 5,036,937 151,349,768 41,549,979 16,193,104 6/30/2027 217,566,346 26,054,188 210,488,957 31,229,642 5,175,454 118,964,620 42,692,603 16,638,415 6/30/2028 205,845,327 26,770,680 192,918,992 32,088,457 5,317,777 83,130,572 43,866,650 17,095,970 6/30/2029 192,562,693 27,506,872 173,230,763 32,970,890 5,464,018 43,573,697 45,072,982 17,566,110 6/30/2030 177,588,753 28,263,313 151,251,563 33,877,589 5,614,276 (28,263,313) 6/30/2031 160,784,169 25,566,093 126,795,922 34,809,223 9,243,130 (25,566,093) 6/30/2032 145,593,290 25,078,301 99,664,696 35,766,476 10,688,175 (25,078,301) 6/30/2033 129,843,622 22,968,475 69,644,094 36,750,055 13,781,580 (22,968,475) 6/30/2034 115,173,901 21,972,705 36,504,628 37,760,681 15,787,976 (21,972,705) 6/30/2035 100,507,333 20,503,251 (20,503,251) (20,503,251) 6/30/2036 86,334,117 18,042,492 (18,042,492) (18,042,492) 6/30/2037 73,714,206 16,794,746 (16,794,746) (16,794,746) 6/30/2038 61,501,581 15,464,725 (15,464,725) (15,464,725) 6/30/2039 49,809,855 14,472,775 (14,472,775) (14,472,775) 6/30/2040 38,325,790 13,874,452 (13,874,452) (13,874,452) 6/30/2041 26,656,752 10,174,002 (10,174,002) (10,174,002) 6/30/2042 17,998,655 9,509,422 (9,509,422) (9,509,422) 6/30/2043 9,421,939 8,211,777 (8,211,777) (8,211,777) 6/30/2044 1,587,145 1,641,756 (1,641,756) (1,641,756) 523,379,255 471,668,975 (51,710,280) 400,143,436 (123,235,819) Current Amortization 15 Year Amortization 10 Year Amortization Date Attachment B Page 2 ATTACHMENT A Attachment B Discussion of Finance Committee Request for Information The City consulted with its outside actuarial consultant, Bartel Associates, to analyze what additional level of contributions would be necessary to reach a 90% funding level for the Miscellaneous plan and the Safety plan over different timeframes, ranging from 15 years to 10 years. This analysis was conducted using both a methodology consistent with CalPERS (presuming a 7.0% discount rate) and using a more conservative Risk Mitigation methodology where the discount rate would be lowered by 5 basis points each year beginning in FY 2023. As part of the conversation around a Pension Funding Policy, it is crucial to remember that CalPERS itself is the largest public pension fund in the United States. CalPERS is striving to reduce risk in its portfolio, balance the competing interests of its various constituencies, and maintain returns over a time horizon that spans decades. Thus, although CalPERS has begun de‐risking by shifting its investment portfolio, lowering its discount rate from 7.5% to 7.0%, and shortening its amortization period for new gains/losses from 30 years to 20 years, the City likely still has an interest in additional proactive contributions to further mitigate its long‐term pension liabilities. Table 1, below, shows the additional contributions, above the CalPERS Actuarially Determined Contribution, necessary to reach a funding level of 90% in the Miscellaneous plan using a methodology consistent with CalPERS current calculations. The table incorporates the PARS trust fund into the consideration of total funding level and includes the cost of paying the difference in Normal Cost Rates (between 7.0% and 6.2%) as its own row of data. As the timeframe for reaching 90% funding shortens, the marginal cost of additional contributions necessary to reach 90% within that timeframe is shown. As seen in the table below, based on the actuarial assets as of June 30, 2018, and presuming that CalPERS met its 7.0% investment return in each year, the City would have reached 90% of funding within 11 years for the Miscellaneous plan if it continued paying the difference in Normal Cost rates each year. This means that no additional contribution would be necessary unless the City wanted to reach a 90% funding level within 10 years. The marginal cost to reach it within 10 years is reflected on that row. As seen in Figure 1, which follows the table, the largest component of the City’s contributions remains the CalPERS calculated contributions. Thus, paying the CalPERS ADC remains a critical component of the City’s pension funding strategy. Attachment B Table 1. Additional Contributions to reach 90% Funding in Miscellaneous Plan – 7% DR ($000s) Figure 1. Graph of Additional Contributions to reach 90% in Miscellaneous Plan – 7% DR ($000s) Table 2, below, shows the same information for the Safety Plan. In the Safety Plan, additional funding would be needed for each year of the timeframe in order to reach a funding level of 90% of CalPERS’ assets. As seen in the table and figure below, $165,000 in additional funding would be needed in the first year to reach 90% funding in 14 years, and an additional $539,000 would be needed to reach 90% funding in 13 years, with increased contributions necessary for the shorter timeframes. FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 6.2% DR NC Margin 2,729 2,686 2,668 2,648 2,624 2,603 2,583 2,566 2,550 2,535 2,520 2,505 2,490 2,476 14 Years - - - - - - - - - - - - - - 13 Years - - - - - - - - - - - - - 12 Years - - - - - - - - - - - - 11 Years - - - - - - - - - - - 10 Years 368 378 389 399 410 421 433 445 457 470 Attachment B Table 2. Additional Contributions to reach 90% Funding in Safety Plan – 7% DR ($000s) Figure 2. Graph of Additional Contributions to reach 90% Funding in Safety Plan – 7% DR ($000s) Table 3. Budgeted Additional Contributions through FY 2031 ($000s) As seen from the tables and figures above, the City is currently contributing enough additional funding to reach 90% funding within 15 years for both the Miscellaneous and Safety plans if CalPERS achieved a 7.0% rate of return. However, given the historic rate of return for CalPERS and CalPERS’ stated desire to further mitigate risk by reducing the discount rate to the extent practicable and possible, Bartel Associates also calculated a projection under a “Risk Mitigation” scenario. This scenario models necessary contributions if CalPERS’ discount rate was steadily lowered by 5 basis points per year. As in the tables above, the difference in calculating the normal cost at a discount rate of 6.2% and the Risk Mitigation Rate (which lowers from 7.0% throughout the projection), is included as its separate row beginning in FY 2023. In the tables FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 6.2% DR NC Margin 1,337 1,369 1,365 1,363 1,361 1,359 1,357 1,356 1,354 1,348 1,334 1,322 1,308 1,291 14 Years 165 170 174 179 184 189 194 200 205 211 216 222 228 235 13 Years 539 554 569 585 601 617 634 652 670 688 707 726 746 12 Years 695 714 734 754 775 796 818 840 863 887 912 937 11 Years 854 877 902 926 952 978 1,005 1,033 1,061 1,090 1,120 10 Years 1,088 1,118 1,149 1,180 1,213 1,246 1,280 1,316 1,352 1,389 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 Miscellaneous Plan 3,754 3,865 3,946 4,030 3,958 4,051 4,144 4,237 4,344 4,422 4,515 Safety Plan 1,795 1,810 1,825 1,827 1,756 1,789 1,821 1,853 1,886 1,918 1,970 Attachment B below, the additional cost associated with lowering the discount rate from 7.0% to a lower rate is included as the “Costs > 7.0% DR” row. Table 4. Additional Contributions to reach 90% Funding in Miscellaneous Plan – Risk Mitigation ($000s) Figure 3. Graph of Additional Contributions to reach 90% Funding in Miscellaneous Plan – Risk Mitigation ($000s) Table 5. Additional Contributions to reach 90% Funding in Safety Plan – Risk Mitigation ($000s) FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 Costs > 7.0% DR - - 331 1,167 1,964 2,967 3,831 4,987 5,735 6,678 7,377 8,703 9,268 9,564 6.2% DR NC Margin 2,729 2,686 2,668 2,482 2,132 1,952 1,776 1,604 1,435 1,268 1,102 939 778 619 14 Years - - - - - - - - - - - - - - 13 Years - - - - - - - - - - - - - 12 Years 255 121 121 121 121 121 121 121 121 121 121 121 11 Years 1,320 649 670 692 714 737 761 785 810 836 862 10 Years 1,286 629 646 664 682 701 720 740 761 781 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 Costs > 7.0% DR - - 186 612 1,021 1,536 1,995 2,482 2,929 3,467 3,825 4,324 4,807 5,094 6.2% DR NC Margin 1,337 1,369 1,365 1,278 1,106 1,019 933 847 762 674 584 496 409 323 14 Years 1,088 1,118 1,149 1,180 1,213 1,246 1,280 1,316 1,352 1,389 1,427 1,466 1,507 1,548 13 Years 710 730 750 770 791 813 836 858 882 906 931 957 983 12 Years 694 713 733 753 774 795 817 839 862 886 910 935 11 Years 1,066 1,095 1,125 1,156 1,188 1,221 1,254 1,289 1,324 1,361 1,398 10 Years 1,068 1,097 1,128 1,159 1,190 1,223 1,257 1,291 1,327 1,363 Attachment B Figure 4. Graph of Additional Contributions to reach 90% Funding in Safety Plan – Risk Mitigation ($000s) As seen by comparing the Risk Mitigation tables to Table 3. Budgeted Additional Contributions through FY 2031 ($000s), the City would need to ramp up its contributions as the discount rate lowers beginning in FY 2023 to reach a funding level of 90% within 14 years for miscellaneous, and would need to ramp up immediately for the Safety plan to reach 90% within 14 years. Given the current and projected financial status of the organization, these additional contributions would have immediate service delivery impacts. Attachment C Example Pension Funding Policy Determination of an appropriate level for proactive Pension Funding is a policy decision. The overarching goal of a Pension Funding Policy is to ensure that the City of Palo Alto avoids service-delivery crowd-out by increasing annual pension costs. This must be balanced against immediate impacts to service delivery in order to fund proactive contributions. The City is statutorily required to make the CalPERS Actuarial Determined Contribution (ADC) on an annual basis. The ADC is made up of two parts, the Normal Cost (NC), which represents the pay-as-you-go portion of costs, and the Unfunded Accrued Liability (UAL) payment, which represents the catch-up portion of costs. CalPERS currently calculates both the NC and the UAL based on a discount rate of 7.0%. CalPERS amortizes any difference between investment returns and that discount rate as part of its UAL calculation over 20 years. In a year when CalPERS does not meet its target (loss) the City has to pay more over the next 20 years. In a year when CalPERS exceeds its target (gain) the City would be able to pay less over the next 20 years. The timeframe of 20 years for amortizing gains and losses is recent; they were amortized over 30 years through the June 30, 2018 valuation). Additionally, the City recognizes the importance of ensuring that pension obligations included in the City’s financial reports, such as the Comprehensive Annual Financial Report (CAFR), are consistent with CalPERS. Reports such as the CAFR impact the City’s credit rating and thereby influence areas such as bond financing that the City may seek to obtain. However, the City also recognizes that CalPERS calculated costs are based on a discount rate, annual rates of return, and other variables that might not align with actual experience nor perhaps with expected experience. To address these shortcomings, the City is establishing a Pension Funding Policy to guide proactive pension contributions. This policy provides direction to the City regarding a desired funding target in relation to CalPERS valuations, the timeframe over which to achieve that target, and actions that are required until the target is met. There are contingencies that provide an additional range of options if certain circumstances are met and some that require additional actions if other criteria are satisfied. Funding Goal and Timeframe: Through this policy, the City’s target is to fund 90% of the CalPERS determined liability by FY 2036. The City will strive to reach the target of 90% of the CalPERS determined liability within 15 years. If the City only paid the CalPERS ADC it would take at least 30 years to reach full funding of the CalPERS determined liability. CalPERS’ 30-year timeframe to reach full funding is also predicated on every single one of their actuarial Attachment C assumptions materializing. Thus, a 15-year timeframe to fund 90% of the CalPERS determined liability represents a commitment from the City above and beyond the CalPERS ADC. Funding Components: In order to achieve the target of 90% funding by FY 2036, the City will calculate what the Normal Cost portion of annual pension costs would be if a discount rate of 6.2% were used instead of the CalPERS rate for the Miscellaneous and Safety Groups across the organization. This additional cost will be included as part of the City’s standard budget process and transmitted to the City’s Irrevocable section 115 PARS Pension Trust Fund (PARS Trust Fund or PARS). Should the City reach its goal of 90% funding before FY 2036, the City Manager will report the status to the City Council with a recommendation on whether the practice should be continued, modified, or discontinued. The City Manager must identify the impacts on the funding goal and timeframe to modify the transmission of the additional contributions to the PARS Trust Fund. In addition to the contributions required by this Pension Funding Policy, the City will examine additional opportunities for proactive contributions to the PARS Trust Fund. Furthermore, the City Manager will include recommendations on whether funding should be transmitted from PARS to CalPERS as part of the annual budget process. This may change from year-to-year depending on the circumstances and level of funding accumulated. Some years may result in accumulating additional funding in PARS, while others may result in transferring an amount greater than a single year of additional contributions, calculated through the lower discount rate, to CalPERS. City Council approval is required for use of accumulated funds in PARS either to CalPERS as an Additional Discretionary Payment (ADP) or to offset a portion of the standard ADC. An additional action that will not require City Council approval is transfer of excess Budget Stabilization Reserve (BSR) above 18.5% to the PARS Trust Fund. The BSR Policy will be amended to confer discretion to the City Manager to make this transfer. The BSR Policy currently confers discretion to the City Manager to transfer excess BSR above 18.5% to the Infrastructure Reserve. Once amended, the BSR Policy will confer authority to the City Manager to proactively fund infrastructure and pension obligation needs through transfers to the Infrastructure Reserve and to the PARS Trust Fund. Additionally, through standard reports to the City Council (such as Year-End, Mid-Year, or another City Manager’s Report) the City Manager will include actions for additional contributions from funds other than the General Fund to maintain alignment with the contributions from the General Fund via excess BSR. City Council approval is required for these contributions from funds other than the General Fund. The City will work to proactively monitor its pension funding position through not only its CalPERS reports but also by continuing to use an outside actuary as a consultant to model different scenarios. The City will continue to transmit the CalPERS reports on an annual basis. Attachment C Once every three years, the City will consult with an outside actuary to provide an update on the progress the City has made towards reaching a funding goal of 90% of funding of the CalPERS determined liability by FY2036 and update the City Council. Additional actions may come out of those reports and discussions with the City Council. Service Delivery Outcomes: The goal of the Pension Funding Policy is to prevent service delivery crowd-out by the increased costs of pension obligations. If the City’s efforts to proactively contribute to the long-term pension obligations would result in service delivery impacts in the short-term, the City Manager will identify those impacts and recommendations to mitigate them, as appropriate, through the budget development process. Fiscal Impacts: If the General Fund’s revenues are projected to decline more than 7.5% year- over-year, the City Manager will return to the City Council with recommendations addressing the implications for the City’s proactive funding contributions for the coming year through the budget development process. Attachment D Impact of a 0% Investment Return for CalPERS for FY 2020 Staff analyzed the impact of a 0% investment return for CalPERS for Fiscal Year 2020, spanning from June 30, 2019 through June 30, 2020. This analysis was performed using CalPERS’ Pension Navigator tool. This tool allows for forecasting changes to certain parameters to approximate the anticipated impact of changes to things like the rate of return for a given year. As seen in the table and graph below, the impact would be phased‐in over five years, increasing by 20% each year. It begins at 20%, increases to 40% in the next year, and continues to increase through the fifth year when it reaches 100%. The cost in FY 2026 remains constant through the conclusion of the 20 year amortization period, concluding in FY 2041. Through staff’s analysis, each 1% of investment return is equivalent to approximately $1.0 million in total impact. Thus, if CalPERS were to achieve a 1% investment return for FY 2020, the impact to the City would be approximately $6.2 million at the end of a five‐year phase‐in. Approximately 45% of the impact associated with the Miscellaneous plan would be borne by the General Fund. The entirety of the impact on the Safety Plan would be borne by the General Fund. The General Fund would accordingly bear approximately 67% of the total impact. Table 1. Phase‐In of Impacts of a 0% Investment Return (FY 2020) ($Ms) Figure 1. Graph showing Phase‐In of Impacts of a 0% Investment Return (FY 2020) ($Ms) FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 Impact on Miscellaneous 0.97 1.93 2.90 3.87 4.84 Impact on Safety 0.47 0.94 1.41 1.88 2.34 Total Impact 1.44 2.87 4.31 5.75 7.18 0.97 1.93 2.90 3.87 4.84 0.47 0.94 1.41 1.88 2.34 ‐ 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 Phase‐In of Impacts of a 0% Investment Return ($Ms) Impact on Miscellaneous Impact on Safety CITY COUNCIL MEETING _______6/16/2020_______ #3 City of Palo Alto MEMORANDUM To: City Council Date: June 16, 2020 SUBJECT: Agenda Item #3: Discussion and Direction to Staff Regarding the Establishment of a Pension Funding Policy; Approval of Contract Number C15159278 with Bartel Associates for a Six-Year Term for biennial Actuary Services in the Amount Not-to-Exceed $132,325, and Authorization to the City Manager to Execute a Contract Amendment Number 1 to Contract C15159278 to Increase Funding by $97,675 for a Revised Total Not-to-Exceed $230,000 for Additional Actuarial Consultant Work Related to Council Directed Scenario Modeling for Pension and Retiree Health Liabilities Bartel Associates is the consultant that performs the City’s bi-ennial Other Post-Employment Benefit (OPEB) valuations, the most recent of which was transmitted on April 30, 2020 for discussion with the Finance Committee on May 5, 2020. In addition to the City’s bi-ennial OPEB valuations, Bartel Associates has also performed additional services related to pension forecasting and analysis. As staff reviewed the contract to amend the scope and add to the not-to-exceed compensation for the work performed for pension forecasting, it was discovered that the contract, dated September 1, 2015, was inadvertently not transmitted to Council for approval in 2015 (Attachment A). The contract term is through August 31, 2021 for a not-to-exceed amount of $132,325. A summary of the RFP and evaluation are discussed in below. Staff recommends that the City Council: 1)Approve and authorize the City Manager or his designee to execute the attached contract with Bartel Associates (C15159278, Attachment A) dated September 1, 2015 for an amount not to exceed $132,325 for OPEB and pension actuary and analysis services. 2)Approve and authorize the City Manager or his designee to execute the attached Amendment No. 1 to Contract C15159278 (Attachment B) with Bartel Associates to increase the funding by $97,675 for a revised total amount Not-To-Exceed $230,000 for additional actuarial consultant work related to long-term obligations for pension and retiree health liabilities. The contract amendment (Attachment B) increases the contract authority to align with the significant work effort to date from Bartel Associates, which has been instrumental in the extensive discussions that have been had with the City Council and the Finance Committee regarding long-term pension obligations. The amendment also includes contract authority for additional Government Accounting Standards Board (GASB) revised reporting requirements related to OPEB to ensure the City’s compliance with those regulations. Although no budgetary adjustment is necessary for this contract amendment, staff does anticipate using salary savings to fund elements of the amended scope. Summary of RFP Process An RFP for actuarial valuation for the City’s retiree medical plan was issued on May 28, 2015, with proposals due on June 19, 2015. The City received three proposed from qualified consulting firms: Bartel Associates LLC, Jefferson Solutions Inc., and Milliman Inc. RFP Name/Number Actuarial Valuation for the Retiree Medical Plan / RFP 159278 Proposed Length of Contract 6 years Total Days to Respond to RFP 22 days Pre-Bid Meeting? No Number of Proposals Received 3 Bid Price Range $41,010 to $122,325 An evaluation committee consisting of four City staff members from the Administrative Services Department reviewed and evaluated the proposals according to the criteria identified in the RFP. The criteria used to evaluate the proposals were as follows: •Quality and completeness of proposal •Quality, performance, and effectiveness of the solution or services to be provided •Quality of the estimates by which project costs are developed •Proposer’s experience, including the experience of staff •Costs to the City •Proposal’s financial stability •Proposer’s ability to perform work within time specified •Proposer’s prior record of performance with City or others •Proposer’s ability to provide future records, reports, data, service •Proposer’s compliance with applicable laws Bartel Associates was selected as the preferred consultant due to the firm’s demonstrated experience and expertise with OPEB and pension valuation and analysis and the firm’s comprehensive knowledge of GASB’s requirements for reporting of these employee benefits. Staff recommends approval of the contract with Bartel Associates to align with the original intent, as well as an amendment to the contract to include work on the pension policy and upcoming GASB pronouncements. These two actions will ensure alignment between the contractual authority and the work effort necessary for these services.: Kiely Nose Chief Financial Officer Ed Shikada City Manager Vers.: Aug. 5, 2019 Page 1 of 10 AMENDMENT NO. 1 TO CONTRACT NO. C15159278 BETWEEN THE CITY OF PALO ALTO AND BARTEL ASSOCIATES, LLC This Amendment No. 1 (this “Amendment”) to Contract No. C15159278 (the “Contract” as defined below) is entered into as of September 1, 2015, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and BARTEL ASSOCIATES, LLC, a limited liability corporation, located at 411 Borel Avenue, Suite 620, San Mateo, CA 94402 (“CONTRACTOR”). CITY and CONTRACTOR are referred to collectively as the “Parties” in this Amendment. R E C I T A L S A. The Contract (as defined below) was entered into by and between the Parties hereto for the provision of actuarial services related to the City’s non-pension Other Post- Employment Benefits (OPEB) benefits, as detailed therein. B. The Parties now wish to amend the Contract in order to include CalPERS pension valuations in the Scope of Services, replacing Exhibit “A” (“Scope of Services”), and add to the compensation amount, replacing Exhibit “C” (“Schedule of Fees”), as detailed herein. NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the Parties agree: SECTION 1. Definitions. The following definitions shall apply to this Amendment: a. Contract. The term “Contract” shall mean Contract No. C15159278 between CONSULTANT and CITY, dated September 1, 2015. b. Other Terms. Capitalized terms used and not defined in this Amendment shall have the meanings assigned to such terms in the Contract. SECTION 2. Section 5, “Compensation for Original Term”, of the Contract is hereby amended to read as follows: “5. COMPENSATION FOR ORIGINAL TERM. CITY shall pay and CONTRACTOR agrees to accept as not-to-exceed compensation for the full performance of the Services and reimbursable expenses, if any: The total maximum lump sum compensation of dollars ($ ); OR The sum of dollars ($ ) per hour, not to exceed a total maximum compensation amount of dollars ($ ); OR For Services detailed in Exhibit A (Scope of Services), including OPEB biennial Vers.: Aug. 5, 2019 Page 2 of 10 valuations as of June 30, 2015, June 30, 2017, and June 30, 2019 and other Services, sums calculated in accordance with the fee schedule set forth at Exhibit C, not to exceed a total maximum compensation amount of Two Hundred Thirty Thousand Dollars ($230,000). CONTRACTOR agrees that it can perform the Services detailed in Exhibit A (Scope of Services), including OPEB biennial valuations as of June 30, 2015, June 30, 2017, and June 30, 2019; other as needed actuarial analyses; and CalPERS pension valuations for an amount not to exceed the total maximum compensation set forth above. Any hours worked or services performed by CONTRACTOR for which payment would result in a total exceeding the maximum amount of compensation set forth above for performance of the Services shall be at no cost to CITY. In addition, included in the total maximum compensation amount above, the CITY has set aside the sum of ten thousand dollars ($10,000.00) for Additional Services. CONTRACTOR shall provide Additional Services only by advanced, written authorization from the City Manager or designee. CONTRACTOR, at the CITY’s request, shall submit a detailed written proposal including a description of the scope of services, schedule, level of effort, and CONTRACTOR’s proposed maximum compensation, including reimbursable expense, for such services. Compensation shall be based on the hourly rates set forth above or in Exhibit C (whichever is applicable), or if such rates are not applicable, a negotiated lump sum. CITY shall not authorize and CONTRACTOR shall not perform any Additional Services for which payment would exceed the amount set forth above for Additional Services. Payment for Additional Services is subject to all requirements and restrictions in this Agreement.” SECTION 3. The following exhibit(s) to the Contract is/are hereby amended or added, as indicated below, to read as set forth in the attachment(s) to this Amendment, which is/are hereby incorporated in full into this Amendment and into the Contract by this reference: a. Exhibit “A” entitled “SCOPE OF SERVICES”, of the Contract is hereby deleted and replaced in its entirety to read as attached to this Amendment as Exhibit “A”, entitled “SCOPE OF SERVICES, AMENDMENT NO. 1”, AMENDED, REPLACES PREVIOUS.. b. Exhibit “C” entitled “SCHEDULE OF FEES”, of the Contract is hereby deleted and replaced in its entirety to read as attached to this Amendment as Exhibit “C”, entitled “SCHEDULE OF FEES, AMENDMENT NO. 1”, AMENDED, REPLACES PREVIOUS.. Vers.: Aug. 5, 2019 Page 3 of 10 SECTION 4. Legal Effect. Except as modified by this Amendment, all other provisions of the Contract, including any exhibits thereto, shall remain in full force and effect. SECTION 5. Incorporation of Recitals. The recitals set forth above are terms of this Amendment and are fully incorporated herein by this reference. (SIGNATURE BLOCK FOLLOWS ON THE NEXT PAGE.) Vers.: Aug. 5, 2019 Page 4 of 10 SIGNATURES OF THE PARTIES IN WITNESS WHEREOF, the Parties have by their duly authorized representatives executed this Amendment effective as of the date first above written. CITY OF PALO ALTO City Manager (Contract over $85k) APPROVED AS TO FORM: City Attorney or designee (Contract over $25k) Contracts Administrator (Checklist Approval) BARTEL ASSOCIATES, LLC Officer 1 By: Name: Mary Elizabeth Redding Title: Vice President Officer 2 (Required for Corp. or LLC) By: Name: Doug Pryor Title: Vice President and Secretary Attachments: Exhibit “A” entitled “SCOPE OF SERVICES, AMENDMENT NO. 1” (Amended – Replaces Previous) Exhibit “C” entitled “SCHEDULE OF FEES, AMENDMENT NO. 1” (Amended – Replaces Previous) Vers.: Aug. 5, 2019 Page 5 of 10 EXHIBIT “A” SCOPE OF SERVICES, AMENDMENT NO. 1 (Amended – Replaces Previous) A. Project Purpose CONTRACTOR will prepare bi‐annual actuarial valuation of the City’s non‐pension Other Post‐Employment Benefits (OPEB), as per applicable Governmental Accounting Standards Board (GASB) and actuarial requirements. The last OPEB valuation was prepared as of June 30, 2013. Additionally, the City requires as‐needed actuarial services for labor negotiations, CalPERS projections, or other financial analyses. B. Other Post‐Employment Benefits Valuation CONTRACTOR will provide an actuarial evaluation of the City’s OPEB in compliance with applicable GASB and actuarial requirements. Specifically, the consultant will provide: 1. A determination of the City’s retiree medical benefit actuarial liability on a biannual basis as of June 30, 2015, June 30, 2017, and June 30, 2019. 2. Within 60 days after receipt of the necessary payroll and other information from CITY, the CONTRACTOR will meet with CITY to discuss the OPEB liability and funding level options and will recommend actuarial and economic assumptions appropriate for the City based on plan benefits, anticipated funding levels, and the current economic environment. 3. The required annual total contribution amounts needed to amortize the cost over the amortization period selected. 4. A breakdown of this liability by the following:  Age (<65 v. >65)  Benefit Group (Tier)  Fund  Labor Group  Miscellaneous v. Safety employees  Normal Costs v. Unfunded Actuarial Accrued Liability (UAAL) Amortization  Liability and Normal Cost by Bargaining Unit (7 units)  Current Employees/Retired Employees and Dependents (survivors) (2 groups) 5. A description of the actuarial basis and assumptions used in the valuation. 6. A description of assumption and other changes since the last valuation. 7. A written executive summary describing the results of the valuation. 8. Sensitivity Analysis:  Investment return analysis using all CalPERS Trust options  Discount Rate  Amortization Period  Implied Subsidy  Other analyses suggested by proposer 9. Preparation of the California Employers’ Retiree Benefit Trust (CERBT) Fund documentation and certifications needed by CITY to send to CalPERS. Vers.: Aug. 5, 2019 Page 6 of 10 CONTRACTOR shall perform the following activities to complete the bi‐annual actuarial review of the City’s OPEB programs: 1. Meet with City representatives including Finance Committee and Council, as well as staff, at least four to five times. The preliminary meeting will be conducted to discuss and to understand assumptions and methods before the study is undertaken. In addition, at the first meeting, a project schedule will be agreed upon. The subsequent meeting will be held to explain and to present the results of the project. CONTRACTOR will then attend Finance Committee and/or City Council meetings to present results. 2. Submit a draft report for review and approval prior to submission of final report 3. Prepare a final written report summarizing conclusions and documenting the analysis. This report may be similar in format to the one prepared for the June 30, 2013 actuarial valuation including a written executive summary, though other formats may be acceptable. 4. The report should include exhibits summarizing all appropriate results for two fiscal years (i.e. fiscal year ending June 30, 2015 and projected June 30, 2016). The report should also include information analyzing the impact of any changes in assumptions and methodology as well as plan experience relative to what would have been expected to occur during the preceding two years. C. GASB 75 Reports In addition to the OPEB valuation work described in Section B, annual reports providing the accounting information required under GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (GASB 75), which was first effective for fiscal year ending June 30, 2018. CONTRACTOR will prepare GASBS 75 reports for fiscal years 2017/18, 2018/19, 2019/20 and 20120/21. Each report will include all actuarial information required for GASBS 75: 1. Note Disclosures 2. Required Summary Information (RSI) 3. Supporting Exhibits, including the Crossover Test 4. Journal Entries 5. An allocation of OPEB amounts by Fund, and by Department within the General Fund D. Other As‐Needed Actuarial Analyses Throughout the contract period, CITY may require additional actuarial analyses related to labor negotiations, CalPERS pension valuations, or long‐term financial analyses. Additionally, CITY may require the CONTRACTOR to attend arbitration hearings, Finance Committee meetings, Council meetings, etc. E. CalPERS Pension Valuations In addition to the work above, CITY will require a comprehensive analysis of CalPERS Pension Valuations and impact of changes in CalPERS actuarial assumptions, including but not limited to CalPERS funding policy changes, demographic assumption changes, risk mitigation strategy changes, and the phase-in to a lower discount rate of 7.0% from 7.5%. The strategic asset Vers.: Aug. 5, 2019 Page 7 of 10 allocation of CalPERS and annual inflation assumptions will also be analyzed. The analysis of these various factors and their impact on the City’s anticipated contributions to CalPERS will be discussed and used to inform a conversation about options to address the City’s long-term pension obligations. This analysis will also include a discussion of using a 6.2% discount rate to calculate the City’s normal cost contribution to CalPERS compared to both the 7.0% discount rate currently used by CalPERS as well as the potential for CalPERS to lower their discount rate through a risk mitigation strategy. It is anticipated that this marginal cost will aid the City in calculating its contributions to its Section 115 Pension Trust Fund and inform conversations with the City Council about a pension funding policy. Additionally, the City may ask for consultation on potential disbursement strategies to maximize the effectiveness of the Section 115 Trust Fund and ensure that proactive funding for the City’s long-term pension obligations is optimally utilized. Vers.: Aug. 5, 2019 Page 8 of 10 EXHIBIT “C” SCHEDULE OF FEES, AMENDMENT NO. 1 (Amended – Replaces Previous) CITY shall pay CONTRACTOR according to the following rate schedule. The maximum amount of compensation to be paid to CONTRACTOR, including both payment for services and any specified reimbursable expenses, shall not exceed the amounts set forth in Section 5 of the Agreement. Any services provided or hours worked for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to CITY. The fee information is relevant to a determination of whether the fee is fair and reasonable in light of the services to be provided. Provision of this information assists the City in determining the firm’s understanding of the project, and provides staff with tools to negotiate the cost, provide in a table. Compensation based upon deliverables Services in the chart below refer to services referenced in Exhibit “A” – Scope of Services, Amendment No. 1, Section B – Other Post‐Employment Benefits Valuation as of the dates shown. Costs for reports that may be required as of the Measurement Date for accounting under the new GASB Statements 74 and 75 are excluded. The number and timing of any such reports are dependent on the City’s selected Measurement Dates, and typically cost $1,500 to $3,500 each. CONSULTANT will provide an exact fee quote once the City selects its GASB 74 and 75 timing. Hourly rates and fees below for 2017 and 2019 are based on assumed CPI of 2.5% per year. (NEXT PAGE) Vers.: Aug. 5, 2019 Page 9 of 10 EXHIBIT “C” – SCHEDULE OF FEES, AMENDMENT NO. 1 (Amended – Replaces Previous) (NEXT PAGE) Vers.: Aug. 5, 2019 Page 10 of 10 EXHIBIT “C” – SCHEDULE OF FEES, AMENDMENT NO. 1 (Amended – Replaces Previous) Compensation based upon fee schedule CITY shall pay CONTRACTOR according to the following rate schedule for work referenced in Exhibit “A” – Scope of Services, Amendment No. 1, Section C – Other As‐Needed Actuarial Analyses (also referred to as Additional Services in Section 5 of the Agreement) and Section D – CalPERS Pension Valuations. The maximum amount of compensation to be paid to CONTRACTOR, including both payment for services and reimbursable expenses, shall not exceed the amounts set forth in Sections 5 of the Agreement. Any services provided or hours worked for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to CITY. Position 2020 Hourly Rate Partner & Vice Present (Redding) $300 Assistant Vice President (Lin, Van Valer) $270 Associate Actuary $220 Senior Actuarial Analyst $200 Actuarial Analyst $160 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE POLICY PROVISIONS. INSURER(S) AFFORDING COVERAGE INSURER F : INSURER E : INSURER D : INSURER C : INSURER B : INSURER A : NAIC # NAME:CONTACT (A/C, No):FAX E-MAILADDRESS: PRODUCER (A/C, No, Ext):PHONE INSURED REVISION NUMBER:CERTIFICATE NUMBER:COVERAGES IMPORTANT: If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must have ADDITIONAL INSURED provisions or be endorsed. If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER. OTHER: (Per accident) (Ea accident) $ $ N / A SUBRWVDADDLINSD THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THISCERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. $ $ $ $PROPERTY DAMAGE BODILY INJURY (Per accident) BODILY INJURY (Per person) COMBINED SINGLE LIMIT AUTOS ONLY AUTOSAUTOS ONLY NON-OWNED SCHEDULEDOWNED ANY AUTO AUTOMOBILE LIABILITY Y / N WORKERS COMPENSATION AND EMPLOYERS' LIABILITY OFFICER/MEMBER EXCLUDED?(Mandatory in NH) DESCRIPTION OF OPERATIONS belowIf yes, describe under ANY PROPRIETOR/PARTNER/EXECUTIVE $ $ $ E.L. DISEASE - POLICY LIMIT E.L. DISEASE - EA EMPLOYEE E.L. EACH ACCIDENT EROTH-STATUTEPER LIMITS(MM/DD/YYYY)POLICY EXP(MM/DD/YYYY)POLICY EFFPOLICY NUMBERTYPE OF INSURANCELTRINSR DESCRIPTION OF OPERATIONS / LOCATIONS / VEHICLES (ACORD 101, Additional Remarks Schedule, may be attached if more space is required) EXCESS LIAB UMBRELLA LIAB $EACH OCCURRENCE $AGGREGATE $ OCCUR CLAIMS-MADE DED RETENTION $ $PRODUCTS - COMP/OP AGG $GENERAL AGGREGATE $PERSONAL & ADV INJURY $MED EXP (Any one person) $EACH OCCURRENCE DAMAGE TO RENTED $PREMISES (Ea occurrence) COMMERCIAL GENERAL LIABILITY CLAIMS-MADE OCCUR GEN'L AGGREGATE LIMIT APPLIES PER: POLICY PRO-JECT LOC CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YYYY) CANCELLATION AUTHORIZED REPRESENTATIVE ACORD 25 (2016/03) © 1988-2015 ACORD CORPORATION. All rights reserved. CERTIFICATE HOLDER The ACORD name and logo are registered marks of ACORD HIREDAUTOS ONLY 09/03/2019 Sargeant Insurance Agency, LLC. 7740 Painter Avenue #210 Whittier CA 90602 BARTEL ASSOCIATES, LLC 411 BOREL AVE STE 101 SAN MATEO CA 94402-3525 Cathy Service Van Wyke-Stahl (818) 561-2600 (818) 436-5988 Indian Harbor Insurance Co 36940 EMPLOYERS PREFERRED INS. CO. 10346 Liberty Mutual Insurance 24082 C C B A Y BKS (20) 57 29 73 74 09/01/2019 09/01/2020 Y BAS (20) 57297374 09/01/2019 09/01/2020 Y EIG 2685705-01 09/01/2019 09/01/2020 MISC. PROFESSIONAL LIABILITY MPP001715215 09/01/2019 09/01/2020 Dam Lim (Ea Claim)5,000,000.00 Dam Lim (Pol Agg)5,000,000.00 CITY OF PALO ALTO , IT'S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND VOLUNTEERS ARE HEREBY NAMED AS AN ADDITIONAL INSURED BY CONTRACT ON POLICY # BKS (20) 57297374 and BAS (20) 57297374 AS RESPECTS TO OPERATIONS OF THE NAMED INSURED ONLY, SEE CG2010. COVERAGE UNDER POLICY # BKS (20) 57297374 & BAS (20) 57297374 IS PRIMARY AND NON-CONTRIBUTORY ABOVE ANY OTHER INSURANCE THE CERTIFICATE HOLDER(S) MAY CARRY. 30 DAY NOTICE OF CANCELLATION. City of Palo Alto ATTN: ACCOUNTING MANAGER 250 Hamilton Avenue Palo Alto, CA 94301 2,000,000.00 2,000,000.00 15,000.00 2,000,000.00 4,000,000.00 4,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 N POLICY NUMBER: COMMERCIAL GENERAL LIABILITY CG 20 10 04 13 THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. CG 20 10 04 13 © Insurance Services Office, Inc., 2012 Page 1 of 2 ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS – SCHEDULED PERSON OR ORGANIZATION This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART SCHEDULE Name Of Additional Insured Person(s) Or Organization(s) Location(s) Of Covered Operations Information required to complete this Schedule, if not shown above, will be shown in the Declarations. A. Section II – Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by: 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf; in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above. However: 1. The insurance afforded to such additional insured only applies to the extent permitted by law; and 2. If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide for such additional insured. B. With respect to the insurance afforded to these additional insureds, the following additional exclusions apply: This insurance does not apply to "bodily injury" or "property damage" occurring after: 1. All work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the location of the covered operations has been completed; or 2. That portion of "your work" out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project. ALL LOCATIONS OF THE NAMED INSURED City of Palo Alto, it's officials, officers, employees, agents and Volunteers. BKS (20) 57 29 73 74 Page 2 of 2 © Insurance Services Office, Inc., 2012 CG 20 10 04 13 C. With respect to the insurance afforded to these additional insureds, the following is added to Section III – Limits Of Insurance: If coverage provided to the additional insured is required by a contract or agreement, the most we will pay on behalf of the additional insured is the amount of insurance: 1. Required by the contract or agreement; or 2. Available under the applicable Limits of Insurance shown in the Declarations; whichever is less. This endorsement shall not increase the applicable Limits of Insurance shown in the Declarations. COMMERCIAL GENERAL LIABILITY CG 20 01 04 13 THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. CG 20 01 04 13 © Insurance Services Office, Inc., 2012 Page 1 of 1 PRIMARY AND NONCONTRIBUTORY – OTHER INSURANCE CONDITION This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART PRODUCTS/COMPLETED OPERATIONS LIABILITY COVERAGE PART The following is added to the Other Insurance Condition and supersedes any provision to the contrary: Primary And Noncontributory Insurance This insurance is primary to and will not seek contribution from any other insurance available to an additional insured under your policy provided that: (1) The additional insured is a Named Insured under such other insurance; and (2) You have agreed in writing in a contract or agreement that this insurance would be primary and would not seek contribution from any other insurance available to the additional insured. BARTEL ASSOCIATES, LLC. POLICY# BKS (20) 57297374 & BAS (20) 57297374 WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY WC 04 03 06 (Ed. 4-84) This endorsement changes the policy to which it is attached and is effective on the date issued unless otherwise stated. (The information below is required only when this endorsement is issued subsequent to preparation of the policy.) This endorsement, effective Policy No. Endorsement No.Issued to Premium By: Carrier Code (Ed. 4-84) Authorized Representative Countersigned at on at 12:01 AM standard time, forms a part of Of the WC 04 03 06 © 1998 by the Workers' Compensation Insurance Rating Bureau of California. All rights reserved. Schedule Person or Organization Job Description WAIVER OF OUR RIGHT TO RECOVER FROM OTHERS ENDORSEMENT-CALIFORNIA We have the right to recover our payments from anyone liable for an injury covered by this policy. We will not enforce our right against the person or organization named in the Schedule. (This agreement applies only to the extent that you perform work under a written contract that requires you to obtain this agreement from us.) You must maintain payroll records accurately segregating the remuneration of your employees while engaged in the work described in the Schedule. The additional premium for this endorsement shall be _____% of the California workers' compensation premium otherwise due on such remuneration. With respect to all employees subject to the workers'compensation laws of the state of California, any person or organization for whom the Named Insured has agreed by written contract to furnish this waiver. 2 This policy is subject to a minimum charge of $250 for the issuance of waivers of subrogation 09/01/2019 EIG 2685705 01 BARTEL ASSOCIATES LLC 00920 EMPLOYERS PREFERRED INS. CO.