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HomeMy WebLinkAbout2021-03-01 City Council Agenda PacketCity Council 1 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBU TION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION ON THE CITY’S WEBSITE. Monday, March 1, 2021 Special Meeting 5:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available the City’s website on the Thursday 11 days preceding the meeting. ***BY VIRTUAL TELECONFERENCE ONLY*** CLICK HERE TO 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. PUBLIC COMMENT Members of the public may speak to agendized items; up to three minutes per speaker, to be determined by the presiding officer. If you wish to address the Council on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers, and deliver it to the City Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Council, but it is very helpful. Public comment may be addressed to the full City Council via email at City.Council@cityofpaloalto.org. 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 Closed Session 5:00-6:00 PM 1.CONFERENCE WITH LABOR NEGOTIATORS City Designated Representatives: City Manager and his designees Pursuant to Merit System Rules and Regulations (Ed Shikada, Rumi Portillo, Molly Stump, Dean Batchelor, Geo Blackshire, Robert Jonsen, Nick Raisch, Kiely Nose) Employee Organizations: Utilities Management and Professional Association of Palo Alto (UMPAPA); Service Employees International 2 March 1, 2021 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBU TION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION ON THE CITY’S WEBSITE. Union, (SEIU) Local 521; Service Employees International Union, (SEIU) Local 521, Hourly Unit; Palo Alto Police Officers Association (PAPOA); Palo Alto Fire Chiefs’ Association (FCA) and Employee Organization: International Association of Fire Fighters (IAFF), Local 1319; Palo Alto Police Manager’s Association (PAPMA) Authority: Government Code Section 54957.6(a) 6:00-6:30 PM 2.CONFERENCE WITH CITY ATTORNEY- EXISTING LITIGATION Subject: Yang Shen v. City of Palo Alto, et al. Santa Clara County Superior Court, Case No. 20CV367865 Authority: Government Code Section 54956.9(d)(1) Study Session 6:30-7:30 PM 3.3045 Park Blvd (20PLN-00215): Request by Jay Paul Company for a Prescreening of Their Proposal to Create a new Zoning Overlay to Allow Office Uses in Seven (7) Buildings Along Park Boulevard Near the California Avenue CalTrain Station. Environmental Assessment: Not a Project. Zoning District: GM Special Orders of the Day 7:30-7:45 PM 4.Appointment of Candidates to the Historic Resources Board and the Planning and Transportation Commission Agenda Changes, Additions and Deletions Oral Communications 7:45-8:00 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. Minutes Approval 8:00-8:05 PM 5.Approval of Action Minutes for the January 30, 2021 City Council Retreat and the February 8, 2021 City Council Meeting Consent Calendar 8:05-8:10 PM Items will be voted on in one motion unless removed from the calendar by three Council Members. 6.Adoption of a Resolution Designating the Amount of Project Expenditures to be Reimbursed by the Clean Water State Revolving Fund Proceeds for the Funding of the Secondary Treatment Upgrades at the Palo Alto Regional Water Quality Control Plant 7.Correction: Adoption of a Resolution Ordering Weed Nuisance Abated &RXQFLO 4XHVWLRQ 3XEOLF &RPPHQW 3UHVHQWDWLRQ 3 March 1, 2021 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBU TION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION ON THE CITY’S WEBSITE. City Manager Comments 8:10-8:20 PM Action Items Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters. 8:20-9:45 PM 8.Review the Fiscal Year (FY) 2021 Mid-year Budget Review and Approve Budget Amendments in Various Funds; Provide Direction on: a)Potential Rent Forgiveness Programs for City Tenants, and b) A Waiver of the Business Registry Certificate and Downtown Business Improvement District Fees 9:45-10:45 PM 9.Policy and Services Committee Recommends the City Council Accept the City Auditor’s Risk Assessment Report, Annual Audit Plan, and Quarterly Status Report Council Member Questions, Comments and Announcements Members of the public may not speak to the item(s) 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. 3XEOLF &RPPHQW Presentation Presentation 4 March 1, 2021 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBU TION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION ON THE CITY’S WEBSITE. Additional Information Standing Committee Meetings Finance Committee Meeting Cancellation March 2, 2021 Schedule of Meetings Schedule of Meetings Public Letters to Council Set 1 5 March 1, 2021 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBU TION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION ON THE CITY’S WEBSITE. 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. CLICK HERE TO JOIN Meeting ID: 362 027 238 Phone:1(669)900-6833 City of Palo Alto (ID # 11807) City Council Staff Report Report Type: Study Session Meeting Date: 3/1/2021 City of Palo Alto Page 1 Summary Title: 3045 Park Blvd: Prescreening for Additional Uses Title: 3045 Park Blvd (20PLN -00215): Request by Jay Paul Company for a Prescreening of Their Proposal to Create a New Zoning Overlay to Allow Office Uses in Seven (7) Buildings Along Park Boul evard Near the California Avenue CalTrain Station. Environmental Assessment: Not a Project. Zoning District: GM From: City Manager Lead Department: Planning and Development Services Recommendation Staff recommends that Council conduct a preliminary review (“prescreening”) and provide comments regarding the applicant’s rezoning proposal. No formal Council action may be taken during a preliminary review, and comments provided during a prescreening are not binding on the City or the applicant. The study s ession enables Council and the community to comment on the applicant’s proposal before the applicant proceeds with a formal application. Executive Summary The applicant proposes a Zoning Overlay on seven adjacent properties within the General Manufacturing (GM) Zoning District and within half a mile of the California Avenue Caltrain station. The Overlay proposal is to allow the use classification of Professional Office1 as a permitted use. Council will need to consider the policy implications for the General Manufacturing zone and the proposed North Ventura Coordinated Area Plan (NVCAP). The policy implications discussed in this report include the potential for traditional GM uses to not 1 PAMC 18.04.030 (116): “Professional office” means a use providing professional or consulting services in the fields of law, architecture and architectural design, engineering, accounting, and similar professions, including associated product testing and prototype development, but excluding product manufacturing or assembly and excluding the storage or use of hazardous materials in excess of permit quantities prescribed in Title 15 of the Municipal Code. City of Palo Alto Page 2 locate within the seven-property area in the future. However, the proposal is unlikely to impact the citywide Office Use cap, or transportation patterns in the area. Background The applicant is proposing a Zoning Overlay for seven adjacent properties within the GM Zoning District and within half a mile of the California Avenue Caltrain station to allow Professional Office as permitted uses. The applicant owns two of the seven properties. The applicant also owns 395 Page Mill Road, an adjacent parcel which currently serves as the Cloudera headquarters; this is not part of the overlay. The site is located at the southeast corner of Page Mill Road and Park Boulevard and continuing along Park Boulevard. The site consists of the following properties: 200 Page Mill Road, 2747 Park Blvd, 195 Page Mill Road, 3045 Park Blvd, 3101 Park Blvd, 3197 Park Blvd, and 3241 Park Blvd. All properties are zoned General Manufacturing (GM), and there are no other GM properties in the vicinity. A map of the properties follows: = Applicant’s Property City of Palo Alto Page 3 The uses of these properties are primarily research and development (R&D), however there are also: a law office (professional office use, grandfathered), contractor’s office (general business services use, grandfathered), WeWork (general business services use, grandfathered), Park Plaza (a mixed use building of 84 residential units, a ground floor café, and 11 R&D units), and two buildings which are currently vacant. The table below provides a summary: # Address Tenant Owner Most Recent Uses 1 200 Page Mill Hopkins & Carley (Attorney) Page Mill Park Company Administrative Office / Professional Office (Grandfathered) 2 2747 Park Tencent 2747-85 Park Pa, LLC (Jay Paul) Research and Development (R&D) Office Use (Permitted) 3 195 Page Mill Park Plaza Hohbach Realty Co 84 Residential Apartments, a ground floor café, and R&D office use (Permitted) 4 3045 Park Vacant 3045 Park Property LLC (Jay Paul) Research and Development Office Use (Permitted) 5 3101 Park WeWork Park Place Associates Administrative Office / General Business Office (Grandfathered) 6 3197 Park Vance Brown Builder Park City Leasing Administrative Office / General Business Office (Grandfathered) 7 3241 Park Vacant 3241 Park Boulevard LLC Proposed project 20PLN-00032; application under review. The surrounding area includes the Cloudera Campus (R&D use, permitted), and 340 Portage, which includes R&D and retail uses (formerly the home of Fry’s Electronics). The California Avenue Caltrain Station is on the other side of Page Mill Road. In connection with the 2016 approval of 2747-85 Park Blvd, the City required as a condition of approval that the developer provide a bond in the sum of $890,000 for the purpose of constructing a pedestrian linkage between the California Avenue Caltrain station and the frontage of 2747-85 Park Blvd. This connection would ultimately provide a safe way for pedestrians and bicyclists to quickly access Caltrain from these properties. However, the project has been delayed due in part to COVID-19, and the bond is set to expire on April 22, 2022. The City has approached the developer about amending the bond to extend its term or allow it to City of Palo Alto Page 4 be used for the purpose of design; at the time of publishing this report the developer has not agreed to such amendment. Additionally, this project is located within the North Ventura Coordinated Area Plan (NVCAP) boundaries. The plan remains under development. Draft alternatives being discussed by the Planning and Transportation Commission. Discussion One purpose of a prescreening is for the applicant to assess whether there is sufficient Council interest to proceed with a formal application . Therefore, the plans prepared are less detailed than plans submitted for a formal application. Staff has identified several issues for Council’s consideration and comment, outlined below. Office Use The applicant is proposing to expand office use in an area that currently allow s the following two office uses: Research and Development and limited Administrative Office (headquarters). The City of Palo Alto has strived to meter out the addition of new office uses with implementation of the Annual Office Limit (PAMC 18.40.210). Since R&D is already counted towards the annual office limit, the change from one type of office use to another would not affect the allowable new “office” space in the city. Transportation and Parking The existing R&D offices have the same parking requirement as any other office use : 1 space per 250 sf. Additionally, building tenants can take advantage of the proximity to Caltrain. The North Ventura Coordinated Area Plan Five of the seven properties (the properties along the Caltrain tracks) are located within the NVCAP boundaries. Currently, the PTC is considering a few alternatives. Alternative 1 would maintain the existing zoning. Alternative 2 and 3 would rezone some properties to allow mixed- use or multiple-family residential. These Alternatives are illustrated in Attachment D. More information on the NVCAP is available in the December 9, 2020 PTC Report: http://bit.ly/NVCAP120920PTC. Staff anticipate the PTC may make a recommendation regarding the preferred conceptual alternative and send the item to City Council this spring. Policy Implications and Options GM Zone The GM zone is limited within the City of Palo Alto. In addition to these seven properties, there is only one other similarly sized cluster of GM properties. The other group of GM zoned City of Palo Alto Page 5 properties is located along both sides of Fabian Way, San Antonio Road, Commercial Street, and Industrial Avenue bounded by Highway 101 to the north and East Charleston Road to the south. Additionally, there are a handful of individual GM-zoned lots located along East Bayshore Road, north of Embarcadero Boulevard. In terms of allowed uses, the GM zone has more in common with the Commercial Service (CS) zone than other office related zones. Unique uses allowed in GM and CS but not allowed in the Research Park (RP) or Research Office Limited Manufacturing (ROLM) zones include: Business and Trade Schools, Service & Equipment Yards, Utility Facilities, Animal Care, Boarding and Kennels, General Business Services, Mortuaries and Funeral Homes, Automotive Services, and Passenger Transportation Terminals. Allowing other types of office use may impact the ability of the uses in the above paragraph to find space in the long term. In the short term, the existing buildings on the project site (seven properties) include office and mixed-use buildings that would not be appropriate for some of those listed uses. The GM zone does not include any residential uses as a permitted use. The existing Park Plaza mixed use development includes rental multi-family residential use because it was previously a housing opportunity site in the Comprehensive Plan Housing Element. It is important to note the NVCAP alternatives 2 or 3 would potentially allow mixed use and residential development on some of these properties; which GM would not allow. Alternatives: Re-Zone a Single Property City staff encouraged the applicant to propose the Professional Office overlay for the seven listed parcels instead of requesting the zoning change only on one of the applicant’s parcels (3045 Park Blvd). Creating a district of parcels with similar qualities (proximity to transit) and similar zoning keeps with good planning practice regarding appropriate uses in appropriate places and treating like parcels similarly. Locating jobs near transit can help reduce vehicle miles traveled for workers. Alternatively, though, the City can consider a zoning change for 3045 Park Blvd only. This is owned by the applicant. It is currently vacant. Often referred to as “spot zoning”, this more surgical adjustment may allow this transit-oriented site additional uses. This would add some more diversity to the mix of uses in the area while retaining GM on the remaining parcels. Please note that 3045 Park is located within the NVCAP boundary. Complete Re-zoning Through the NVCAP City of Palo Alto Page 6 The City can continue to use the NVCAP process to determine the preferred designation for these properties. The Planning and Transportation Commission will soon make a recommendation to the City Council regarding the preferred concept plan. The NVCAP considers the rezoning of these parcels comprehensively. As originally presented to the PTC, the alternatives include options to maintain the GM zoned parcels or to consider mixed-use residential zoning. The PTC may also favor all residential zoning on these parcels. Approving an application for a re-zoning could either negate the effectiveness of the NVCAP for these parcels or lead to a possible re-zoning in the near future once the NVCAP is complete. If the re-zoning is applied for and granted, and the property is redeveloped, it may be decades before uses such as housing are added to the site. The Housing Element Update, a process which is just beginning, will also identify Housing Opportunity Sites. These sites may overlap with the areas identified for housing in the NVCAP — which would further support the development of much needed hou sing. While this is a pre-screening, and no formal application has been filed, the Overlay or spot- zoning approaches have impacts for the long-range planning projects described above. The project sponsor could engage in the NVCAP efforts and/or Housing Element to have zoning changes considered. At this time, staff believes the efforts from the applicant would be best directed to the PTC who is considering the NVCAP on March 10, 2021. Next Steps Following the prescreening review, the applicant will consider options and determine how they want to proceed. Formal applications and public hearings before the Planning and Transportation Commission and City Council would be required to advance the proposed conceptual project. Environmental Review This prescreening is a preliminary review process in which Councilmembers may provide comment, but no formal action will be taken. Therefore, no review under the California Environmental Quality Act (CEQA) is required at this time. Environmental review would be initiated with the filing of a formal development application. Attachments: Attachment A: Location Map (PDF) Attachment B: Applicant's Project Description (PDF) Attachment C: Link to Project Plans (DOCX) Attachment D: NVCAP Alternatives (PDF) 132-25-053 132-25-023 132-25-022 132-25-021 132-25-020 132-26-028 132-26-071 132-32-054 132-32-034 132-32-033 132-32-032 132-32-031 132-32-035 132-32-029 132-32-030 132-32-047 132-32-043 132-25-028 132-25-027 132-25-024 132-32-036 132-31-078 132-32-042 132-32-053 132-26-076 132-26-079 132-26-078 132-26-026 132-26-027 132-26-025 132-26-024 132-26-023 132-26-022 132-26-021 132-26-019 132-26-018 132-26-060 132-26-068 132 132-26-070 132-26-010 132-26-009 132-26-008 132-26-007 132-26-006 132-26-005 132-26-004 132-26-003 132-26-002 132-26-001 132-26-029 132-19-050 132-19-049 132-19-048 132-19-047 132-19-046 132-19-045 132-19-044 132-19-043 13 132-19-030 132-19-029 132-18-057 132-18-058 132-58-001 132-58-002 132-58-003 132-25-054 132-31-082 132-25-044 132-25-043 132-25-042 132-25-041 132-25-004 132-25-052 132-25-049 132-25-047 132-25-048 132-25-040 132-25-039 132-25-057 132-25-036 132-25-035 132-25-034 132-25-033 132-25-011 132-25-010 132-25-009 132-25-008 132-25-007 132-25-006 132-25-005 132-18-073 132-18-074 132-18-021 132-18-022 132-18-023 132-18-024132-18-049 132-18-050 132-18-051 132-18-052 132-18-053 132-18-054 132-18-055 132-18-056 132-18-059 132-18-060 132-18-061 132-18-062 132-18-063 132-18-064 132-18-065 132-18-066 132-18-067 132-18-068 132-18-069 132-25-012 132-25-055 132-25-056 132-25-014 132-25-015 132-25-016 132-25-017 132-25-018 132-25-019 132-25-029 132-25-030 132-25-031 132-25-032 132-19-051 132-19-052 132-19-026 132-19-025 132-19-027 132-18-028 132-18-027 132-18-026 132-18-015 132-18-016 132-18-017 132-18-019 132-18-018 132-18-025 132 18 044 132-18-045 132-18-046 132-18-047 132-18-048 132-18-070 132-18-071 132-18-072 132-1 132-19-001 132-19-022 132-19-023 132-19-024 132-19-028 132-19-028 132-18-020 132-13-049 132-13-048 132-37-058 132-31-079 37-130 124-37-131 132-31-080 E M E R S O N S T R E E T O N A S T R E E T C O L O R A D O E L D O R A D O A V E N U E E L D O R A D O A V E N U E R A M O N A S T R E E M E R S O N S T R E E T PA R K B O ULEV A R D PA R K B O ULE A L M A S T R E E T A L M A S T R E E T ASH STR A L M A S T R E E T PA GE MILL RO A D PA GE MILL RO A D P E NIN S U L A C O R RID O R JOIN T P O W E R S B O A R D P E NIN S U L A C O R RID O R JOIN T P O W E R S B O A R D 3200 220 220 230 230 2799 2799 149 149 129 129 2780 2780 2766 2766 3101 3101 210 210 345 315 305 305 295 295 285 285 245 245 265 265 275 275 3040 3040 3045 3045 395 395 3197 3197 2725 2725- 2741 2731 2737 2745 2745- 2757 2749 2753 2757 2773 2773- 2781 2775 2779 2781 400 179 179 178 178 2822 2822 2832 2832 2840 2840 2858 2858 130 130 120 120 110 110 2800 2800 2876 2876 2886 2886 2896 2896 2906 2906 2914 2914 2920 2920 2891 2891 2817 2817 2829 2829 2811 2811 2845 2845 2888 2 2876 2876 2860 2860 2875 2875 2895 2895 2861 2861 2844 2844 2889 2889 3291 3291 3241 3241 2821 2821- 2825 2823 2825 2811 2811- 2815 2815 2813 2831 2831- 2835 2833 2835 2907 2905 2903 2901 2901- 2907 2899 2897 2895 2893 2893- 2899 2885 2883 2881 2879 2877 2877- 2885 2871 2871 2865 2865 2863 2861 2859 2857 2857- 2863 2841 2841- 2845 2843 2845 101 101-1 107 109 115 2905 2515 2513 2511 2509 124 122 2507 2507- 2515 2865 2865 195 195 2501 2 5 0 1 2510 2 5 2520 2520 130 0 116 1 1 6 102 1 0 2 2517 2517- 2533 2521 2533 2529 2525 2537 2537-2539 2539 2551 2551- 2559 2620 2620 2610 2610 2600 2600 2590 2590 2580 2580 2550 2550 2536 2536 2553 2559 2555 2571 2571- 2581 2573 2575 2581 2583 2583 2585 2585 2609 2609-2611 2611 2591 2591- 2599 2593 2595 2599 2615 2615-2617 2617 2619 2619 2621 2621 2631 2631- 2639 2796 2796 2786 2786 2760 2760 2740 2740 2777 2777 2751 2751 2741 2741 2731 2731 2721 2721 2711 2711 2718 2718 2710 2710 2700 2700 2680 2680 2697 2697 2685 2685 2640 2640 2666 2666 2676 2676 2690 2690 2698 2698 2704 2704 2730 2730 2746 2746 180 180 190 190 2820 2820198 198 189 189 2791 2791 2643 2643- 2651 2645 2651 2647 2659 2657 2661 2673 2673-2681 2675 2677 2679 2721 2721 2719 2719 2717 2717 2710 2710 2689 2689 2691 2691 2693 2693 2695 2695 2701 2701 2705 2705 2707 2707 2709 2709 2711 2711 2715 2715 2633 2635 2639 2779 2779 2753 2753 2784 2784 2770 2770 2750 2750 2733 2733 2715 2715 2730 2730 2720 272 2707 2707 2699 2699 2700 2681 2660 2660 2642 2642 2671 2671 2661 2661 2620 2620 2637 2637 2607 2607 2599 2599 2570 2592 2 2608 2608 2587 2587 2579 2591 2591 2793 2793 261 261 2830 2830 2825 2825 28 2819 2819 2820 250 250 290 290 2789 2775 200 200 2747 2747 2785 2785 133 120 1 2 0 - 1 2 4 100 100 3180 3180 200 200 2503 2 5 0 3 2505 2 5 0 5 2867 2867 2869 2869 2777 2777 2741 2637 2597 2649 2655 2653 2653-2661 111 113 103 105 2557 220 220 2858 2858 2999 2687 2687 130 130 2681 This map is a product of the City of Palo Alto GIS This document is a graphic representation only of best available sources. Legend Assessment Parcel Palo Alto Assessment Parcel Palo Alto Assessment Parcel Outside Palo Alto abc Road Centerline Small Text (TC) Curb Face (RF) Pavement Edge (RF) abc Address Label (AP) Highlighted Features Current Features 0'145' At t a c h m e n t A Vi c i n i t y M a p 20 0 P a g e M i l l t h r o u g h 3 2 4 1 P a r k B l v d . CITY O F PALO A L T O I N C O R P O R A T E D C ALI FO R N I A P a l o A l t o T h e C i t y o f A P R I L 1 6 1 8 9 4 The City of Palo Alto assumes no responsibility for any errors. ©1989 to 2016 City of Palo Alto efoley2, 2020-12-30 09:20:28 Assessor Parcels (\\cc-maps\Encompass\Admin\Meta\View.mdb) 3045 Park September 15, 2020 (Updated 11/24/20) Ms. Jodie Gerhardt City of Palo Alto P&CE Department 250 Hamilton Avenue Palo Alto, CA 94301 RE: 3045 Park Blvd Proposed Zoning Overlay Dear Jodie, Please consider this our formal request a change to the existing zoning for our project at 3045 Park Blvd. We would like to suggest an overlay zone that would expand the permitted types of office uses. Given its location within walking distance of Cal Train, this project is appropriately considered a Transit Oriented Development. As you may know, currently the GM zoning of this Park Blvd property allows for R&D uses, including tech office and administrative office uses that are part of a larger R&D organization. We would like to add an overlay that also allows as a permitted use Administrative Office and Professional & General Business Office designations. This subject project has been designed as a pedestrian-oriented project from its inception, with care to reinforce the ‘bike boulevard’ designation of Park Blvd, as well as providing a pedestrian-friendly frontage, with street tree bulb-outs and generous landscape materials with a pedestrian entry plaza to the building. The building’s design approach is suited to the current direction of the North Ventura Coordinated Area Plan, which promotes a more pedestrian-friendly neighborhood, as it also encourages additional resident-friendly uses within its area. These suggested uses are suited to the theme of the North Ventura Coordinated Area Plan and are compatible with the direction of the building’s design. We would expect the types of office uses to be pedestrian-oriented, with many employees arriving by bicycle or walking from the nearby Caltrain station. We would request the creation of an overlay district to the GM zoning that be defined as follows: Four Embarcadero Center, Suite 3620, San Francisco, CA 94111 Phone 415.263.7400 Fax 415.362.0698 www.jaypaul.com GM Overlay Zone To qualify for this overlay, a property / project would need to comply with the following: a. GM zoned properties that are within ½ miles of the California Avenue Caltrain station would qualify for expanded office-use definitions as permitted uses. · Administrative Office is a permitted use · Professional and General Business Office is a permitted use b. Properties that have convenient pedestrian access to the Caltrain station. c. Properties / projects that have been designed to enhance the pedestrian experience in their scale, building design and landscape design. d. Properties / projects that comply with the site development standards of GM- zones and Palo Alto Zoning Ordinance e. The project would enhance and further the goals of the North Ventura Coordinated Area Plan. f. Uses that are pedestrian-friendly and not likely to add to traffic volumes. g. The project/property would be required to have a strong and accountable TDM program to encourage the use of public transportation and decrease single occupant vehicle trips. Features of such TDM program may include: · TDM Co-ordinator · Transportation Information Pamphlets · Caltrain Go Pass · Commute Co-ordination Support · Financial Incentives · Guaranteed Emergency Ride Home There are seven GM-zoned properties within ½ mile of the California Avenue Caltrain Station that will be affected by the proposed zoning overlay. Below is the list of properties and current / previous uses: Address Owner / Tenant Uses 2747 Park 2747-85 Park Pa, LLC / Tencent Research and Development Office Use 3045 Park 3045 Park Property LLC / Vacant Research and Development Office Use 3101 Park Park Place Associates / WeWork (previously Groupon’s headquarter) Administrative Office / General Business Office 3197 Park Park City Leasing / Vance Brown Builder Administrative Office / General Business Office 3241 Park 3241 Park Boulevard LLC / Vacant Currently, listed for office use 195 Page Mill Hohbach Realty Co / Park Plaza Residential Apartment and R&D office use 200 Page Mill Page Mill Park Company / Hopkins & Carley (Attorney) Administrative Office / Professional Office As illustrated above, there are precedents of Administrative, General Business and Professional Uses within the immediate vicinity of 3045 Park. The proposed zoning overlay conforms to and formalize these uses. It is important to point out that 3045 Park and the other GM-zoned parcels are surrounded by established residential neighborhoods and housing developments. Some of the permitted uses in GM zoning, such as manufacturing, warehousing and distribution, are, in fact, not quite compatible with the character of this neighborhood. These uses will potentially bring in more traffic impact and potential hazards to this area and against the goals of the local area plan for a more pedestrian friendly neighborhood. The project at 3045 Park otherwise meets its GM zoning requirements, and also has the distinction of having been designed to respond to its context of adjacency to the residential project at 195 Page Mill Rd. As part of the entitlement plans, the project had submitted a draft Transportation Demand Management (TDM) Plan. The City’s Transportation Division comments during planning review indicated that a TDM plan would be required if the project added 50+ net new trips (see attached) per the pending Traffic Impact Analysis (at that time). The TIA results showed the project (R&D office use) would generate less than 50 net new trips, and no TDM mitigation was recommended. A TDM with trip reduction was not included in the COAs or Final City approvals. We believe the uses proposed by the requested GM overlay would not result in any additional traffic intensity or impacts over the existing permitted use, and in fact R&D tenants typically have a greater employee density than the types of users permitted by the GM zone. Refer to the table below. Given the site’s proximity to the Cal Train station and the pedestrian friendly improvements in the area, the requested change with a TDM program would be compatible with the existing neighborhood. Typical Employee Density and Parking for various office uses and companies: Research and Development Office Administrative Office General Business Office Professional Office Employee Density 165 sq. ft. / person range, Higher density for tech start-up companies and smaller buildings under 50,000 Sq. Ft. 200 to 250 sq. ft. / person 200 to 250 sq. ft. / person 200 to 250 sq. ft. / person Office space layout Typically, bench layout and open collaboration / meeting areas. Small number of private / shared offices. Private offices, cubicles and conference rooms Private offices, cubicles and conference rooms Higher % of Private offices. Conventional cubicle layout Parking (per City of Palo Alto Zoning Ordinance 1 per 250 sq. ft. of gross floor area 1 per 250 sq. ft. of gross floor area 1 per 250 sq. ft. of gross floor area 1 per 250 sq. ft. of gross floor area Chapter 18.52) We hereby request the initiation of the pre-screening application to achieve the above zoning change. For your reference, I’ve included a context map as well as information relating to the distance of the project to the closest Cal-Train station. Very truly yours, Janette R. D’Elia COO Attachment C Project Plans During Shelter-in-Place, project plans are only available online. Directions to review Project plans online: 1. Go to: bit.ly/PApendingprojects 2. Scroll down to find “3045 Park Blvd.” and click the address link 3. On this project specific webpage you will find a link to the project plans and other important information Direct Link to Project Webpage: https://www.cityofpaloalto.org/news/displaynews.asp?NewsID=5074&Target%20ID=319 ATTACHMENT A Alternative Concept Maps 0'190' 0'190' 0'190' CITY OF PALO ALTO OFFICE OF THE CITY CLERK March 1, 2021 The Honorable City Council Palo Alto, California Appointment of Candidates to the Historic Resources Board and the Planning and Transportation Commission Recommendation Staff recommends City Council vote to appoint candidates to the following positions: Historic Resources Board (HRB) Four (4) positions with three-year terms ending December 15, 2023 Planning and Transportation Commission (PTC) Two (2) positions with four-year terms ending December 15, 2024 Discussion On December 14, 2020, the Council directed Staff to extend the Fall 2020 recruitment for the Historic Resources Board and the Planning and Transportation Commission. The City Clerk’s Office established a new application deadline of Wednesday, January 27, 2021. On February 8, 2021, the Council selected to interview all applicants. Interviews were held on February 8, 2021. Historic Resources Board Vote to appoint four candidates to the HRB with three -year terms ending December 15, 2023. The first four candidates to receive at least four v otes (required) will be appointed. 1. Martin Bernstein (Incumbent) 2. Gogo Heinrich 3. Michael Makinen (Incumbent) 4. Curtis Smolar 5. Caroline Willis 6. Margaret Wimmer (Incumbent) Planning and Transportation Commission Vote to appoint two candidates to the PTC with four-year terms ending December 15, 2024. The first two candidates to receive at least four votes (required) will be appointed. 1. Bobi Adle 2. Doug Burns 3. Rebecca Eisenberg 4. Kathy Jordan Page 2 5. Ed Lauing (Incumbent) 6. Kevin Ma 7. Jessica Resmini 8. Doria Summa (Incumbent) Department Head: Beth Minor, City Clerk Page 3 CITY OF PALO ALTO OFFICE OF THE CITY CLERK March 1, 2021 The Honorable City Council Attention: Finance Committee Palo Alto, California Approval of Action Minutes for the January 30, 2021 City Council Retreat and the February 8, 2021 City Council Meeting Staff is requesting Council review and approve the attached Action Minutes. ATTACHMENTS: •Attachment A: 01-30-21 CCM DRAFT Action Minutes (DOCX) •Attachment B: 02-08-21 CCM DRAFT Action Minutes (DOCX) Department Head: Beth Minor, City Clerk CITY COUNCIL RETREAT DRAFT ACTION MINUTES Page 1 of 3 Special Meeting January 30, 2021 The City Council of the City of Palo Alto met on this date in virtual teleconference at 9:01 A.M. Participating Remotely: Burt, Cormack, DuBois, Filseth, Kou, Stone, Tanaka Absent: Council Introductions – “Why We Serve” Governing in a Disruptive Environment. 1. Consideration and Selection of 2021 Council Priorities. MOTION: Vice Mayor Burt moved, seconded by Council Member Stone to select the following as the 2021 Council Priorities: A. Economic Recovery B. Housing for Social and Economic Balance C. Social Justice D. Climate Change- Protection and Adaptation SUBSTITUTE MOTION: Council Member Cormack moved, seconded by Council Member Cormack to establish “COVID-19 and Economic Recovery” as the 2021 Council Priority. SUBSTITUTE MOTION FAILED: 2-5 Cormack, Tanaka yes MOTION PASSED: 7-0 2. Discussion and Possible Revision to Council Procedures and Protocols Handbook and 2021 Standing Committee Topics. MOTION: Mayor DuBois moved, seconded by Vice Mayor Burt to allow Council Members to submit to Staff their comments by the end of February 2021 regarding the Council Procedures and Protocols, for review and discussion by the Policy and Services Committee. DRAFT ACTION MINUTES Page 2 of 3 City Council Retreat Draft Action Minutes: 01/30/2021 MOTION PASSED: 7-0 MOTION: Council Member Kou moved, seconded by Council Member Stone to schedule the Policy and Services Committee discussion of the feasibility of a CAHOOTS-type program for March 2021. MOTION PASSED:7-0 MOTION: Mayor DuBois moved, seconded by Council Member Kou to amend the Committee topics as follows: A.Finance Committee: i.Move Item 7 (Fiscal Sustainability Workplan) on the referred topics list to the Policy and Services Committee B.Policy and Services Committee, to add the following topics: i.Town Hall planning ii. State Bill Advocacy iii.Review use of Stanford Medical Center funds AMENDMENT: Council Member Cormack moved, seconded by Council Member Filseth to move Part B. iii. to a new Part. A. ii. AMENDMENT PASSED: 7-0 INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER AND SECONDER to add to the Motion a new Part A. iii. “Item 3 on the referred topics be amended to state ‘affordable housing funding’” INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER AND SECONDER to change the Motion Part B. ii. to state “State Legislative and Administrative Advocacy” INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER AND SECONDER to add to the Motion a new Part B. iii. “Discuss a report on Tiers 1-3 of the Safe Parking Program.” INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER AND SECONDER to add to the Motion a new Part B. iv. “Review and discussion of proposed amendments to the Tree Protection Ordinance.” DRAFT ACTION MINUTES Page 3 of 3 City Council Retreat Draft Action Minutes: 01/30/2021 AMENDMENT: Council Member Kou, seconded by Council Member XX to add to the Policy and Services Committee topics to discuss expanding the policy for the groundwater protection program. MOTION FAILED DUE TO THE LACK OF A SECOND MOTION AS AMENDED: Mayor DuBois moved, seconded by Council Member Kou to amend the Committee topics as follows: A.Finance Committee: i.Move Item 7 (Fiscal Sustainability Workplan) on the referred topics list to the Policy and Services Committee ii.Review use of Stanford Medical Center funds iii. Item 3 on the referred topics be amended to state “affordable housing funding” B.Policy and Services Committee, to add the following topics: i.Town Hall planning ii. State Legislative and Administrative Advocacy iii.Discuss a report on Tiers 1-3 of the Safe Parking Program iv.Review and discussion of proposed amendments to the Tree Protection Ordinance MOTION AS AMENDED PASSED: 7-0 Retreat Debrief, Take Away, and Next Steps Adjournment: The meeting was adjourned at 3:22 P.M. CITY OF PALO ALTO CITY COUNCIL DRAFT ACTION MINUTES Page 1 of 5 Special Meeting February 8, 2021 The City Council of the City of Palo Alto met on this date in virtual teleconference at 5:02 P.M. Participating Remotely: Burt, Cormack, DuBois, Filseth, Kou, Stone, Tanaka Absent: Study Session 1.231 Grant Avenue: Request by Santa Clara County for a Study Session to Obtain City Council and Community Input on its Proposed Teacher Housing Project. Environmental Assessment: Not Subject to the California Environmental Quality Act (CEQA) Because no Action Will be Taken. The County Will Serve as the Lead Agency for the Project. The County Issued a Notice of Preparation of an Environmental Impact Report (EIR) for the Project on December 4, 2020. Zoning District: PF (Public Facilities). NO ACTION TAKEN 2.3997 Fabian Way (20PLN-00287): Request for Pre-screening of the Applicant's Proposal to Re-zone the Subject Property From General Manufacturing (GM) to Planned Home Zoning (PHZ) and to Redevelop the Site With a 290 Unit Residential Development. Environmental Assessment: Not a Project. Zoning District: GM (General Manufacturing). NO ACTION TAKEN Council took a break at 7:49 P.M. and returned at 8:00 P.M. Agenda Changes, Additions and Deletions None. Minutes Approval 3.Approval of Action Minutes for the January 25, 2021 City Council Meeting. DRAFT ACTION MINUTES Page 2 of 5 Sp. City Council Meeting Draft Action Minutes: 02/08/2021 MOTION: Council Member Kou moved, seconded by Council Member Cormack to approve the Action Minutes for the January 25, 2021 City Council Meeting, with the removal of Page 6. MOTION PASSED: 7-0 Consent Calendar Council Member Tanaka registered a no vote on Agenda Item Numbers 4 and 6. MOTION: Council Member Cormack moved, seconded by Council Member Filseth to approve Agenda Item Numbers 4-10. 4.Approval of Contract Number C21180550A With TJKM for a Four -year Term Not-to-Exceed $800,000, and Contract Number C21180550B With Fehr and Peers for a Four-year Term Not-to-Exceed $800,000, for On-call Transportation Engineering and Planning Project Support Services. 5.Approval of Contract Number C21180050 With Clean Harbors Environmental Services, Inc. for Household Hazardous Waste Management and Emergency Response Services for a Five-year Term for a Total Amount Not-to-Exceed $1,650,000. 6.Approval of Change Order Number 1 to Contract Number C20174826 With Monterey Mechanical Co. Adding $300,000 for a Total Not-to- Exceed Amount of $750,000 for the On-call Emergency Construction Services Project Funded in Wastewater Treatment Enterprise Fund Capital Improvement Program (Project WQ-19002) at the Regional Water Quality Control Plant. 7.Adoption of a Park Improvement Ordinance for Renovations at Cameron Park. 8.Appointment of the 2021 Emergency Standby Council. 9.Approval of Construction Contract C21180619 With Cratus, Inc. in the Amount of $1,682,000 for Phase III of the Cross-bore Verification, Inspection, and Assessment Program; and Authorization to Execute and Negotiate Related Change Orders in the Amount of $168,200 for a Total Not-to-Exceed Amount of $1,850,200. 10.Selection of Applicants to Interview for the Historic Resources Board and the Planning and Transportation Commission. DRAFT ACTION MINUTES Page 3 of 5 Sp. City Council Meeting Draft Action Minutes: 02/08/2021 MOTION PASSED FOR AGENDA ITEM NUMBERS 4 AND 6: 6-1 Tanaka no MOTION PASSED FOR AGENDA ITEM NUMBERS 5, 7-10: 7-0 Action Items 11.Review the Potential Financial Scenarios and Direction to Staff on Development of the Fiscal Year (FY) 2022 Budget; Review and Accept the FY 2022 Budget Development Guidelines; and Review and Accept the FY 2022 – 2031 Long Range Financial Forecast. MOTION: Council Member Filseth moved, seconded by Mayor DuBois to: A.Build a FY 2022 proposed budget assuming Scenario B and direct Staff to reassess Scenarios A, B, and C in Fall 2021 with the Finance Committee for any changes in economic conditions; and B.Accept the FY 2022 to 2031 General Fund Long Range F inancial Forecast and (3) annual Budget Development Guidelines. INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER AND SECONDER to forward the following to the Finance Committee for discussion as part of the Budget process: A.Direct Staff to return with versions of Scenario B whereby Council reviews extending and or dropping certain portions of the five -year capital plan; B.Evaluate whether to finance any elements of the capital plan; C.Explore one-time modest reductions in the budget stabilization reserve to provide a bridge, while we address strategic changes to our operating expenses. INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER AND SECONDER to change the Motion Part A to state “…and direct Staff to reassess in Fall 2021…” MOTION AS AMENDED: Council Member Filseth moved, seconded by Mayor DuBois to: DRAFT ACTION MINUTES Page 4 of 5 Sp. City Council Meeting Draft Action Minutes: 02/08/2021 A.Build a FY 2022 proposed budget assuming Scenario B and direct Staff to reassess in Fall 2021 with the Finance Committee for any changes in economic conditions; B.Accept the FY 2022 to 2031 General Fund Long Range Financial Forecast and (3) annual Budget Development Guidelines C.Forward the following to the Finance Committee for discussion as part of the Budget process: i.Direct Staff to return with versions of Scenario B whereby Council reviews extending and or dropping certain portions of the five-year capital plan; ii.Evaluate whether to finance any elements of the capital plan; iii.Explore one-time modest reductions in the budget stabilization reserve to provide a bridge, while we address strategic changes to our operating expenses. MOTION AS AMENDED PASSED: 6-1 Tanaka no Council took a break at 10:22 P.M. and returned at 10:30 P.M. 12.Policy and Services Committee Recommends the City Council Approve the 2021 Legislative Guidelines; Utilities Advisory Commission Recommends the City Council Approve the 2021 Utilities Legislative Guidelines; and Discussion and Direction on Pending State Legislation. MOTION: Council Member Kou moved, seconded by Mayor DuBois to: A.Approve the City’s 2021 Legislative Guidelines as recommended by the Policy and Services Committee on December 8, 2020; B.Approve the 2021 Utilities Legislative Policy Guidelines as recommended by the Utilities Advisory Committee on November 4, 2020; and C.Direct Policy and Services Committee to continue to discuss the Legislative Guidelines on a regular basis for possible refinement. INCORPORATED INTO THE MOTION WITH CONSENT OF THE MAKER AND SECONDER to add to the Motion a new Part D “Continue to a date uncertain discussion of specific bills pending in the state.” MOTION AS AMENDED: Council Member Kou moved, seconded by Mayor DuBois to: DRAFT ACTION MINUTES Page 5 of 5 Sp. City Council Meeting Draft Action Minutes: 02/08/2021 A.Approve the City’s 2021 Legislative Guidelines as recommended by the Policy and Services Committee on December 8, 2020; B.Approve the 2021 Utilities Legislative Policy Guidelines as recommended by the Utilities Advisory Committee on November 4, 2020; C.Direct Policy and Services Committee to continue to discuss the Legislative Guidelines on a regular basis for possible refinement; and D.Continue to a date uncertain discussion of specific bills pending in the state. MOTION AS AMENDED PASSED: 7-0 13.Provide Direction on the Recruitment for an Unfinished Term on the Planning Transportation Commission due to a Resignation. MOTION: Vice Mayor Burt moved, seconded by Mayor DuBois to: A.Proceed with a special recruitment period for the vacant position, which will run for 2 weeks with a proposed application deadline of February 23, 2021; B.Include current Planning and Transportation Commission applications in the special recruitment, if the applicant agrees; and C.Applicants who participated in the current round of interviews will not be interviewed during the special recruitment. MOTION PASSED: 7-0 Adjournment: The meeting was adjourned in honor of George Schultz at 11:45 P.M. City of Palo Alto (ID # 11834) City Council Staff Report Report Type: Consent Calendar Meeting Date: 3/1/2021 City of Palo Alto Page 1 Summary Title: Resolution for Secondary Treatment Upgrades & CEQA Exempt Determination Title: Adoption of a Resolution to Designate the Amount of Project Expenditures to be Reimbursed by the Clean Water State Revolving Fund Proceeds for the Funding of the Secondary Treatment Upgrades at the Palo Alto Regional Water Quality Control Plant From: City Manager Lead Department: Public Works Recommendation Staff recommends that Council approve the adoption of a Resolution (Attachment A) designating the expenditure amount, not to exceed $160,000,000, for design and construction of the Secondary Treatment Upgrades (CIP WQ-19001), to be reimbursed by proceeds from the Clean Water State Revolving Fund (SRF). Background The Regional Water Quality Control Plant (RWQCP) was originally constructed in 1934 and has undergone several expansions and upgrades, including the construction of the secondary treatment aeration basins in 1972 and fixed film r eactors in 1980. A Long-Range Facilities Plan was prepared in 2012 to provide a plan for future capital projects at the RWQCP. On September 10, 2018, Council approved a professional services contract (SR #9485) for design services with Brown and Caldwell for the Secondary Treatment Upgrades Project (WQ-19001). The project adds treatment technology to remove nitrogen to address new regulatory requirements as well as to replace 41- to 49-year old aging infrastructure that is beyond its useful life. The contract was amended December 7, 2020 to add additional services (SR #11155). California Clean Water State Revolving Fund (SRF) Program The California State Water Resources Control Board (SWRCB) Division of Financial Assistance administers the Clean Water State Revolving Fund (SRF) program. The SRF program provides low interest financing to agencies for wastewater projects. Under this program, eligible projects can apply for loans with interest rates that are approximately half of the State General Obligation rate, resulting in lower project costs and maximizing benefits to ratepayer s and partner agencies. The current rate is 0.90%. CITY OF PALO ALTO City of Palo Alto Page 2 The City has previously obtained SRF loans for the Ultraviolet Disinfection Facility (WQ-06014: $8.6 million, 20-year term), Palo Alto/Mountain View Recycled Water Pipeline Project (WQ- 04010: $9.0 million, 20-year term) and Dewatering and Loadout Facility (WQ-14001: $29.2 million of which $4 million was converted to a grant, 30-year term). The City is finalizing SRF loans for the Outfall Line Construction Project (WQ-19000: $11.1 million, 30-year term) and Primary Sedimentation Tanks Rehabilitation Project (WQ-14003: $19.4 million, 30-year term), which will be commencing construction in the near-term. EPA Water Infrastructure Financing Innovation Act (WIFIA) Program The Federal Office of the EPA WIFIA program accelerates investment in the nation’s water infrastructure by providing long-term, low-cost supplemental loans for regionally and nationally significant projects. The WIFIA program sets its interest rate based on the U.S. Treasury rate on the date of loan closing. The rate is calculated using the weighted average life (WAL) of the loan rather than the loan maturity date. The WAL is generally shorter than the loan’s actual length resulting in a lower interest rate. The maximum portion of eligible project costs that WIFIA can fund is 49%. Discussion Staff intends to apply for low-interest SRF and WIFIA loans issued by the SWRCB and the EPA, respectively, to finance the design, project administration, construction , and construction management of the Secondary Treatment Upgrades Project. SRF eligibility is granted to applicants during the first quarter of each year. If SRF loan eligibility is granted by the state, staff will return to Council in early 2023 for approval of the SRF loan agreement, construction contract award, and amendments to the partner agreements. Staff anticipates returning to Council for final approval of the SRF loan, construction contract award, and partner agreements at one time. WIFIA funding requires a Letter of Interest be submitted (City submitted on 10/15/2020), with a reciprocating EPA Letter of Selection Notification (received on 01/08/2021) to submit an application for a WIFIA Loan. Staff is just beginning the WIFIA application process. It should be noted that staff may return to Council with another Resolution regarding repayment commitment for the WIFIA Loan, but that is still undetermined at this time. The SRF application includes four packages (i.e., General Information, Technical, Environmental, and Financial Security). To complete the Financial Security Package, Council adoption of the reimbursement resolution is required. The SRF program requires the City to pay in advance for various tasks and seek reimbursement (e.g., design). Through the Reimbursement Resolution (Attachment A), Council will designate a maximum of $160 million in expenditures for project administration, design, construction management , and facility construction of the Secondary Treatment Upgrades project. This estimated maximum funding requirement for the SRF Loan is a worst-case scenario according to current cost estimating work. To complete the Environmental Package, the project must have environmental clearance under the California Environmental Quality Act (CEQA). Evaluation under CEQA has been completed. City of Palo Alto Page 3 Staff has determined that this project, including construction, is categorically exempt from CEQA as detailed in the Environmental Review section below. Staff intends to file a Notice of Exemption with the Santa Clara County Clerk-Recorder after Council’s approval. Timeline To secure SRF financing, staff must submit the SRF application with the reimbursement resolution (Attachment A) for signature after Council approval. A Notice of Exemption for CEQA will be filed with Santa Clara County Recorder’s Office within five days following Council’s approval. Project eligibility will be determined by the SWRCB during the first quarter of CY2021. Staff will return to Council for approval of the final loan, the approval of a construction contract, and amendments to RWQCP partner agreements. Design completion is anticipated in June 2021. Solicitation for a construction contract will commence in mid- to late-CY2022 after securing project financing. Resource Impact No financial impacts are associated with the adoption of the resolution or finding the project CEQA-exempt. Applying for SRF funds does not obligate the City to proceed with the project. The resource impact of proceeding with the construction of this project will be evaluated at the time Council approval is requested. Palo Alto treats the combined wastewater from Palo Alto, Los Altos, Los Altos Hills, Mountain View, Stanford University, and East Palo Alto Sanitary District. Palo Alto’s cost share of this project is approximately 38% and the other five agencies’ share is approximately 62%, based on the fixed capacity established in partners’ agreements. As the lead agency, the City of Palo Alto has appropriated the funding for this project in the Wastewater Treatment Enterprise Fund Capital Improvement Program (Project WQ-19001). Adjustments to the project budget will be brought forward as part of the FY 2022 budget development process subject to Council’s appropriation of funds for FY 2022. Policy Implications This recommendation does not represent any change to existing City policies and supports the Comprehensive Plan Policy N.4-16. Stakeholder Engagement This project is part of the Plant’s major capital improvement program funded by Palo Alto and its five additional partner agencies. The five partner agencies are regularly updated about both the need for and the progress on wastewater treatment capital work. Updates are provided each year at an annual meeting and at other periodic meetings established to inform partner agency staff about the minor capital improvement program. The most recent meetings on this project were held in July and November 2020. With respect to Palo Alto itself, the open meetings on the budget process serve as the main vehicle for engaging the community on both new projects and associated rate impacts. City of Palo Alto Page 4 Environmental Review Council authorization of this funding reimbursement Resolution does not meet the definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment. The construction of this project has been determined to be exempt from CEQA under CEQA Guidelines Section 15301, subsections (b), (d) and (e)(2), Existing Facilities, as it involves the repair and maintenance of an existing publicly-owned utility used to provide sewerage treatment services with a minor addition to an existing building. Filing the Notice of Exemption is an administrative action and does not require environmental review. Attachments: • Attachment A - Reimbursement Resolution STU Project 2-12-21 KRV Edits Attachment A SR-11834 *Yet to be Passed* Resolution No. Resolution of the Council of the City of Palo Alto Authorizing the Reimbursement of Funding for the Regional Water Quality Control Plant Secondary Treatment Upgrades from the State Water Resources Control Board R E C I T A L S A. The City of Palo Alto (the “City”) desires to finance the costs of constructing and/or reconstructing certain public facilities and improvements relating to its water and wastewater system, including certain treatment facilities, pipelines and other infrastructure (the "Project"). B. The City intends to finance the construction and/or reconstruction of the Project or portions of the Project with moneys ("Project Funds") provided by the State of California, acting by and through the State Water Resources Control Board (State Water Board). C. The State Water Board may fund the Project Funds with proceeds from the sale of obligations the interest upon which is excluded from gross income for federal income tax purposes (the "Obligations"). D. Prior to either the issuance of the Obligations or the approval by the State Water Board of the Project Funds the City desires to incur certain capital expenditures (the "Expenditures") with respect to the Project from available moneys of the City. E. The City has determined that those moneys to be advanced on and after the date hereof to pay the Expenditures are available only for a temporary period and it is necessary for the State Water Board to reimburse the City for the Expenditures from the proceeds of the Obligations. NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows: SECTION 1. The City hereby states its intention and reasonably expects to reimburse Expenditures paid prior to the issuance of the Obligations or the approval by the State Water Board of the Project Funds. SECTION 2. The reasonably expected maximum principal amount of the Project Funds is $160 million. Attachment A SR-11834 *Yet to be Passed* SECTION 3. This resolution is being adopted no later than 60 days after the date on which the City will expend moneys for the construction portion of the Project costs to be reimbursed with Project Funds. SECTION 4. Each City expenditure will be of a type properly chargeable to the Wastewater Treatment Enterprise Fund Capital Improvement Program (Project WQ-19001), Secondary Treatment Upgrades Project, under general federal income tax principles. SECTION 5. To the best of its knowledge, the City is not aware of the previous adoption of official intents by the City that have been made as a matter of course for the purpose of reimbursing expenditures and for which tax-exempt obligations have not been issued. SECTION 6. This resolution is adopted as official intent of the City in order to comply with Treasury Regulation §1.150-2 and any other regulations of the Internal Revenue Service relating to the qualification for reimbursement of Project costs. SECTION 7. All the recitals in this Resolution are true and correct and this City so finds, determines and represents. // // // // // // // // Attachment A SR-11834 *Yet to be Passed* // SECTION 8. The Council finds that its adoption of this Resolution authorization of funding reimbursement does not meet the definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTI ONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Deputy City Attorney City Manager Director of Public Works From:Rice, Danille To:Council, City; Council Agenda Email Cc:Executive Leadership Team; ORG - Clerk"s Office Subject:Council Agenda Consent Questions for March 1, Item 6 Date:Friday, February 26, 2021 8:18:44 AM Attachments:image012.png image014.png image015.png image017.png image018.png image001.png Dear Mayor and Council Members: On behalf of City Manager Ed Shikada, please find below the staff responses to inquiries made by Council Member Tanaka in regard to the March 1, 2021 Council Meeting agenda. Item 6: Resolution for Secondary Treatment Upgrades & CEQA Exempt Determination 1. What progress has been made at the plant since 2018? These are descriptions of the status of the most significant construction work at the RWQCP since 2018: Sludge Dewatering and Truck Loadout Facility – completed construction in 2019 and decommissioned incinerator. Primary Sedimentation Tanks and Equipment Room Electrical Upgrades Rehabilitation Project – completed final design and project is currently out for contractor bid. Outfall Line Construction Project – completed design and project is being evaluated for potential impacts with future levees. Secondary Treatment Upgrades Project – completed 60% design. Advanced Water Purification System Project – design consultant selected. 12 kV Power Distribution Upgrades Project – completed 60% design. 2. How much of our $77.3 million loan is still outstanding? The $77.3M is separated into five different loans; three of these are existing, and two are being finalized with the State Revolving Fund (SRF) program. Ultraviolet Disinfection Facility - $6.2M is still outstanding (of $8.6M borrowed); final payment will occur in FY30-31. Palo Alto/Mountain View Recycled Water Pipeline - $4.8M is still outstanding (of $9M borrowed); final payment will occur in FY28-29. Sludge Dewatering and Loadout Facility - $24.5M is still outstanding (of $29.2M borrowed less $4M grant); final payment will occur in FY48-49. Outfall Line Construction Project - all ($11.1M) is outstanding; will begin repayments one year after construction completion. Primary Sedimentation Tanks and Equipment Room Electrical Upgrades Rehabilitation Project – all ($19.4M) is outstanding; will begin repayments one year after construction completion. 3. What is the role of the contracted provider if the city is providing all administrative assistance? The contracted provider, Brown and Caldwell, provides engineering design services for the Secondary Treatment Upgrades project. Brown and Caldwell also has a subconsultant on their team providing environmental specialty professional services; this is the team that prepared the CEQA documentation referenced in the staff report. 4. What is the actual projected amount? The 30% design cost estimate is a total project cost of $129 million. A recent 60% design cost estimate is under review and indicates it may be prudent to revise the estimate upward, and staff is therefore using a total cost figure of $160 million for the purposes of the loan application. The actual project cost amount will be more closely established upon award of construction and construction management contracts in approximately late 2022 or early 2023. 5. Are the partner jurisdictions (Los Altos, Los Altos Hills, Mountain View, Stanford University, and East Palo Alto Sanitary District) also applying for loans? No, as the administering agency Palo Alto is handling the financing. Partner jurisdictions pay their portion of the project’s debt service through annual charges, which the City receives as operating revenues. 6. What will the impact of the plant be if we do not repair it?Equipment including electrical gear, pumps and pipes, blowers, and other wastewater treatment equipment that are currently beyond their useful life, which includes all the equipment in the project, would eventually fail and put the plant at significant risk of violation of its NPDES permit. Violation of the Plant’s permit threatens San Francisco Bay and puts the City at risk of fines, litigation, and more significant penalties. Failure to complete the project also prevents the City from complying with anticipated state regulatory requirements for nitrogen removal from the wastewater. 7. How much money is being “reimbursed” and how much is taken as a loan? All of the money is being taken as a loan. The SRF program fulfills disbursement requests as the City submits them during construction for costs incurred in a specific period (for example, quarterly). Interest accrues on each disbursement as of the date of the disbursement. After completion of construction, a payment schedule is prepared based on the actual amount of disbursements over the course of the project and the associated interest, and any unused funds are disobligated from the City’s loan. The first loan payment is due one year after construction completion. Reimbursement from partner agencies is described in the answer to question #5 above. Thank you. Danille Rice Executive Assistant to the City Manager (650) 329-2105 | danille.rice@cityofpaloalto.org www.cityofpaloalto.org City of Palo Alto (ID # 11949) City Council Staff Report Report Type: Consent Calendar Meeting Date: 3/1/2021 City of Palo Alto Page 1 Summary Title: Corrected Objections to Weed Abatement and Adoption Title: Correction: Adoption of a Resolution Ordering Weed Nuisance Abated From: City Manager Lead Department: Fire Recommendation Staff recommends that Council adopt the corrected Resolution (Attachment A) ordering the abatement of weed nuisances in the City of Palo Alto. Background The Council heard the Public Hearing to abate weeds on January 11, 2021. At that hearing, the Council heard objections from two property owners that noted pandemic-related shelter-in- place limitations on maintenance activities. Following the hearing, staff reviewed other addresses included in the Resolution that were similarly identified for the first time during the pandemic, and recommends these properties be removed from the Resolution. The corrected and updated Resolution is provided as Attachment A to this report. Specifically, the following addresses will be removed from the 2021 Weed Abatement Commencement Report: 419 Wilton; 2660 Bryant; 2349 Greer; 3640 Lupine; 498 Loma Verde; 2808 Bryant; 84 Roosevelt; 3732 Starr King; 3738 Starr King; 289 Fernando; 31 Primrose; 1071 Embarcadero; 864 Embarcadero; 128 Kingsley; 2671 Bryant; 3550 Park; 365 Wilton; 452 Fernando; 3130 Ramona; 3070 Middlefield; 2620 Middlefield; 649 Maybell; 4137 Donald; 895 Mockingbird; and 3000 Alexis. Attachments: • Attachment A: Resolution of the Council of the City of Palo Alto Ordering Weed Nuisance Abated Not Yet Adopted 1 0160042_20210128_ay16 Resolution No. ___ Resolution of the Council of the City of Palo Alto Ordering Weed Nuisance Abated R E C I T A L S A. On December 14, 2020 the Palo Alto City Council adopted Resolution No. 9931 declaring weeds to be a nuisance and setting January 11, 2021 at 6:00 p.m. or as soon thereafter as the matter may be heard, in the Civic Center as the time and place for a hearing of objections to the proposed destruction and removal of weeds; and B. In accordance with said Resolution, notice of such hearing was given in the manner provided by law, as appears from the affidavits on file in the Office of the City Clerk; and C. All persons desiring to be heard were given an opportunity to be heard, and all matters and things pertaining to said weed abatement were fully heard and considered by this Council. NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows: SECTION 1. Objections are sustained for the following addresses, which have been removed from the 2021 Weed Abatement Commencement Report: 419 Wilton, 2660 Bryant, 2349 Greer, 3640 Lupine Avenue, 498 Loma Verde, 2808 Bryant, 84 Roosevelt, 3732 Staff King, 3738 Starr King, 289 Fernando, 31 Primrose, 1071 Embarcadero, 864 Embarcadero, 128 Kingsley, 2671 Bryant, 3550 Park, 365 Wilton, 452 Fernando, 3130 Ramona, 3070 Middlefield, 2620 Middlefield, 649 Maybell, 4137 Donald, 895 Mockingbrid, and 3000 Alexis. All other objections to the proposed destruction and removal of such weeds are overruled. SECTION 2. The Fire Chief hereby is ordered to do all things necessary and authorized in Chapter 8.08 of the Palo Alto Municipal Code to abate such nuisance, or cause the same to be abated by contract with the County of Santa Clara. // // // // Not Yet Adopted 2 0160042_20210128_ay16 SECTION 3. The County of Santa Clara as lead agency has determined that this project is exempt from the provisions of the California Environmental Quality Act (“CEQA”) under CEQA Guidelines Section 15308 as an action by regulatory agencies authorized by state or local ordinance to assure the maintenance, restoration, enhancement, or protection of the environment. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: __________________________ _____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: __________________________ _____________________________ Assistant City Attorney City Manager _____________________________ Fire Chief _____________________________ Director of Administrative Services City of Palo Alto (ID # 11872) City Council Staff Report Report Type: Action Items Meeting Date: 3/1/2021 City of Palo Alto Page 1 Summary Title: FY 2021 Mid -Year Budget Review, Rental Assistance and Preliminary Q2 Financial Status Report Title: Review the FY2021 Mid -Year Budget Review and Approve Budget Amendments in Various Funds; Provide Direction on (a) Potential Rent Forgiveness Programs for City Tenants and (b) Waiver of the Business Registry Certificate and Downtown Business Improvement District Fees From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff recommends that the City Council review, discuss and act on the following items for consideration: 1) Amend the Fiscal Year 2021 Budget Appropriation for various funds and various capital projects, as identified in Attachment A, Exhibits 1 and 2 (requires a super majority, 2/3 approval); 2) Review priorities for use of the $744,000 COVID-19 Council Reserve, set aside during the FY 2021 Adopted Budget and provide direction on usage as appropriate; 3) Review capital projects expected to begin construction by fiscal year end; 4) Approve the creation of a rent forgiveness program to qualified City tenants (non-profit and/or for-profit) and authorize the City Manager to execute amendments to all leases in accordance with the City Council established program (Attachment B); 5) Direct staff to return with the necessary documents to waive the business registration fee (Palo Alto Municipal Code Chapter 4.60) due and payable in calendar year 2021 and the assessments typically levied for the Downtown Business Improvement District (BID) for FY21; and 6) Direction to eliminate the equivalent of 83 full-time and 107 part-time positions (76.50 FTE and 26.18 FTE respectively) that were frozen and defunded as part of the FY 2021 Adopted Budget in the upcoming FY 2022 Budget. City of Palo Alto Page 2 EXECUTIVE SUMMARY Annually, staff brings forward recommendations to adjust the adopted budget as part of the Mid-Year Budget review. Recognizing that discretionary decisions should be made through the annual budget process in May/June, the recommended Mid-Year budget adjustments are typically largely ministerial. In light of the current pandemic and the impacts of COVID-19, as previously discussed with the City Council, staff have modified this FY 2021 Mid -Year Budget Review to be a more robust, and significant action for City Council review. Significant adjustments are recommended to realign the FY 2021 budget with current projections and proactively address the forecasted shortfall in revenues versus expenses in FY 2022 and beyond, as outlined in the FY 2022- 2031 Long Range Financial Forecast (CMR 11954). The budget appropriation actions require a super majority approval by the City Council (PAMC 2.28.080(c)(1)). The City continues to actively manage its finances considering significant uncertainties from the ongoing pandemic and related economic challenges. As the City and the County move through different phases of recovery, the City adapts operations to best support and serve the community. As a result of County Public Health Orders and State Public Health restrictions, these changes impact both the cost of delivering City services and the revenues that pay for them (both taxes and fees). Often, staff continues to find tension in resource availability and demands for extreme flexibility and nimbleness in an environment that requires increased resources to deliver the same quantity of service in modified ways to ensure the safety of the community and employees. In general, experts have previously believed that we reached the bottom of financial impacts during the second quarter of 2020, when strict shelter -in-place orders restricted movement and commerce other than core essential activities. However, the forewarned second surge that has hit the community in November – January and its impacts remain largely unknown. As predicted, the anticipated wave resulted in similarly severe restrictions, restricting daily activities once again to levels seen during the second quarter of 2020. It is obvious but important to reiterate that there remain several risks and uncertainties, including: • The pace of vaccination rollout as well as the pace of consumer confidence in the economic recovery, its stability and safety; • The length of the recovery period and how fast recovery could take; this wil l significantly impact the City’s most sensitive tax bases; • The structural changes as a result of the societal adaptations due to COVID -19, including impacts to daytime population, whether it be workers, students/faculty/staff at Stanford University, or changes to the City’s resident population. The City continues to be significantly impacted by the recessionary period and continues to be mindful of this in its day to day business and spending in this context. Included in this report are not only adjustments to amend the FY 2021 Adopted Operating and Capital budgets, but also several restrictions including a freeze on hiring, travel, and additional programmatic actions that impact services, City tenants, and businesses. City of Palo Alto Page 3 This report contains: (a) significant adjustments that are recommended to realign the FY 2021 budget with current projections, (b) adaptations to current and new programs referred by the City Council to staff, and (c) a preliminary 2nd Quarter Financial status. This report is organized as follows: • FY 2021 Mid-Year Budget Adjustments • Current CIP Projects expected to be brought forward for construction contract award in FY 2021 • A potential rent forgiveness program for City tenants (non-profit and/or for-profit) • 2021 Business Registry Certificate Program and Downtown Business Improvement District fees continued pause • Preliminary Q2 Financial Status: Operating Budget & Capital Budget In these sections adjustments to realign the FY 2021 Adopted Budget are recommended working to strategically adjust revenues and expenses with actual activities and services levels, especially in areas due to vacancies. The balancing strategy works to preserve reserves to the extent possible. Staff has been conservative in these estimates and expects to bring forwar d a year end budget adjustment report in June with any additional refinements to budgeted levels based on the most current information available. BACKGROUND Recognizing that discretionary decisions should be made through the annual budget process in May/June, the recommended Mid-Year budget adjustments are typically largely ministerial. This was confirmed in 2016, as staff and the Finance Committee altered the Mid -Year budget process and turned this report into a status update based on actual financial activities in the prior and current fiscal year and to implement previously approved City Council direction. This report focuses on recommended changes to the FY 202 1 Adopted Budget. Where possible, budget change recommendations are brought forward for City Council consideration as part of the approval of the Mid-Year Budget Report to consolidate requests and streamline changes to budget appropriations. These adjustments are necessary as revenues and expenditures vary from the original budget plan for many reasons, including but not limited to changes in economic factors, project estimates and scope, and City Council policy and direction. The Mid - Year Budget Report reflects adjustments for prior City Council approved direction, clean -up actions based on FY 2020 actual experience or current FY 2021 actual activities. As a reminder of the recent history of financial impacts, recognizing the severity of the public health emergency and its impacts on the City’s financial situation, in Spring 2020 the City Council directed staff to assume a more conservative revenue estimate reflecting a loss of $39 million in General Fund tax revenues in FY 2021 (CMR 11315) from previously projected levels for FY 2021 prior to the onset of the pandemic. Actual FY 2020 revenues fell $16.7 million below prior year levels of $180.4 million in FY 2019. In prior years, Sales Tax and Transient City of Palo Alto Page 4 Occupancy Taxes (TOT) alone made up nearly 30 percent of the General Fund revenues, both of which continue to see significant declines. As a result of the City Council’s direction, staff returned with service reductions to prioritize essential services and pare back discretionary services in order to align expenses with the lower revenue estimates. More than 60 percent of the City’s General Fund budget funds the outstanding workforce delivering the City’s services every day and staff and resource reductions were unavoidable. The City’s General Fund workforce was reduced by 11.3 percent, as 83 full time staffing positions (76.50 FTE) were frozen and defunded and 107 part-time positions (26.18 FTE) being frozen and defunded as well. This is an 18 percent reduction in force able to deliver services to the community. Despite these reductions, the adoption of the FY 2021 budget (CMR 11330) ensured that the City continues to proactively pay for long term liabilities and continues capital investments in its most critical infrastructure. It also provides resources for the City to successfully adapt from ‘shelter in place’ to future service delivery models and establishes funding to support those service delivery transitions and for this reason, a reserve of $744,000 was established for the City Council to address ongoing or additional unforeseen impacts from COVID19. These funds are to be allocated based on resource needs related to Community Services, ongoing COVID-19 Response, Public Safety Operations, and Shuttle Systems, or other priorities proposed by staff. This list is a working list that can be adjusted based on needs as recommended by staff and directed by the City Council. This report does not recommend use of these funds; however, they may be a funding source for a potential rent forgiveness program. Staff has provided regular updates on the City’s financial status providing opportunities to review services and identify any changes in priorities. In addition, forecasts for FY 2022 and beyond have been discussed with the City Council to assist in providing a longer outlook beyond June 30, 2021 and begin work on planning for FY 2022 and the continued contraction of available resources. Prior staff reports providing various fiscal updates for Council deliberations are below. This does not include information items that have been distributed for quarterly reporting such as investments. • October 19, 2020, City Council (CMR 11596): Preliminary Q1 Fiscal Year (FY) 2021 Financial Status Discussion and Potential Direction to Staff on Budget Revisions, Staffing Revisions, and Next Steps in Monitoring, Modeling, and Addressing Recovery Planning Approaches • November 30, 2020, City Council (CMR 11790, meeting video): Study Session on Community and Economic Recovery Strategies and Engagement • December 15, 2020, Finance Committee (CMR 11844): Review and Recommend That the City Council Accept a Preliminary Forecast for Fiscal Year (FY) 2022 and FY 2022 Budget Development Guidelines • December 15, 2020, Finance Committee (CMR 11750): First Quarter FY 2021 Financial Report City of Palo Alto Page 5 • January 25, 2021, City Council (CMR 11808): Update on Status of Capital Improvement Fund and Potential Direction on Prioritization of Projects for the FY 2022 Budget and 2022 -2026 Capital Improvement Plan • February 8, 2021, City Council (CMR 11954): Review the Potential Financial Scenarios and Direction to Staff on Development of the Fiscal Year (FY) 2022 Budget, Review and Acc ept the FY 2022 Budget Development Guidelines, and Review and Accept the FY 2022 - 2031 Long Range Financial Forecast As discussed with the City Council on February 8th in reviewing potential financial scenarios, data is gathered and reviewed throughout the fiscal year. This item is intended to be a touch point and continuation of providing new information since the in-depth City Council budget and fiscal discussions held in May and June 2020. This report seeks Council input on several areas of staff work ahead and also outlines next steps and timing for a series of City Council conversations planned to focus on fiscal monitoring, community and economic recovery, and more. Status of the City’s financial condition as of the 2nd quarter of FY 2021, based on new information and review of key indicators in the General Fund are discussed and includes reporting for all other funds. DISCUSSION Considering the current pandemic and the impacts of COVID-19, as previously discussed with the City Council, staff have modified this FY 2021 Mid-Year Budget Review to be a more robust, and significant action for City Council review. This item serves as a continuation of the many touch points as the City maneuvers through these uncertain times and works to remain agile based on the most current information available. Further strategic work continues aside from the financial reporting discussed above, focused on a Community and Economic Recovery Strategy. Findings and recommended adjustments in this report are based on the data available at the time of reporting and do not reflect true 2 nd Quarter financial activity in FY 2021. Final Q2 data will not be available until the end of March 2020. FY 2021 Mid-Year Budget Adjustments The following is an overview of the status for the General Fund, Enterprise Funds, and other funds including recommended budget adjustments as they pertain to the City’s FY 202 1 Operating and Capital Budgets. City of Palo Alto Page 6 Overview of Mid-Year Balancing Strategy This mid-year report serves to report the preliminary 2nd quarter financial status and also proposes a number of budget adjustments to align revenues with year-to-date activity and estimates. The General Fund net budget shortfall as of mid-year totals $5.2 million and was driven by revenues impacted by COVID-19, including the City’s major tax revenues, department revenues associated with cost-recovery activities, and delays in implementing Fire fee that were part of the balancing strategy in the Adopted Budget. The following table outlines the major drivers of the General Fund mid-year gap along with staff’s proposed balancing strategy to offset the collective impact of these activities: Table 1: General Fund Mid-Year Gap and Balancing Solutions Items Contributing to Budget Gap Department Revenue Alignment due to Economic Impact $(4.3) M Net impact of Major Tax Revenues (decrease in TOT, UUT, offset by increases in Property Tax, Sales Tax, and DTT) (3.2) M Deferred Implementation of Fire Fee Revenue (1.6) M Delayed Opening of Junior Museum and Zoo (1.0) M Service Alignments (0.1) M Recognize CARES Act Funding 0.9 M Reduce Transfer to Capital Fund; align with TOT revenue estimate 4.5 M Total General Fund Mid-Year Gap $(4.8) M Proposed Balancing Solutions Department Service Reductions/Alignments (vacancy savings included) $0.9 M Eliminate Remaining Travel Budget $0.3 M Reduce Management Development Funding from Previous Years $0.1 M Use Department Economically Sensitive Revenue Reserve $3.5 M Total Proposed Balancing Solutions $4.8 M Items Contributing to the Gap Department Revenue Alignment due to Economic Impact: These adjustments include reductions in parking citation revenue due to discontinuing parking enforcement; aligning ambulance transport revenue to historical trends; and revenue and cost alignments for the Art Center, Recreation, Children’s Theatre, and facility rental as a result of continued discontinuation of services due to COVID-19 impacts. Decrease in Major Tax Revenues and Reduce Transfer to Capital Fund: Overall, it is estimated that major tax revenues will fall $3.2 million below the FY 2021 Adopted Budget. This reflects the net impact of an approximately $11 million reduction in Transient Occupancy Tax (TOT) and Utility User Taxes (UUT), partially offset by higher Property Tax, Sales Tax, and Documentary Transfer (DTT) estimates. In alignment with the City Council policy to dedicate a portion of TOT receipts to infrastructure investments, a recommended $4.5 million reduction in the transfer to the General City of Palo Alto Page 7 Capital Improvement Fund aligns the budgeted expense with current revenue estimates. This adjusted level is consistent with the projections for CIP financial status in the most recent staff reports to the City Council. Additional detail for these adjustments is detailed in this staff report. Deferred Implementation of Fire Fee Revenue: The FY 2021 Adopted Budget includes $1.9 million in fee revenue for a First Responder Fee and an Ambulance Subscriptions. Staff has retained a consultant to assist with implementation of the First Responder Fee and is expected to begin reporting to the City Council on this item during FY 2022. Work on the Ambulance Subscription Fee is in progress and has been presented to the Finance Committee in December 2015. The Department is working on a revised report to Council for March/April and anticipates an 80 percent reduction in the revenue estimated from this fee. Delayed Opening of Junior Museum and Zoo: The continuing community impact of COVID-19 has necessitated the delay of the opening of the new JMZ from March 2021, which results in revenue decreases in ticketed entry and membership sales and cancelled activities due to health order limitations on gatherings. This action also recognizes expense savings from the postponed opening in areas such as staff hiring delays, marketing, accreditation-related activities, and new animal care and transport. Proposed Balancing Solutions Department Service Reductions or Alignments: Proposed department service reductions and alignments of program costs total $0.9 million, of which $0.5 million are ongoing and are anticipated to be proposed during the FY 2022 budget process. Detail for these reductions can be found in Attachment A. This includes proactive recognition of vacancy savings in Community Services, Public Works, and Administrative Services Departments for position vacancies during FY 2021 that are expected to be brought forward as part of the FY 2022 Proposed Budget. Eliminate Remaining Travel Budget: Health orders discourage non-essential travel and require mandatory quarantine after long distance travel into Santa Clara County. In addition, professional organizations and other agencies have switched to virtual meetings and conferences. Staff proposes that remaining travel expense budget be eliminated this fiscal year as staff continue to freeze travel. Reduce Management Development Funding from Previous Years: The Management Training Program provides $1,000 per eligible employee (MGMT and PAPMA) to provide employees with resources to improve and supplement their job and professional skills. Savings from previous years of $0.1 million is proposed to be eliminated. The funding allocation for current year remains intact. City of Palo Alto Page 8 Department Economically Sensitive Revenue Reserve: Consistent with the direction given by the City Council on May 4, 2020 (CMR 11315), the FY 2021 Adopted Budget includes a $5 million reserve to offset the unknown impact of department economically sensitive cost-recovery activities. The FY 2021 Adopted Budget was developed assuming that shelter-in-place orders would be lifted shortly after December 2020 and normal social and economic activities would resume. It was expected and anticipated that departmental revenues would fall below budgeted levels, it however was unknown exactly where depending on health orders. Therefore, funding was set aside in anticipation of this mid-year adjustment. As departments have revenue operational activity through December and forecast through the end of the fiscal year, $3.9 million of this reserve is used as a balancing solution. Other Recommended Adjustment Highlights In addition to realigning the General Fund, other adjustments are included in this report , generally grouped into four types of transactions: • Prior City Council Direction/Clean-up actions: These technical adjustment requests adjust the current budget levels to align with anticipated year end revenue or expenditure levels and fix inadvertent errors in the adopted budget. “Prior City Council Direction” actions complete the technical budget adjustments in alignment with direction that was approved by the City Council in a separate agenda item. Typically, mid-year adjustments fall in this category. • Reimbursements and Grants: These requests adjust grants, reimbursements, and fee revenue and expenditure estimates to align with current year end projected levels as appropriate. This type of request normally has a net-zero impact. • Time-sensitive supplemental funding to reflect pending expenses: These are requests for additional funding to address critical programs or service delivery needs. These adjustments are being brought forward ahead of the annual budget process because the need either cannot or should not wait until the next fiscal year. The highlights below in addition of full details of all recommended actions can be found in more detail in Attachment A. Major adjustments include but are not limited to: Time-sensitive supplemental funding to reflect pending expenses: • Library Automated Material Handling to purchase hold lockers and lending kiosks from impact fees ($220,000) Prior City Council Direction/Clean-up actions: • Community and Economic Recovery Plan resource allocation, as approved by the City Council on January 25, 2021 (CMR 11967) Including funding for Fiber to the Home ($200,000), Workplace facility adaptations ($500,000), and University Avenue Streetscape Update ($150,000). • Recommended transfer of impacts fees for capital investment as outlined in the Annual Status Development Impact Fees FY 2020 report (CMR 11875) City of Palo Alto Page 9 Reimbursements and Grants: • Public Safety Strike Team Reimbursements: $1.0 million in revenue for reimbursements that have been confirmed from the State of California, and a corresponding increase to the Fire Department’s overtime budget for deployment of public safety personnel on strike teams. • Local Early Action Plan (LEAP) Grant: $300,000 This net-neutral action increases appropriations for a reimbursable grant from the California Department of Housing and Community Development (HCD) for technical assistance, preparation an d adoption of planning documents, and process improvements to accelerate housing production and facilitate compliance to implement regional housing needs assessment. FY 2021 Adopted Budget Reductions In addition to the above mid-year balancing strategies, staff also seeks the City Council’s direction to eliminate positions that were frozen and defunded in the FY 2021 Adopted Budget as part of the FY 2022 Proposed Budget. As discussed in the FY 2022 – 2026 Long Range Financial Forecast (CMR 11954), the Forecast does not assume restoration of these positions and under this assumption the City continues to forecast gaps in future years. Changes approved as part of the FY 2021 Adopted Budget are summarized below and outlined in detail in CMR 11330. This is a significant adjustment to services levels as the FY 2021 $40 million gap was solved by reductions in services through defunding staffing and a reduction of General Fund investment in capital infrastructure (both base transfer and TOT receipts) by $18.4 million in FY 2021. Although services are outlined below, the pandemic has restricted activities via health orders and as discussed at the February 8, 2021 City Council meeting, it is likely the community has not felt the full impact of these reductions yet. Public Safety: FY 2021 adjustments included an increase of $1.55 million in program revenues and a reduction of $7.3 million in expenses in the General Fund, including 33.27 full -time and 2.28 part-time staffing freezes. These actions included suspensions of specialized police units such as the traffic enforcement and investigation units to maintain police patrol services and shift the priority of police services to urgent calls, lowering capacity to respond to nonurgent calls. Limited officer training, promotional testing, uniform purchases and eliminated or changed to full cost recovery non-essential programming such as school resource officers. Curtailed dispatch, communication, and emergency preparedness services, as well as emergency incident response and training and work to adopt fees to increase revenue for first responder and ambulance subscription. Community & Library Services: FY 2021 reductions included $0.3 million in program revenues and $4.9 million in expenses in the General Fund, including 16.1 full-time and 21.02 part-time staffing freezes. These actions reduced library hours at all branches, keeping neighborhood libraries (Children’s, Downtown, and College Terrace) open three days a week and full-service branches (Mitchell Park and Rinconada) open six days per week. This includes greater cost - recovery through changes in service delivery, charges for services, and/or limiting operating City of Palo Alto Page 10 hours for facilities such as the new Junior Museum and Zoo (JMZ), community centers, open space preserves, the Children's Theatre, and the Art Center. These actions also reduced or eliminated programming such as special events, art exhibits, human services activities, and teen programs. Planning, Transportation, and Infrastructure: FY 2021 reductions included $2.1 million in program revenues and $6.1 million in expense in the General Fund, including 8.2 5 full-time and 1.44 part-time staffing freezes. Included were actions to reduce administration, code enforcement, front counter support, and inspection services. Understanding that this could delay services to the development community, the building inspe ction and plan review team was reorganized to minimize the impacts to lead times for inspections, progress on the Energy Reach Code, and the ability to meet next day inspections. The Crosstown and Embarcadero shuttle programs were eliminated, and the delivery of this service redesigned to reduce costs. Additionally, funding for tree trimming and vehicle replacement was reduced for one year and rate changes in various utility enterprise funds were suspended for the coming year(s). Internal Services & Council Appointed Officers: FY 2021 reductions included $2.9 million in operating expenses in the General Fund, including 5.9 full-time and 0.96 part time staffing freezes. Internal Services departments include the Information Technology, Human Resources, and Administrative Services Departments as well as the Council and appointed officers (City Manager, City Attorney, City Auditor and City Clerk). Reductions in these areas align with the changes in services, increasing timeframes for assistance and review in areas such as recruitments, procurements, performance reporting, and risk management. Technology solutions will be constrained to only essential contracts and systems and support equipment needs as the majority of our workforce continues to work from home. The City Council, Innovation and Special Events, and Human Recourses contingency accounts were eliminated in FY 2021 on a one-time basis. Current CIP Projects Expected to be Brought Forward for Construction Contract Award by the end of FY 2021 Below list of General Capital Improvement Fund projects that staff expects to present to the City Council for award of construction contracts before the end of the fiscal year. Projects expected to award in FY 2022 are not included and would be addressed during fiscal year reappropriations. Recognizing recent Council discussions and interest in reprioritizing projects, this information is provided to keep the City Council informed of project status prior to the full review of capital investments scheduled to be part of the FY 2022 Proposed Capital Budget. This interim step prior to review of the overall CIP allows the Council, should it wish, to redirect staff efforts on these projects. City of Palo Alto Page 11 Table 2: Capital Projects Expected to be Brought Forward for Construction Contract Award by the End of FY 2021 FY 2021 Adjusted Budget Project Number Project Title Project Summary and Status 2,362,282 AC-18001 JMZ Renovation This project supports the City’s contributions to the new JMZ. A contract for fabrication of exhibits is expected to be brought to Council for approval before the end of Fiscal Year 2021. 2,485,231 PE-08001 Rinconada Park Improvements This project will provide safety, site amenities, playground facilities, irrigation, drainage and ADA accessibility improvements. The planned new restroom has been removed from the scope of work to reduce cost, and a construction contract is expected to be brought to Council for approval before the end of Fiscal Year 2021. 8,046,137 PE-13011 Charleston/Arastrader o Corridor Project This project provides new landscaped median islands, bulb outs, enhanced bike lanes, traffic signal improvements and new street trees for the corridor. A construction contract for the project’s third and final phase is expected to be brought to Council for approval before the end of Fiscal Year 2021. 667,056 PE-15020 Civic Center Waterproofing Study and Repairs This project will repair the expansion joint on King Plaza and replace the waterproof coatings on the inside of the plaza perimeter planter boxes. A construction contract is expected to be brought to Council for approval before the end of Fiscal Year 2021. 950,000 PE-18004 Fire Station 4 Replacement This project will replace Fire Station #4 at the corner of Middlefield Road and East Meadow Drive. A design contract is expected to be brought to Council for approval in March. 606,314 PE-18016 Civic Center Fire Life Safety Upgrades This project will assess, update, and replace the Civic Center fire alarm system. The fire alarm panels and associated equipment need an upgrade to meet current code requirements. A construction contract is expected to be brought to Council for approval before the end of Fiscal Year 2021. 314,800 PE-20002 City Facilities Assessment and Record Plan Management System This project will conduct an assessment of all City facilities, including an electrification assessment in support in support of the City’s “80x30” sustainability goal. A consultant contract is expected to be brought to Council for approval before the end of Fiscal Year 2021. 404,050 PE-21003 Magical Bridge Playground Rubber and Synthetic Turf Resurfacing This project will replace the rubberized and synthetic turf surfacing in the playground. A construction contract is expected to be brought to Council for approval before the end of Fiscal Year 2021. 11,616,43 PE-86070 Street Maintenance This project includes the annual resurfacing, micro- City of Palo Alto Page 12 5 seal, crack seal and reconstruction of various city streets. Contracts for the FY 2021 Streets Preventive Maintenance Project and the FY 2021 Street Resurfacing Project are expected to be brought to Council for approval before the end of Fiscal Year 2021. 452,478 PF-01003* Building Systems Improvement This project provides electrical, mechanical, plumbing, structural, and security upgrades for City facilities. A construction contract for the Mitchell Park tennis courts lighting upgrade is expected to be approved by the City Manager before the end of Fiscal Year 2021. 6,523,608 PF-16006 Municipal Service Center Lighting, Mechanical, and Electrical Improvements This project will replace original MSC mechanical, electrical, and lighting systems installed in 1966. A design contract amendment for additional electrical design work is expected to be brought to Council for approval before the end of Fiscal Year 2021. 2,169,800 PF-17000 Municipal Service Center A, B, & C Roof Replacement This project will replace the existing MSC roofs. A construction contract is expected to be brought to Council for approval before the end of Fiscal Year 2021. 209,000 PG-14000 Ramos Park Improvements This project includes safety and accessibility improvements, including replacing the existing park playground, benches, drinking fountains, and resurfacing the basketball court playing surface, as well as installing a new restroom (separate and additional restroom funding is provided by the Parks Restroom Installation CIP project). A construction contract is expected to be brought to Council for approval before the end of Fiscal Year 2021. 217,800 PG- 14002* Cameron Park Improvements This project will upgrade and renovate safety and accessibility features with a primary focus on the park playground. A construction contract is expected to be approved by the City Manager before the end of Fiscal Year 2021. 2,726,860 PL-15002 Downtown Automated Parking Guidance Systems, Access Controls & Revenue Collection Equip. This project includes design and installation of new automated parking guidance systems. A construction contract is expected to be brought to Council for approval before the end of Fiscal Year 2021. *projects with contract amounts anticipated to be under the $250,000 threshold requiring Council approval City of Palo Alto Page 13 Potential Rent Forgiveness Program for City Tenants (Non-Profit and/or For-Profit) At the October 19, 2020 City Council meeting, staff recommended that the City Council discuss Palo Alto’s current fiscal status and provide direction to staff on potential budget actions, including on rental relief for City non-profit and for-profit tenants. City Council requested staff bring back options to provide rental relief for a defined period of time for the City’s tenants. This staff report provides a time bounded rent forgiveness program to City tenants with various criteria to meet qualifications. Staff recommends the City Council approve the creation of a rent forgiveness program to qualified City tenants and authorize the City Manager to execute amendments to all leases in accordance with the City Council established program. Here are some options of rent forgiveness to consider: Table 3: Rent Forgiveness Program Options for Consideration Rent Forgiveness Options to Consider Estimated Impact Cost Estimated Impacted Stakeholders Time Covered Option A – Rent Forgiveness for All Active Tenants $875,000 67 tenants – (For-profits, Non-profits, Small Businesses, Large Businesses) 3 months Option B – Rent Forgiveness for Active and Non-Operational Tenants $751,000 58 tenants – (For-profits, Non-profits, Small Businesses) 3 months Option C – Rent Forgiveness for Active and Non-Operational Non- Profit Tenants $203,000 19 tenants – (Non-Profits) 3 months Option D – No Rent Forgiveness $0 N/A N/A Staff recommends Council approve the following qualifications for tenants to participant in this program: 1. The rent forgiveness program is available to those tenants that have satisfied all responsibilities under their existing agreement, have no outstanding delinquencies for any payments due prior to April 1, 2020, and is a current tenant as the date of the application. 2. Tenant must cite section(s) of the County ordinance that restricted tenant’s operations. 3. Rent over $100 per month including operating expenses. 4. Tenants will be required to complete a form describing their impact from the COVID-19 pandemic and provide financial statements demonstrating the amount of reduced business revenue. 5. The business must have had gross revenues of less than $2.5 million in 2019. City of Palo Alto Page 14 6. The business must provide an income statement demonstrating a decline in gross revenue during 1st half of 2020 of at least 50% from 1st half of 2019. 7. If a qualified tenant paid rent during the forgiveness period instead of deferring, it may qualify for rent credits to be used for rent owed in the following three months after the parties agree to an amendment. 8. Tenants that meet all qualifications will be required to enter into an amendment, subject to City Manager approval. Full details of this potential forgiveness program can be found in Attachment B. 2022 Business Registry Certificate Program and Downtown Business Improvement District Fees In FY 2020, due to COVID-19, the Council waived the $50 Business Registry Certificate Fee (BRC) and the assessment of the Downtown Business Improvement District (BID) (CMR 11219) for calendar year 2020. Council also approved the reimbursement of business registration fees and BID assessments paid. Reimbursements have totaled $73,609 for BRC and $44,710 for BID. Subsequent actions were taken in June to suspend these programs through FY 2021 it was expected that both BRC and BID fees would resume in 2022 (CMR #11405, and #11358). As we approach the renewal period staff is seeking Council’s direction on whether to: 1) Waive the BRC and/or BID fees again in 2022; or 2) Continue with the collection of fees for both the BRC and BID Depending on the City Council’s direction, staff will return with the necessary actions to implement the direction. To aid the Council this potential direction is some background on these programs and their financial implications. The Business Registration Program requirements in Palo Alto Municipal Code Chapter 4.60 (commonly referred to as the “Business Registry”) apply to all businesses located in Palo Alto, with the exception of nonprofits and businesses with less tha n one full-time equivalent employee, home-based or transitory businesses, a religious organization with no ancillary business on-site, businesses who relocated outside of Palo Alto in the past year, and businesses that are permanently closed. Most exempt businesses need to annually claim their exemption through the application but do not pay the fees. The $50 business registration fee is for cost recovery purposes and the $4 certified access specialist (CASp) fee is a State requirement (SB1186 and AB1379) for local jurisdictions to collect a $4 fee from new or renewal applicants for a local business license or equivalent instrument or permit. This fee is for the purposes of increasing CASp services and compliance with construction-related accessibility requirements in Palo Alto and cannot be waived by the City. The BRC is estimated to generate approximately $113,000 annually based on collections during 2018 and 2019. The Downtown Business Improvement District (BID) was established to promote the economic revitalization and physical maintenance of the Palo Alto Downtown Business Improvement District. The City contracts with Palo Alto Downtown Business and Professional Association (PADBPA) to provide services to businesses in the BID. The BID assessment is levied on and paid City of Palo Alto Page 15 by businesses in the district boundary to provide these services. The assessment ranges between $50-$500 based on the location of the business in the BID, type of business, and number of employees (or number of rooms for a lodging business). In June 2019, Council adopted a resolution approving the annual levy of the BID assessments for 2020 which was rescinded on May 4, 2020. The Downtown BID assessment is estimated to generate approximately $76,000 annually. This funding is then used to fund programs and activities managed by the Palo Alto Downtown Business and Professionals Association (PADBPA). Preliminary 2nd Quarter Financial Status: Operating Budget General Fund Overall, the General Fund is tracking at or below adopted estimated rev enues and at adopted expenses. Based on the continued phased reopening from the shelter -in-place orders imposed in March 2020, consumer behaviors continue to evolve, impacting the financial forecasts. The organization has carefully planned for the financial implications of COVID-19 on the City of Palo Alto. Staff recommends adjustments to the revenues and expense levels to align with current projections. However, it is critical to reiterate that e conomic trends and data continue to be uncertain. General Fund: Revenues The FY 2021 Adopted Operating Budget approved a $197 million estimate for sources, of which $67.1 million has been collected to date, or 38 percent of the adopted budgeted. This FY 2021 Adopted Budget included approximately $40 million in reduced revenues, primarily in Sales Tax and Transient Occupancy Tax revenues followed by reduction in Charges for Services, Documentary Transfer Tax, and Utility User Tax. As reported to the City Council on February 8th (CMR 11954), major tax revenue estimates for FY 2021 are projected to fall $3.4 million, or 1.7 percent. This report includes review and analysis of department revenue and proposes adjustments to the budget that continues to scale and modify revenues based on operational impacts experienced due to COVID-19. General Fund revenues (excluding operating transfers) for the 2nd quarter of FY 2021 totaled $67.1, which is 19.3 percent lower than the same period of the prior year and comprises 38 percent of the current year Adopted Budget. The level of budget revenue collected through the end of the 2nd quarter is not indicative of the annual expected receipts in FY 2021 due to timing of major revenues received over the fiscal year. Cash receipts as expected declined in all General Fund revenues except Documentary Transfer Tax over prior year’s 2nd quarter. The following is a table which highlights the City’s major revenue sources for the 2nd Quarter, compared to 2nd Quarter of the prior year. Each quarter’s revenue is expressed as a percentage of the Adjusted Budget for each year. City of Palo Alto Page 16 Table 4: General Fund Preliminary Revenue FY 2021 2nd Quarter % change FY 2021 %FY 2020 % Property Tax 6.8%52,000$ 33.7%48,634$ 33.8% Sales Tax -18.5%20,500 44.7%34,346 32.7% Charges for Services -23.7%25,984 36.0%30,267 40.5% Transient Occupancy Tax -85.7%14,900 10.5%29,309 37.3% Utility User Tax -14.4%15,100 46.8%17,581 46.9% Permits and Licenses 2.0%8,270 36.3%8,667 34.0% Documentary Transfer Tax 1.0%4,700 97.6%8,369 54.2% All Other Revenue Sources -10.3%34,843 42.6%34,076 48.6% Total Revenue -19.3%$176,297 38.1%$211,249 39.4% City of Palo Alto General Fund Revenue FY 2021 2nd Quarter [PRELIMINARY] (000's) 2nd Quarter Actuals Adjusted Budget FY 2021 FY 2020 17,549$ 16,436$ 9,159 11,239 9,343 12,247 1,569 10,944 7,060 8,246 3,005 2,947 4,586 4,539 14,860 16,562 $67,131 $83,160 As outlined in the May 2020 discussion of COVID-19 fiscal scenarios (CMR 11315), the FY 2021 Proposed Budget estimated the same major tax revenues at $145.7 million, which is nearly $40 million higher than the FY 2021 Adopted Budget of $107.2 million. The below table compares major tax revenues estimates against pre-COVID actual revenue levels in FY 2019 and the FY 2021 projections. These estimates have assisted in informing the recommended budget adjustments included in Attachment A recommended for City Council approval. City of Palo Alto Page 17 Table 5: General Fund Major Tax Revenues as of 12/31 Actual 2019 Actual 2020 Adopted 2021 Projected 2021 Revenue & Other Sources 0 Sales Taxes 36,508 30,563 20,500 25,030 Property Taxes 47,327 51,089 52,000 53,173 Transient Occupancy Tax 25,649 18,554 14,900 4,830 Documentary Transfer Tax 6,923 6,903 4,700 6,875 Utility Users Tax 16,402 16,140 15,100 14,080 Other Taxes and Fines 1,888 1,172 1,925 392 Subtotal: Taxes 134,697 124,421 109,125 104,380 Charges for Services 26,669 23,557 25,418 20,619 Permits and Licenses 9,088 8,038 8,336 8,932 Return on Investments 2,018 1,419 1,100 1,100 Rental Income 16,411 16,037 16,022 15,404 From Other Agencies 951 1,529 551 2,835 Charges to Other Funds 10,684 11,099 11,992 11,992 Other Revenue 5,084 2,848 2,572 2,412 Total: Non-Tax Revenue 70,905 64,527 65,991 63,293 Operating Transfers-In 20,154 20,568 21,359 21,251 Total Revenue $225,756 $209,516 196,475 $188,924 Property Taxes Property tax revenue is the General Fund’s largest revenue source and represents approximately 25 percent total revenues. The average annual property tax growth over the last 10 years has been approximately 6.6 percent. The FY 2021 secured and unsecured property tax assessed values growth rates are 7.6 percent and 12.7 percent, respectively, an average of 7.8 percent. These higher assessed values reflect continued strength in com mercial and residential real estate markets. Although not in decline, during a recession, property tax impact is delayed by a year. Based on trends from the last two recessions, trends currently indicate a plateau rather than an increase in receipts through FY 2022 as that year will be a reflection of activity in 2020. In addition, fiscal years 2018, 2019, and 2020 included receipts of $1.4 million, $2.7 million, and $3.9 million respectively, for excess Educational Revenue Augmentation Fund (ERAF) distributions from the County of Santa Clara. 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. As a result of the volatility of ERAF, it is not considered a permanent local revenue source. In addition to the uncertain amount of ERAF revenue the City is to receive, the State is claiming that five counties (Marin, Napa, San Francisco, San Mateo, and Santa Clara) are calculating excess ERAF in way that that is contrary to state law where too much property tax revenue is being shifted from schools to other local agencies. The final resolution of this dispute, both in timing and amount, creates further uncertainty in the current and future fiscal years. City of Palo Alto Page 18 The FY 2021 Adopted Budget assumes $52.0 million in total property tax and is expected to grow to $53.2 million. A $1.2 million increase to property tax revenue is included in staff’s recommended mid-year budget adjustments (Attachment A). Revised property tax estimates assume $3.2 million in Excess ERAF revenue will be received. Sales Taxes Sales tax receipts have seen significant declines as the City’s revenue base is dependent on many high-end goods and dining options at regional destinations, such as Stanford Shopping Center. Cash receipts for the 2nd quarter has decreased 18.5 percent, from the same period last year, however, when reviewing economic activity through September 2020, receipts reflect a year-over-year decline of 24.9 percent. These significant declines reflect a partial offset by business to business sales, the one sector that outpaced other areas with 3.3 percent year- over-year growth. Based on activity and receipts for the recent quarter close, it is estimated that sales tax revenue will exceed the FY 2021 Adopted Budget by $4.5 million, or 22.1 percent, and will generate a total of $25.0 million by year-end of FY 2021. This is compared to the $30.6 million received in FY 2020, and $36.5 million received in FY 2019. The FY 2021 Adopted Budget for sales tax revenue was based on a conservative estimate and a variety of unknowns . Based on these year-to-date trends, economic forecasts (including UCLA Anderson), and the City’s sales tax consultant, staff recommends a $4.5 million budget increase to the sales tax revenue budget. Transient Occupancy Tax (TOT) TOT continues to be the most significantly impacted, though revenues have improved slightly above the activity seen in April and May 2020. Currently, receipts through 2nd quarter are tracking 85.7 percent below prior year levels. These receipts reflect actual activity through November 2020, and therefore do not yet take into consideration the second wave COVID-19 cases that occurred in December 2020. During the first five months of the fiscal year, 10 hotels remained closed completely; one of these hotels opened in December. The open hotels average daily room and occupancy rates, as of December 2020 were $117 per day and 38.3 percent, respectively. For the open hotels, occupancy percentage ranges from 9.5 percent to over 76 percent, however, the higher occupancy was at the expense of a deep decline in average room rates (declines range from 10.5 percent to 64.2 percent). Year-over- year, daily average room rates decreased by half, from $279 per day to $117 per day, while the occupancy rate has declined from 76.3 percent to 38.3 percent. According to CBRE, demand for hotel rooms nationally was down by 36.8 percent year-over- year from Q3 calendar year 2019 to 2020, and national hotel occupancy declined a corresponding 37.9 percent year-over-year. San Francisco saw a significant 84.1 percent loss in Revenue Per Available Room (RevPAR), the third greatest decline in the continental U.S., behind Boston and New York. San Jose saw a loss slightly greater than 70 percent from Q3 calendar year 2019 to 2020. As a region where business and other non-leisure travel is a driving impact, City of Palo Alto Page 19 it is expected that until the virus is under control and both domestic and international travel resumes, the City will continue to experience significantly reduced TOT revenue. Rapid progression in vaccines as well as the expected opening of new hotels in Palo Alto are positive developments that will drive recovery for this tax revenue. Receipts are expected to fall below FY 2021 Adopted Budget estimates and represents a decrease of 67.6 percent, or $10.1 million. Included in this report is a recommended downward adjustment to the revenues estimate from $14.9 million to $4.8 million, partially offset by a recommended $4.5 million reduction in the transfer to the General Capital Improvement Fund in alignment with the City Council policy to dedicate a portion of TOT receipts to infrastructure investments. Documentary Transfer Tax (DTT) In FY 2015, DTT peaked at $10.1 million. This milestone was a consequence of several large commercial transactions on Page Mill Road and in the Stanford Research Park. Since that time, DTT has significantly moderated, with $6.9 million earned in FY 2020. Revenue s through 2nd Quarter FY 2021 are 1.0 percent higher than prior year receipts. Therefore, should receipts continue to trend similar to prior years, it is expected that DDT revenues will exceed the FY 2021 Adopted Budget by 46.3 percent, or $2.2 million. As in past years, this revenue source is challenging to forecast since it is highly dependent on sales volume and the mix of commercial and residential sales. Although the total value of these transactions has decreased by 4.6 percent, the number of transactions through December 2020 (365) are running significantly higher than those through December 2019 (285). A proposed $2.2 million revenue budget increase is included in Attachment A to account for this increased activity and estimate moderate sale activity for the remainder for the year. Utility User Tax (UUT) The UUT is levied on electric, gas, and water consumption, as well as on telephone usage. In total, FY 2021 revenues were budgeted at $15.1 million, a 14.1 percent reduction from the FY 2020 adopted level of 17.6 million, or a reduction of $2.5 million. FY 2020 actual receipts were $16.1 million and to date, revenues are 14.4 percent below prior year levels through the 2nd quarter of FY 2021. Therefore, year over year reductions were consistent, however, the lower FY 2020 actual receipts, staff expects collections to fall slightly below budgeted levels by the end of the fiscal year and a recommended $1.0 million downward adjustment is included to reflect this. City of Palo Alto Page 20 Charges for Services & Permits and Licenses The FY 2021 Adopted Budget assumed an estimate of $25.4 million in Charges for Services, a 14.5% reduction from the FY 2020 adopted level or $4.3 million below. The FY 2021 Adopted Budget assumed an estimate of $8.3 million in permit and license revenue, a 29.1% reduction from the FY 2020 adopted level or $3.4 million below. Revenues in these categories were impacted by changes in FY 2021 such as the planned opening of the newly remodeled Junior Museum and Zoo with a ticketed entry fee and membership program and the Fire Department first responder fee and ambulance subscription fee. Overall, revenues in this category are expected to end the year below budgeted levels, mainly in Community Services Department and Fire Department receipts. Significant adjustments are recommended in this FY 2021 Mid-Year Budget Review resulting in an overall decrease of $4.8 million from the FY 2021 Adopted Budget estimate. Below reflect highlights of these downward adjustments. • Reduce $1.6 million revenue estimate due to delay in the review and approval of new Fire Fees. The Ambulance Subscription program and fees were reviewed by the Finance Committee on December 15, 2020 and additional analysis was requested prior to further action. The First Responder Fee is still in development. • Reduce $1.6 million revenue estimate due to the expected delay in the opening of the Junior Museum and Zoo to FY 2022. A corresponding decrease in some expenses in the amount of $526,500 is also recommended to recognize this delay and partially offset this loss. • Reduce $2.3 million revenue estimate in recreation, theater, and arts programming and rentals due to continued shelter in place orders restricting services that can be provided. A corresponding decrease in estimated expenses of $835,000 is recommended to offset this loss. Development Services: Preliminary building application and permit revenue overall is down 14 percent compared to last year and reflects 46 percent of the anticipated building permit revenue for FY 2021 budget. Preliminary Development Services revenue is down 30 percent compared to prior years and is currently pacing to 38 percent of the FY 2021 revenue target. Staff recognizes that monthly revenues may be stabilizing, but there are significant monthly revenue fluctuations compared to prior years that limit any reliable conclusions regarding future construction activity at this time. Staff continues to monitor revenues to determine if recent permit activity reflects a return in confidence for the construction and building sector due to the evolving changes in the current economic environment. Department-managed 6expenses are currently under or on pace to meet the budget. The department is monitoring this category closely on a month to month basis. The table below articulates development services revenues from January through December 2019 versus the same 2020 timeframe. City of Palo Alto Page 21 Table 6: Other Revenues The return on investment category reflects the interest earnings on the City’s investment portfolio. This category is a combination of past investments, new investments at current market rates, and available investable cash which fluctuates seasonally and annually. The revised FY 2021 interest earning forecast of $0.9 million is $0.2 million lower than the Adopted Budgeted of $1.1 million. No adjustment is yet recommended in this Mid-Year Budget Review as staff continues to review its investments. The FY 2021 Adopted Budget assumed a rental income estimate of $16.1 million, a 14.1 percent reduction from the FY 2020 adopted level or $2.5 million below. Revenues in this category primarily reflects rent paid to the General Fund from the City’s Enterprise Fu nds and the Cubberley Community Center. During the pandemic, the City has continued to follow Santa Clara County orders and allowed tenants to defer payment of rent, however, as the period continues to grow longer and longer impacting the ability for tenan ts to continue their normal business, a number of City tenants have asked for rent relief. As directed by the City Council on October 19, 2020, staff has brough forward as part of this FY 2021 Mid-Year Budget Review, options for a potential rent forgiveness program. This can be found in Attachment B. No program is currently assuming in this FY 2021 Mid-Year Budget Review. Therefore, should the City Council wish to implement one of these program options, the financial impact would need to be drawn from either the City Council’s COVID-19 Reserve for unforeseen needs or from the Budget Stabilization Reserve. City of Palo Alto Page 22 General Fund: Expenses Overall General Fund expenses are currently expected to remain within the FY 2021 Adopted budget levels of $197 million. General Fund expenses (excluding operating transfers) for 2 nd quarter are 8.6 percent lower than prior year and are tracking at 45 percent of Adjusted Budget (excluding encumbrances). This lower than prior year expense levels in expected due to the significant reductions taken as part of the FY 2021 Adopted Budget which reflected an overall decrease in expenses of 14.7 percent from FY 2020 Adopted Budget levels. The following is a table which highlights the City’s expenses by function for the 2nd quarter, compared to 2nd quarter of the prior year. Each quarter’s expense is expressed as a percentage of the Adjusted Budget for each year. Table 7: Preliminary General Fund Expenses FY 2021 2nd Quarter FY 2021 FY 2020 % change FY 2021 %FY 2020 % inc (dec) Police 20,452$ 22,142$ -7.63%40,590$ 50.39%44,806$ 49.42% Fire 17,664 18,195 -2.92%33,776 52.30%35,105 51.83% Community Services 12,969 15,067 -13.92%30,149 43.02%32,191 46.81% Public Works 8,324 8,168 1.91%20,185 41.24%19,797 41.26% Planning and Development Services 7,502 8,916 -15.86%19,388 38.69%21,767 40.96% Library 4,335 4,995 -13.21%8,573 50.57%10,532 47.43% Administrative Services 3,652 3,993 -8.54%8,597 42.48%8,989 44.42% All Other Departments 9,611 10,947 -12.20%26,665 36.04%30,652 35.71% Total Expenses 84,509$ 92,423$ -8.56%187,923$ 44.97%203,839$ 45.34% 2nd Quarter Actuals Adjusted Budget FY 2021 2nd Quarter [PRELIMINARY] City of Palo Alto General Fund Expenses (000's) As a service driven organization, the largest expenses are salaries and benefits. Total salary and benefits expenditures through preliminary December 2020 are approximately $64.2 million, or 51.6 percent of the $124.5 million Adopted Budget, compared to $66.5 million in the same period in the prior year. The City is facing historically low vacancy levels with the elimination of funding for 83 full-time positions (equivalent of 76.50 FTE) and 107 part-time positions (equivalent of 26.18 FTE). Already, assumed in the FY 2021 Adopted Budget was vacancy savings of $2 million. This is the equivalent of approximately 10 full-time positions on average. Currently, the City has 45 full-time vacancies in the General Fund. In addition, some marginal costs have been incurred as planned due to the transition an implementat ion of the FY 2021 Adopted Budget actions. These transition costs reflect the separation of employees in frozen positions, including a 30-day notice and other related costs in Q1. The FY 2021 Adopted Budget City of Palo Alto Page 23 established a $1.1 million reserve for this purp ose, and this report recommends the allocation of funding of $220,000 to departments. Table 8: Public Safety Salaries and Overtime Expenses Police and Fire Salaries and Overtime Expense FY 2021 2nd Quarter [PRELIMINARY] (000's) FY 2021 FY 2020 % change FY 2021 %FY 2020 % Inc (Dec) Police - Salaries 8,655$ 9,007$ -3.9%17,321$ 50.0%19,484$ 46.2% Police - Overtime 732 1,504 -51.3%944 77.5%1,842 81.7% Total Police 9,387 10,511 -10.7%18,265 51.4%21,326 49.3% Fire - Salaries 7,027 7,196 -2.3%13,530 51.9%14,131 50.9% Fire - Overtime 1,411 1,339 5.4%1,931 73.1%1,673 80.0% Total Fire 8,438 8,535 -1.1%15,461 54.6%15,804 54.0% Total Public Safety Salaries & Overtime 17,825$ 19,046$ -6.4%33,726$ 52.9%37,130$ 51.3% 2nd Quarter YTD Actuals Adjusted Budget Police overtime is 51 percent lower than the prior year due to suspension of specialized police units such as the traffic enforcement and investigation units. Suspension of these specialized units resulted in reduced service levels and ability to respond to non -urgent calls. The actual Police overtime is 77.5 percent of adjusted budget. On a combined basis, salarie s and overtime are at 51.4 percent of budget through the 2nd quarter of the fiscal year. Fire overtime is 5.4 percent higher than FY 2020 and 73.1 percent of the adjusted budget primarily due to strike team deployment to multiple California wildfires (Au gust Complex, Glass, Fire, CSU, North Complex, Creek Fire and others) which will be reimbursed by the State. In addition, the department staffed Station 8 for over 1,000 hours on red flag danger days. Fire salaries is 51.9 percent of the adjusted budget is partially attributable to the extension of the Fire Department’s FY 2021 staff reduction plan to March 2021. Fire expects to be able to meet this revised attrition timeline of March 2021 and therefore no further action is required. On a combined basis, salaries and overtime are 54.6 percent of the budget through the 2nd quarter of the fiscal year. Across the organization it is important to acknowledge the reprioritization of resources that are occurring as needs change, working to be efficient and effective within authorized levels. For example, some City facilities remain unoccupied or minimally occupied and therefore do not City of Palo Alto Page 24 need traditional services such as janitorial services. However, those facilities that remain open need increased services due to safety requirements complying with Public Health Orders. Instead of seeking additional contracting authority or funds, the Public Works Department has reallocated services within the contract, focusing on facility needs as a result of increased services to ensure the health and safety of the workplace environment and its visitors, both public and employee alike. Therefore, savings in janitorial services are not expected at year end, in fact, depending on the pace of City facilities reopening, costs may rise as increased frequency of service will likely be necessary to maintain a safe environment per the Centers for Disease Control and Prevention (CDC)and State and County Public Health Officer guidelines will be required at more facilities. General Fund: Budget Stabilization Reserve The General Fund Budget Stabilization Reserve is anticipated to be at $35.9 million. This figure reflects the actual FY 2020 year-end financial reporting as outlined in CMR 11880 Recommendation to the City Council to Approval of the Macias Gini & O’Connell’s Audit of the City of Palo Alto’s Financial Statements as of June 30, 2020 and the Management Letter; FY 2020 Comprehensive Annual Financial Report (CAFR); & FY 2020 Budget Amendments in Various Funds, City Council approved BAO’s approved subsequent to the budget adoption through December 31, 2020, and the recommended actions included in this report. This level is 18.2 percent of the FY 2021 Adopted Budget for General Fund expenses and is slightly below City Council’s target level $36.4 million, of 18.5 percent. Not included in this figure is $744,000 that the City Council set aside in a reserve with the usage of that reserve to be determined later at City Council’s discretion. These funds may only be allocated by City Council action. Other Funds Parking Funds Revenue in the Parking Funds is predominantly comprised of annual parking permits for employees and residents, daily parking permits, and in the Residential Preferential Parking (RPP) Fund citation revenue. As expected, all revenue categories are tracking significantly below budgeted levels due to the suspension of parking enforcement and extension of annual parking permit expiration dates, both part of the City’s response to the community and econo mic impacts of COVID-19. The Parking Funds are projected to remain solvent in FY 2021 based on resumption of commercial enforcement and permit expiration in Spring 2021. Resuming enforcement and ending permit extensions are critical to the solvency of these funds as they are expected to drive demand for sales of annual parking permits for employees and residents, which are the most significant revenue sources in these funds. As annual parking permit sales are anticipated to resume in FY 2021, budgeted targets are not adjusted in this report. Other revenue areas such as daily parking permits and violation revenue are reduced , representing the losses incurred while commercial enforcement has been suspended. City of Palo Alto Page 25 Internal Service Funds Minimal exceptions are expected in various internal services funds such as the Retiree Health Care Fund, and the Information Technology Fund. The Vehicle Maintenance & Replacement Fund is prioritizing and pausing replacements as per the Council approved budget adjustments. Below highlight a few areas tracking outside of expected levels. As discussed, Workers' Compensation claims costs are trending up. In FY 2020, expenditures increased by $1.3 million or 26 percent from $5.1 million to $6.4 million from the prior year. The appropriation for Workers' Compensation claims expense includes an estimate for claims incurred and reserves for current filings at an 85 percent confidence level, based on actuary estimates. Staff will continue to monitor expenditures and more importantly trends in this type of expense due to adjustments in regulations. As a reminder General Liability claims costs are trending down and city-wide savings of $2.1 million are expected in this fund. Should these trends continue by year end, staff expects to bring forward year-end adjustments to recognize this savings and recommend to appropriate the General Fund portion in the Litigation Reserve in the General Fund in keeping with the City's practice of proactively setting aside funds for dispute resolution. As a reminder the General Benefits Fund staff expects to recommend at year end that one-time retirement savings in FY 2020 are used to make an additional $2.0 million ($1.3 million General Fund) contribution to the Pension 115 Trust Fund, in accordance with the draft pension funding policy the Council approved, bringing total planned contributions (principal) to $34.3 million (approximately 65 percent of the total is from General Fund). Enterprise Funds Mid-year actions being recommended in these funds are primarily related to the alignment of the Utilities Department budgets with current market conditions for revenues and expenses related to the purchase of commodities and the operation of utilities. The actio ns recommended for FY 2021 mid-year will align revenues and expenses for the Low Carbon Fuel Standards Program; interfund transfers for Electric Streetlights and Traffic Signals, Utilities Equity Transfers; and Electric and Gas commodity costs. Preliminary 2nd Quarter Financial Status: Capital Budget Overall, most Capital Improvement projects are anticipated to remain within budgeted levels in FY 2021. Adjustments to the City’s 2021 Capital Improvement Plan for a limited number of projects are noted in Attachment A, Exhibit 2, with specific project adjustments described as well. CIP changes fall into two basic categories: 1) projects that have been delayed and can have their appropriations reduced, and 2) projects that need additional funding due to unantic ipated costs that were not assumed as part of the FY 202 1 Adopted Capital Budget. The program costs recommended in this report are described below and detailed in Attachment A, Exhibit 2. City of Palo Alto Page 26 Staff is currently actively working on the development of the FY 2 022 proposed capital budget, including review of projects expected to be brought forward by year end for further work (as referenced above), projects which have ben delayed, and realignment of projects as discussed with the City Council as part of recent agenda items including but not limited to the Update on the General Capital Improvement Fund (CMR #11808). Timeline & Next Steps Staff expect to continue to diligently manage financials across the organization, providing City Council updates as information becomes available. As we continue into the 2021 fiscal year, staff is actively working on the FY 2022 budget as well as several regular reporting activities over the coming months. Below is a list of expected reports and Council updates planned over the next few months. The Council will continue to be updated on the financials of FY 2021 through these planned discussions with adjustments brought forward as necessary once more information in available and known. Expected upcoming financial status, budget reporting and Community and Economic Recovery Strategy conversations include: March/April 2021: • Additional review of fee studies for impacts fees (CMR 11875) and fire ambulance subscription services fees (CMR 11710); • Various Utility rate and financial forecast review with Utility Advisory Commission and Finance Committee; • Review of revised Junior Museum and Zoo opening and potential fee schedule May 2021: • Release of the FY 2022 Proposed Operating and Capital Budgets • Public Budget Hearings on the Proposed Budgets with Finance Committee June 2021: • FY 2022 Operating and Capital Budget Adoption • FY 2022 Municipal Fee Adoption • FY 2022 Utility Rates adoption STAKEHOLDER ENGAGEMENT The Office of Management and Budget has coordinated with all departments c ity-wide, the City Manager’s Office, and stakeholders such as City tenants and Downtown BID as appropriate, to bring forward the changes discussed and recommended in this report. City of Palo Alto Page 27 RESOURCE IMPACT Approval of the attached transactions is required to amend the FY 2021 budget appropriation ordinance. With the approval of these amendments, the projected ending balance of the General Fund Budget Stabilization Reserve is anticipated to be $35.9 million, which is slightly below the City Council recommended level of by $0.5 million, or 18.5 percent. The projected changes to the fund balance for all other funds including Enterprise Funds, Internal Services Funds, Special Revenue Funds, and Capital Funds are outlined in Attachment A and accompanying exhibits and impacts to fund balance summarized as follows: Table 9: Resource Impact (Non-General Fund) Fund Amount General Fund Public Services Donation Fund -$55,000 Capital Capital Improvement Fund -$4.3M Enterprise Electric Fund -$0.2M Fiber Optics Fund -$0.2M Gas Fund +$0.3M Utilities Administration Fund -$30,000 Internal Service General Liabilities Insurance Fund -$52,000 Information Technology Fund -$40,000 Vehicle Replacement Fund +$0.1M Special Revenue California Avenue Fund -$0.2M General Government Facility Impact Fee Fund -$0.6M Library Impact Fee Fund -$0.2M Public Safety Facility Impact Fee Fund -$0.1M Residential Preferential Parking Avenue Fund -$0.2M Stanford University Medical Center Fund -$0.7M University Avenue Fund -$0.7M Debt Service Library GO Bond Fund +$0.1M ENVIRONMENTAL REVIEW This is not a project under Section 21065 for purposes of the California Environmental Quality Act (CEQA). . Attachments: • Attachment A - FY 2021 Mid-Year Adjustments • Attachment B - Rent Forgiveness ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND Administrative  Services ‐$ (210,000)$               City Auditor ‐$ 111,940$                City Manager Salary Vacancy Savings Expense Reduction This action recognizes salary savings anticipated to be generated by  vacant positions in the Administrative Service Department through the  end of FY 2021. Several management level position vacancies were  maintained across the Department through the first half of FY 2021. A  couple of these positions are anticipated to be filled in the second half  of FY 2021 to reduce service impacts to other City departments.  (Ongoing savings: $0) City Auditor Services Alignment  This action reallocates existing funds and adds additional funding for  year one of the new Internal City Auditor contract with Baker Tilly US  LLP, in accordance with CMR 11624. 25% of the cost of the City Auditor  contract is allocated to the Utilities Administration Fund and the other  75% to the General Fund. In subsequent years, it is expected that the  contract services authorized will be funded similarly to the current  audit services, 75% in the General Fund and 25% in the Utilities  Enterprise Funds for a total not to exceed $750,000 annually.  Additional entry in Utilities Administration Fund to align all audit  functions across the City. (Ongoing savings: $138,570) City Manager Temporary Housing Reduction This action recognizes an expense reduction in the City Manager's  initial temporary housing  funding. Housing funding was approved by  City Council in CMR 9461 as a temporary measure to allow the City  Manager to reside within the City limits of Palo Alto until a long‐term  residential property could be purchased. Remaining relocation funds  are no longer needed and can be returned to the General Fund as  expense savings. (Ongoing savings: $0) ‐$ (21,383)$                 CITY OF PALO ALTO ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Community  Services Administration Support Reduction This action recognizes $76,132 in six months of projected vacancy  savings for 1.0 Administrative Assistant, vacated this year.  As part of  the FY 2022 balancing strategy, this position is recommended to be  defunded and frozen beginning in FY 2022 ongoing.  This reduction is in  addition to 3.48 positions (including 1.0 Assistant Director) that were  defunded and frozen in the Community Services Administration team  for a total of 4 of 6 full‐time positions in the Administration team, a 2/3  reduction in support. The duties associated with this position will be  absorbed by other existing department staff and include administrative  tasks such as records retention, oversight of website and marketing  materials for the department (including catalog creation for recreation  programs), coordinating agendas and reports with Council/clerk's  office, timecard monitoring, public records request responses and  other administrative items supporting the entire department. There  will be 2 full‐time staff dedicated to the administration for this  department. The remaining Administration Team will be focused on the  most critical tasks for daily operations, however, this action could  impact delays in public records requests, accuracy in Council and  committee reports, and support for special projects, and Council and  public ad hoc inquiries. Administrative tasks will also be decentralized  to division/program‐level staffing as well. (Ongoing Savings: $145,019) ‐$ (76,132)$                 Community  Services Junior Museum and Zoo (JMZ) Opening Delay This one‐time action adjusts revenue and expenses for the Junior  Museum and Zoo. The continuing community impact of COVID‐19 has  necessitated the delay of the opening of the new JMZ from March  2021, which results in revenue decreases in ticketed entry and  membership sales ($1,140,000). Other revenue‐generating activities  have also been canceled due to health order limitations on gatherings,  which results in revenue decreases in classes, camps, field trips and  birthday parties ($433,000). This action also recognizes expense savings  from the postponed opening in areas such as staff hiring delays,  marketing, accreditation‐related activities, and new animal care and  transport. (Ongoing net savings: $0) (1,573,505)$           (526,492)$               ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Community  Services Art Center and Public Art Revenue and Expense Adjustments This one‐time action adjusts revenue and expenses for the Art Center  and Public Art program. Health orders related to COVID‐19 have  restricted programming at the Art Center, leading to many  cancelled  classes and programs. Art Center staff have implemented creative  strategies to provide popular programming and generate revenue,  including a curb‐side ceramics drop off program and ceramics wheel  rentals, as well as virtual art classes. Estimated impacts from canceled  and modified Art Center programming totals $403,000 in revenue  losses and $187,000 in expenses savings. This action also recognizes an  approximate $26,000 decrease in donations from the Palo Alto Art  Center Foundation (PAACF); $5,000 of revenue loss for juried  exhibitions, which have not started due to Art Center exhibitions being  closed all year; and $5,200 lost in teen leadership fee revenues. Finally,  this action also recognizes $20,000 in expense savings in Public Art due  to cancelled events and deferred maintenance. (Ongoing net savings:  $0) (439,400)$              (207,192)$               Community  Services Recreation Revenue and Expense Adjustments This one‐time action recognizes revenue and expense decreases in  recreation programs including Adult Sports, Middle School Athletics  (MSA), Special Interest Youth & Adult classes, Teen programs, and  Summer Camps. Health orders related to COVID‐19 have placed  restrictions on recreation programming, shared indoor and outdoor  facility space, and comingling of different households, all of which  significantly limit the recreational offerings of the City. Staff diligently  adhere to all health restrictions by restructuring class and camp  operations, frequently sanitizing, and following all health & safety  protocols; programming has been adjusted wherever possible to  comply with health orders, for example maintaining small, stable  cohorts. This action recognizes expense savings from staff positions  that can be held vacant given the limited level of programming,  reduced need for recreation programming contractors such as referees  in MSA, and fewer supplies needed due to cancelation of many in‐ person programs. Estimated impacts from canceled and modified  recreation programming totals $1.1 million in revenue losses and  $566,000 in expenses savings. (Ongoing net savings: $0) (1,049,851)$           (565,962)$               ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Community  Services Community Center Closures Revenue and Expense Adjustments This action recognizes revenue and expense reductions from the  limited operations of community centers and recreational facilities.  Due to COVID‐19 public health orders, these facilities have not been  fully opened to the public during FY 2021 and their normal revenue  generating activities have been significantly restricted. Expense savings  from these operational limitations are estimated to be $51,000 and  include savings in janitorial services and supplies; replacement and  repair costs for machinery, equipment, and technology; office supplies;  pest control services; and marketing expenses. Revenue losses are  estimated to be $618,000 and consist of the following: Lucie Stern  Community Center ($225,000) indoor ballroom and large outdoor patio  spaces for large events such as weddings, neither of which are  permitted under current health orders. Small outdoor gatherings have  been accommodated to the extent possible. Mitchell Park Community  Center ($177,000) and the Art Center ($20,000) predominantly rent  indoor space, which is not allowed under current health orders.  Reservable outdoor space at the Art Center has been prioritized to  accommodate the relocation of classes and programs that would  typically be inside. Parks and Fields ($180,000) and tennis court  ($16,000) rentals continue at a reduced level; current health orders  restrict comingling of households, sports leagues, and close contact  sports. Expenditure reductions of approximately $52,000 for  contractual services that are not needed while the facilities are closed  partially offset the revenue losses. (Ongoing net savings: $0) (618,000)$              (51,282)$                 ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Community  Services Children's Theatre Revenue and Expense Adjustments This action recognizes revenue and expense adjustments at the  Children's Theatre (CHT). Health orders related to COVID‐19 have  restricted programming at the CHT, leading to many cancelled classes,  programs, and performances. In‐person performances have been  halted for FY 2021, resulting in a revenue loss of approximately  $52,000. For most of the year, the CHT has not been allowed to  operate indoor programs including theatrical performances and youth  acting and music classes, limiting programming to virtual platforms.  With the recent move to the Purple Tier of the health order, CHT will  be able to offer some in‐person classes & camps of limited size and  frequency to adhere to the health other. Estimated impacts from  canceled and modified CHT programming totals $91,000. This action  also recognizes a decreased donation from the Friends of the Children's  Theater in the amount of $90,000. This action also recognizes a full  year of vacancy savings from 0.3 FTE Arts & Science Aide, a part‐time  summer production support position, which can be defunded and  frozen in FY 2021 resulting in expense savings of approximately  $10,500. (Ongoing savings: $0) (233,000)$              (10,464)$                 Community  Services Foothills Preserve Entry Fee Revenue and Operations Expense This action recognizes ongoing, prorated revenue from a new vehicle  entry fee to Foothills Preserve, as approved in CMR 11956 on 2/1/2021.  One‐time funding is also recommended to be allocated to Foothills  Preserve for the purchase of an automatic fee collection machine which  will allow the  entry fees to be collected full time. In the FY 2022 budget  development process CSD plans to propose to reinstate currently  frozen and defunded a 1.0 Community Services Manager (Ranger) at a  cost of approximately $150,000, offset by revenue collected from the  vehicle entry fee.  (Ongoing net savings: $200,000) 75,000$                 20,000$                  Fire Department Ambulance Subscription Fee Revenue Adjustment  This one‐time action recognizes revenue reduction due to delays in  implementation of the Ambulance Subscription Fee, an optional fee for  residents and businesses to secure co‐pay free ambulance transport.  An initial plan was reviewed with the Finance Committee in CMR 11710  December 15, 2020 and the department is gathering data and  performing additional work as requested by the Committee before  bring the final plan to the full Council for adoption of the new fee.  Implementation is anticipated to be complete in late spring 2021.  (Ongoing expense: $0) (1,184,000)$           ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Fire Department Ambulance Transport Revenue Adjustment  This action recognizes reduced revenue from lower than projected  ambulance transports in FY 2021. Shelter‐in‐place orders have limited  EMS calls for service and corresponding ambulance transports. This  revenue reduction is anticipated to continue as long as health orders  significantly limit community activities. (Ongoing revenue reduction:  $745,000) (745,000)$              ‐$  Fire Department First Responder Fee Revenue Adjustment  This action recognizes reduced revenue from delays in implementation  of the First Responder Fee. This fee would be charged for all EMS calls  regardless of transport and would cover cost for initial response for  first due engine. This fee would be assessed on insurance companies. It  is still being developed by the department with the support of a  consultant. The department will bring a plan forward to Council as soon  as possible to pursue implementation. (Ongoing revenue reduction: $0) (375,000)$              ‐$  Fire Department Revenue from the State of California/Strike Team Reimbursement 1,040,339$            1,040,339$             Human  Resources This cost neutral action recognizes additional revenues and  corresponding Overtime expenses associated with the deployment of  strike teams. To date, the Fire Department has deployed ten strike  teams through FY 2021. The Fire Department will return as part of the  FY 2021 Year‐End process if it deploys additional strike teams through  the remainder of the year. (Ongoing savings: $0) Administrative Expense Reduction This one‐time action recognizes non‐salary expense savings in FY 2021.  These savings are available due to reduced administrative operations,  training resources, and  contractor services. (Ongoing savings: $0) ‐$ (27,000)$                 ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Library  Department Various Grants Revenue and Expense Adjustments This expense neutral one‐time action increases grant revenues by  $39,634 for grants received from the Pacific Library Partnership (PLP)  and California Library Services Act (CLSA) in FY 2021 with corresponding  expense offsets specific to each grant. The grant funds will be used for  enhancing library services and learning opportunities, which includes  the following: Mitchell Park robot for Harvest at the Library ($5,000);  XR camera for immersive virtual library programming ($5,000);  Overdrive consortium dues ($9,634); and a "Read Together" program  kit of resources and materials to support diversity, inclusion, and youth  literacy  ($20,000). Grant funded projects are limited in scope to the  current fiscal year and any ongoing maintenance costs will be absorbed  by the Library's annual operating budget. Patrons will be informed of  the temporary nature of any subscription based services. (Ongoing net  expense: $0) 39,634$                 39,634$                  Non‐ Departmental Election Expense Savings This one‐time action recognizes $75,000 in expense savings from the  $225,000 originally budgeted for the November 2020 Election. These  savings are available due to Council direction in March 2020 (CMR  11161) to withdraw a local tax measure from the ballot in light of the  economic hardships of COVID‐19. (Ongoing savings: $0) ‐$ (75,000)$                 Non‐ Departmental Property Tax The FY 2021 Adopted Budget assumes $52.0 million in total property  tax and is expected to grow to $53.2 million by year‐end. The budget  includes $3.2 million in Excess ERAF. Although not in decline, during a  recession, property tax impact is delayed by a year. Based on trends  from the last two recessions, trends currently indicate a plateau rather  than an increase in receipts  1,173,000$            ‐$  Non‐ Departmental Sales Tax The FY 2021 Adopted Budget for sales tax revenue was based on a  conservative estimate and a variety of unknowns. Based on activity and  receipts for the recent quarter close, it is estimated that sales tax  revenue will exceed the FY 2021 Adopted Budget by $4.5 million, or  22.1 percent, and will generate a total of $25.0 million by year‐end of  FY 2021. This is compared to the $30.6 million received in FY 2020, and  $36.5 million received in FY 2019.   4,530,000$            ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Non‐ Departmental Transient Occupancy Tax/Transfer to Capital Improvement Fund Receipts are expected to fall below FY 2021 Adopted Budget estimates  and represents a decrease of 67.6 percent, or $10.1 million, from $14.9  million to $4.8 million. This revenue decrease is partially offset by a  recommended $4.5 million reduction in the transfer to the General  Capital Improvement Fund in alignment with the City Council policy to  dedicate a portion of TOT receipts to infrastructure investments. (10,070,000)$        (4,466,000)$           Non‐ Departmental Documentary Transfer Tax A proposed $2.2 million revenue budget increase is recommended,  increasing budget from $4.7 million to $6.9 million, to account for  increased property sale activity through December 2020 and to  estimate moderate sale activity for the remainder for the year.  2,175,000$            ‐$  Non‐ Departmental Utility Users Tax This action reduces revenue based on year‐to‐date activity, which is  trending 14.1 percent below prior year second quarter levels.  (1,020,000)$           ‐$  Non‐ Departmental CARES Act  This action recognizes Palo Alto's portion of funding from the Federal  Government distributed to local jurisdictions as part of the Coronavirus  Aid, Relief, and Economic Security (CARES) Act.  854,743$               ‐$  Non‐ Departmental Cable Franchise Fee Revenue Cable franchise fees paid to the Cable Franchise Joint Powers Authority  (JPA) has been impacted by COVID‐19. This action represents the  reduction in Palo Alto's portion of the fee funds from $0.9M to $0.7M.  (Ongoing revenue reduction: $200,000) (200,000)$              ‐$  Office of  Transportation Travel, Training, and Membership Expense Reductions This action recognizes one‐time expense savings from the department's  travel, training, and membership budget. This will reduce the  department's capacity to travel for City business, limit attendance at  conferences and trainings, eliminate the Friends of Caltrain  membership, and reduce resources available for office work including  transcription services for meetings of the Palo Alto Transportation  Management Association (PATMA). (Ongoing savings: $0) ‐$ (43,554)$                 Office of  Transportation Contract Service Expense Reductions This action recognizes one‐time expense savings from the department's  contracts for transportation infrastructure maintenance and parking  consulting services. (Ongoing savings: $0) ‐$ (26,446)$                 ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Police (1,392,000)$           ‐$  Police (141,000)$              ‐$  Police Parking Enforcement Suspension This one‐time action reduces the revenue estimate for citations for the  temporary suspension of parking restrictions and enforcement in the  Palo Alto commercial districts at University and California Avenue. Due  to COVID‐19 health orders, the City is experiencing less parking in  business districts, and staff has been reassigned to other work that  impacts health and safety. Staff will bring forward budgetary  adjustments as appropriate to align citation revenues as health orders  rescind and commercial restrictions resume. (Ongoing net costs: $0) Penalties and Fines This ongoing action reduces the revenue estimate for penalties and  fines to align with state law changes that have affected crime  classifications and sentencing guidelines. Over the course of the past  few years, these changes have reduced the number of cases at the local  level that would otherwise have associated fines and penalties. This  action technically aligns revenue estimates with more recent trends  and is anticipated to be brought forward as an ongoing adjustment in  the FY 2022 Budget. (Ongoing net costs: $141,000) School Resource Officer (SRO) Reimbursement This action eliminates reimbursements from the Palo Alto Unified  School District (PAUSD) for School Resource Officers (SROs). In the prior  agreement, PAUSD reimbursed the City for half of the cost of 2.00 SROs  to provide Police Officer presence and enhance school safety efforts  (CMR 10059). This service has been discontinued in FY 2021. (Ongoing  net costs: $250,000) (250,000)$              ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Planning &  Development  Services Cost Recovery Program: 3225 El Camino Real This net‐neutral action increases Development Services appropriations  for a private development project using full cost recovery contracts.  Under this program, the applicant pays upfront for contract services  related to their project and funding is held in a deposit account until  services are performed. (Ongoing net costs: $0) 96,250$                 96,250$                  Planning &  Development  Services Local Early Action Plan (LEAP) Grant This net‐neutral action increases appropriations for a reimbursable  grant from the California Department of Housing and Community  Development (HCD) for technical assistance, preparation and adoption  of planning documents, and process improvements to accelerate  housing production and facilitate compliance to implement regional  housing needs assessment. (Ongoing net costs: $0) 300,000$               300,000$                Planning &  Development  Services Salary Vacancy Savings Expense Reduction This action recognizes salary savings anticipated to be generated by  vacant administrative and planning positions in the Long Range and  Data Divisions through the end of FY 2021. The existing staff has  temporarily absorbed these workloads, and the department will  evaluate the need to recruit or adjust staffing levels as part of the FY  2022 Budget process. ‐$ (130,433)$               Public Works Street Sign Supplies and Materials This action recognizes $10,000 in savings for supplies and materials to  replace reflective sign material and poles. Similar work is currently  performed under capital project PO‐11000 so the consolidation of  these services should have little to no service delivery impact. (Ongoing  savings: $10,000) ‐$ (10,000)$                 Public Works Foothills Road Brush Clearing This action recognizes $54,800 in savings for an expired contract to  provide brush clearing services on Pagemill Road. In‐house staff will  take over this work, which may decrease capacity among the Streets  crew to perform other work such as road and sidewalk repairs. Long‐ term impact may affect projects in other areas, such as Utilities or  special initiatives if reduced capacity to complete work orders are  prolonged and a backlog of work orders accumulate. (Ongoing savings:  $54,800) ‐$ (54,800)$                 ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Public Works Streets and Facilities Maintenance Services This action recognizes $205,000 in projected vacancy savings for 0.20  Management Specialist‐H, 0.90 Facilities Technician, and 1.0 Traffic  Controller I/II, which were each vacated this year. As part of the FY  2022 balancing strategy, these positions were recommended to be  defunded and frozen beginning in FY 2022 ongoing. This reduction is in  addition to 4.48 FTE in positions that were defunded and frozen in the  Public Works Department as part of the FY 2021 Adopted Budget. The  Management Specialist position change will result in little to no impact  due to the limited term nature of the assignment. The Facilities  Technician and Traffic Controller position changes will result in impacts  primarily associated with facilities and streets maintenance work  functions. Anticipated service delivery impact in those work functions  are delays in work orders and an accumulation of backlog, which will  reduce capacity to cover unanticipated events and preventative work.  (Ongoing Savings: $298,000) ‐$ (204,822)$               TECHNICAL ADJUSTMENTS Non‐ Departmental Equity Transfer to the General Fund This action decreases revenues from the Electric and Gas Equity  Transfer to the General Fund by $108,000 to true‐up of transfers in  alignment with net assets reported in the FY 2020 Comprehensive  Annual Financial Report (CAFR) as of June 30, 2020. During the  development of the FY 2021 budget, the net assets were not yet  available and estimates were applied. This alignment will increase  transfers from the Electric Fund by $159,000 and decrease transfers  from the Gas Fund by $267,000 for a net decrease of $108,000.  (108,000)$              ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Non‐ Departmental Street Lights and Traffic Signals Transfer from the General Fund This action is a technical correction to adjust the General Fund transfer  to Electric Fund by $62,844 from $2,144,844 to $2,082,000 for FY 2021.  The base transfer covers the General Fund's portion of Street Light and  Traffic Signal (SL/TS) base electric costs, which are set when Electric  rates are updated. Rates were last updated in FY 2020, when Council  adopted an 8% rate increase for Electric utilities and the General Fund's  base transfer amount was set to $2,082,000 (rounded). In FY 2021, the  adopted base transfer amount was $2,144,844, which reflects a rate  increase of 4%. This rate increase was the FY 2021 rate change  forecasted in the FY 2020 Financial Plan. However, since Council  adopted a 0% rate adjustment for FY 2021, the FY 2021 transfer  amount should have remained the same as FY 2020, at $2,082,000 until  the next rate adjustment. ‐$ (62,844)$                 Non‐ Departmental FY 2021 Staffing Transition / Use of Reserves This action reduces the reserve for staffing transition costs in order to  fund actions described below in this report. ‐$ (210,000)$               Non‐ Departmental Economically Sensitive Department Revenue Reserve As part of the FY 2021 Adopted Budget, a $5.0M reserve was  established to mitigate reductions in economically sensitive revenue  particularly from services impacted by COVID‐19. This action uses  $3.5M of this reserve to offset revenue losses mainly from the  Community Services, Fire, and Police Departments. 3,538,879$            ‐$  Various   Travel and Meetings Expense Reduction This one‐time action eliminates all available remaining funding for  travel and meetings across the General Fund. (Ongoing savings: $0) ‐$ (289,196)$               Various   Management Development Expense This one‐time action eliminates current year funding for management  development across the General Fund. A total of $289,000 that was  reappropriated from FY 2020 to FY 2021 remains for this  purpose.(Ongoing savings: $0) ‐$ (125,072)$               ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment GENERAL FUND CITY OF PALO ALTO Various   FY 2021 Staffing Transition Expenses / Use of Reserves This action recognizes the use of reserves for costs associated with  position reductions (freezes). A total of $1.1 million was set aside in a  reserve in FY 2021 to offset position related costs that staff could not  implement immediately. This action increases salary and benefit  expenses for employees in impacted positions during a 30 day noticing  period in July 2020: Human Resources Department ($10,000),  Community Services Department ($90,000), Library Department  ($60,000), and Police Department ($50,000). These costs exclude safety  personnel; concessions in these groups offset an extended attrition  period. A corresponding action is included in this report to reduce the  reserve from $1.1 million to $845,000. ‐$ 210,000$                GENERAL FUND (102 & 103) SUBTOTAL $          (5,575,911) $          (5,575,911) PUBLIC SERVICES DONATION FUND (191) Police ‐$ 55,000$                  Non‐ Departmental Transfer to Vehicle Replacement Fund This action increases the transfer to the Vehicle Replacement Fund for  one‐time replacement costs of an Animal Control Officer (ACO) vehicle.  The ACO vehicle requires early replacement in FY 2021 due to higher  than anticipated mileage. The Vehicle Fund has accumulated $25,000  of the expected $80,000 to replace the vehicle; this action resolves the  difference using animal service donations. Adjustment to Fund Balance This action adjusts the fund balance to offset adjustments  recommended in this report. ‐$ (55,000)$                 PUBLIC SERVICES DONATION FUND (191) SUBTOTAL ‐$ ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment CAPITAL IMPROVEMENT FUNDS CAPITAL IMPROVEMENT FUND (471) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as  outlined in Attachment A, Exhibit 2. (808,506)$         (981,687)$          Capital Transfer from the General Fund This action reduces the transfer from the General Fund to the Capital  Improvment Fund from $6.6M to $2.1M due to the reduction in estimated  Transient Occupancy Tax (TOT) revenue in alignment with the City Council  policy to dedicate a portion of TOT receipts to infrastructure investments. (4,466,000)$      ‐$  Fund Balance Adjustment to Fund Balance (Infrastructure Reserve) This action decreases the fund balance to offset adjustments  recommended in this report. ‐$ (4,292,819)$       CAPITAL IMPROVEMENT FUND (471) SUBTOTAL (5,274,506)$     (5,274,506)$      CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment ENTERPRISE FUNDS ELECTRIC FUND (513 & 523) Utilities Expense and Revenue Adjustments This action increases revenues and expenses in FY 2021 to align funding in  the Low Carbon Fuel Standards (LCFS) program with current projections  and reallocate portions of FTE from two utilities positions working on the  LCFS program into the LCFS cost center. In order to comply with the  requirements of this program, a new cost center and LCFS reserve was  established to distinguish LCFS program revenue and expenses from other  demand‐side management (DSM) program activities which are geared  towards planning, implementing, and monitoring activities of electric  utilities designed to encourage consumers to modify their level and  pattern of electricity usage.  1,760,000$       1,745,404$        Utilities Street Lights and Traffic Signals Transfer from the General Fund This action is a technical correction to adjust the General Fund transfer to  Electric Fund by $62,844 from $2,144,844 to $2,082,000 for FY 2021. The  base transfer covers the General Fund's portion of Street Light and Traffic  Signal (SL/TS) base electric costs, which are set when Electric rates are  updated. Rates were last updated in FY 2020, when Council adopted an  8% rate increase for Electric utilities and the General Fund's base transfer  amount was set to $2,082,000 (rounded). In FY 2021, the adopted base  transfer amount was $2,144,844, which reflects a rate increase of 4%. This  rate increase was the FY 2021 rate change forecasted in the FY 2020  Financial Plan. However, since Council adopted a 0% rate adjustment for  FY 2021, the FY 2021 transfer amount should have remained the same as  FY 2020, at $2,082,000 until the next rate adjustment. (62,844)$           ‐$  Utilities Equity Transfer to the General Fund This action increases expenses from the Electric Fund Equity Transfer to  the General Fund by $159,000 to true‐up of transfers in alignment with  net assets reported in the FY 2020 Comprehensive Annual Financial Report  (CAFR) as of June 30, 2020. During the development of the FY 2021  budget, the net assets were not yet available and estimates were applied.  This alignment will increase transfers from the Electric Fund by $159,000  and decrease transfers from the Gas Fund by $267,000 for a net decrease  of $108,000.  ‐$ 159,000$           CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment ENTERPRISE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments  recommended in this report. ‐$ (207,248)$          ELECTRIC FUND (513 & 523) SUBTOTAL 1,697,156$       1,697,156$        FIBER OPTICS FUND (533) Utilities Fiber To The Home (FTTH) Funding for the Community & Economic  Recovery Workplan This action appropriates funds for the acceleration of Fiber to the Home  (FTTH) as part of the recommendations brought forward to Council on Jan  19, 2021 (CMR 11877) to appropriate funding for specific projects to  mitigate the spread of COVID‐19 to the greatest extent possible. ‐$ 200,000$           ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment ENTERPRISE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments  recommended in this report. ‐$ (200,000)$          FIBER OPTICS FUND (533) SUBTOTAL ‐$ ‐$  GAS FUND (514 & 524) Utilities Low Carbon Fuel Standards Program Adjustments This action recognizes $20,000 in salary expense decreases for the Gas  fund as a result of reallocating 0.25 FTE from Gas to Electric as part of the  funding alignment for the Low Carbon Fuel Standards (LCFS) program. In  order to comply with the requirements of this program, a new cost center  and LCFS reserve was established to distinguish LCFS program revenue and  expenses from other demand‐side management (DSM) program activities  which are geared towards planning, implementing, and monitoring  activities of electric utilities designed to encourage consumers to modify  their level and pattern of electricity usage.  ‐$ (20,015)$            Utilities Equity Transfer to the General Fund This action decreases expenses from the Gas Fund Equity Transfer to the  General Fund by $267,000 to true‐up of transfers in alignment with net  assets reported in the FY 2020 Comprehensive Annual Financial Report  (CAFR) as of June 30, 2020. During the development of the FY 2021  budget, the net assets were not yet available and estimates were applied.  This alignment will increase transfers from the Electric Fund by $159,000  and decrease transfers from the Gas Fund by $267,000 for a net decrease  of $108,000.  ‐$ (267,000)$          Fund Balance Adjustment to Fund Balance This action increases the fund balance to offset adjustments  recommended in this report. ‐$ 287,015$           GAS FUND (514 & 524) SUBTOTAL ‐$ ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment ENTERPRISE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET UTILITIES ADMINISTRATION FUND (521) Utilities City Auditor Services Alignment  This action reallocates existing funds and adds additional funding for year  one of the new Internal City Auditor contract with Baker Tilly US LLP, in  accordance with CMR 11624. 25% of the cost of the City Auditor contract  is allocated to the Utilities Administration Fund and the other 75% to the  General Fund. In subsequent years, it is expected that the contract  services authorized will be funded similarly to the current audit services,  75% in the General Fund and 25% in the Utilities Enterprise Funds for a  total not to exceed $750,000 annually. Additional entry in General Fund to  align all audit functions across the City.  ‐$ 30,305$             Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments  recommended in this report. ‐$ (30,305)$            UTILITIES ADMINISTRATION FUND (521) SUBTOTAL ‐$ ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment INTERNAL SERVICE FUNDS GENERAL BENEFITS FUND (687) Non‐ Departmental Charges to Other Funds / Healthcare and Pension Expense This net‐neutral action decreases the estimate for charges to other funds by $3.2  million due to staffing freezes approved as part of the FY 2021 Adopted Budget.  In total, the City froze nearly $16.0 million in salaries and benefits in FY 2021. Of  this amount, approximately $3.2 million is attributable to pension and  healthcare costs. The General Benefits Fund acts as a pass‐through for pension  and healthcare costs; therefore, this action reduces expenditures by a  corresponding amount.  (3,209,116)$        (3,209,116)$         GENERAL BENEFITS FUND (687) SUBTOTAL (3,209,116)$        (3,209,116)$         GENERAL LIABILITIES INSURANCE FUND (689) Non‐ Departmental Umbrella Excess Liability Insurance Expense  This action increases the estimate for umbrella excess liability insurance to align  with higher than anticipated premium costs, from $2.04 million to $2.09 million. ‐$ 51,600$                Fund Balance Adjustment to Fund Balance This action adjusts the fund balance to offset adjustments recommended in this  report. ‐$ (51,600)$              GENERAL LIABILITIES INSURANCE FUND (689) SUBTOTAL ‐$ ‐$  CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment INTERNAL SERVICE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET INFORMATION TECHNOLOGY FUND (682) Information  Technology ‐$ 40,000$                Fund Balance Funding Request for Virtual Interview Platform This ongoing action adds $40,000 in expense funding to support a subscription  to the on‐demand virtual interview program, Hirevue. In FY 2020, the Human  Resources Department was provided one‐time funding to pilot prescreening  technology to enhance candidate screening cycles along with a goal to reduce  bias in the interview process, which lead to the contract with Hirevue to provide  on‐demand screening through recorded interview process. This contract was  established in March 2020, just as a Shelter in Place (SIP) orders were enacted.  The recruitment team has successfully completed many interview processes  through Hirevue and believe that a recorded online interview process to be the  new normal process to screen candidates. Due to financial pressures,  recruitments are being fully vetted through an internal Hiring Committee and  while the numbers of active recruitments are reduced compared to pre‐COVID‐ 19 numbers, the City continues to remotely recruit for positions that provide  critical services to the community. (Ongoing cost: $40,000) Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in  this report. ‐$ (40,000)$              INFORMATION TECHNOLOGY FUND (682) SUBTOTAL ‐$ ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment INTERNAL SERVICE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET VEHICLE REPLACEMENT AND MAINTENANCE FUND (681) Public Works ‐$ (100,000)$            Police 55,000$               55,000$                Fund Balance Expense Action This action recognizes $100,000 in expense savings for vehicle fuel purchase  expenses. This action will align fuel costs more closely with how extra taxes are  accounted, and with reduced fuel consumption related to aging fleet being  replaced with newer, more fuel‐efficient vehicles/equipment. This alignment will  have little to no service delivery impact. (Ongoing savings: $100,000) Transfer from Public Service Donation Fund / Vehicle Expense This action increases the transfer from the Public Service Donation Fund for one‐ time replacement costs of an Animal Control Officer (ACO) vehicle. The ACO  vehicle requires early replacement in FY 2021 due to higher than anticipated  mileage. The Vehicle Fund has accumulated $25,000 of the expected $80,000 to  replace the vehicle; this action resolves the difference using animal service  donations. Adjustment to Fund Balance This action increases the fund balance to offset adjustments recommended in  this report. ‐$ 100,000$              VEHICLE REPLACEMENT AND MAINTENANCE FUND (681) SUBTOTAL 55,000$               55,000$                ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment SPECIAL REVENUE FUNDS CALIFORNIA AVENUE FUND (237) Office of  Transportation California Avenue Parking Fund Revenue Adjustments This action recognizes decreased revenue in the California Avenue Parking  Fund. Revenue in fund 237 is comprised predominantly of 1‐day and  annual parking permits. Both revenue categories are tracking significantly  below budgeted targets due to the suspension of parking enforcement  and extension of annual parking permit expiration dates, both part of the  City's response to the community and economic impacts of COVID‐19.  Parking enforcement is proposed to resume and annual permits are  proposed to expire in Spring 2021; with these actions, the most significant  driver of revenue in the fund, annual parking permits, is expected to  return to normal levels of demand. 1‐day permit revenues are expected to  recover upon reinstatement of enforcement to average budgeted levels,  therefore this action decreases revenue in this area representing the  losses incurred while enforcement was paused. The California Avenue  fund is projected to remain solvent based on the Q4 FY 2021 resumption  of enforcement and permit sales. (Ongoing impact: $0) (231,491)$          ‐$  Fund Balance Adjustment to Fund Balance This action adjusts the fund balance to offset actions recommended in this  report. ‐$ (231,491)$          CALIFORNIA AVENUE FUND (237) SUBTOTAL (231,491)$         (231,491)$          CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment SPECIAL REVENUE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUND (232) Planning &  Development  Services FY 2021 CDBG Allocation This net‐neutral action aligns the FY 2021 CDBG allocation with revised  estimates from the Department of Housing and Urban Development  (HUD). This adjustment reflects a minor formula correction by HUD and is  not anticipated to impact any of the planned programs.  (113)$                 (113)$                  COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUND (232) SUBTOTAL (113)$                 (113)$                  GENERAL GOVERNMENT FACILITY IMPACT FEE FUND (226) Non‐ departmental Transfer from Impact Fee Funds to the Capital Improvement Fund This action provides a one‐time transfer of $574,118 from the General  Government Facility impact fee fund to the Capital Improvement Fund for  $356,956 to the Civic Center Fire Life Safety Upgrades project (PE‐18016)  and $217,162 for the JMZ Renovation project (AC‐18001) recommended  to Council on Jan 25, 2021 as part of the Annual Status Report on  Development Impact Fees for FY 2020 and adoption of a resolution  making statutory findings for certain funds (CMR 11875). Please see  Attachment A, Exhibit 2 for related offseting transactions. ‐$ 574,118$           Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments  recommended in this report. ‐$ (574,118)$          GENERAL GOVERNMENT FACILITY IMPACT FEE FUND (226) SUBTOTAL ‐$ ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment SPECIAL REVENUE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET LIBRARY IMPACT FEE FUND (212) Library Transfer from Impact Fee Funds to the Capital Improvement Fund This action provides a one‐time transfer of $220,000 from the Library  impact fee fund to the Capital Improvement Fund for the Library  Automated Material Handling Project (LB‐21000) to increase capacity for  contactless library materials processing. Please see Attachment A, Exhibit  2 for related offseting transactions. ‐$ 220,000$           Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments  recommended in this report. ‐$ (220,000)$          LIBRARY IMPACT FEE FUND (212) SUBTOTAL ‐$ ‐$  PUBLIC SAFETY FACILITY IMPACT FEE FUND (225) Non‐ departmental Transfer from Impact Fee Funds to the Capital Improvement Fund This action provides a one‐time transfer of $455,912 from the Public  Safety Facility impact fee fund to the Capital Improvement Fund for the  New Public Safety Building Project (PE‐15001) recommended to Council  on Jan 25, 2021 as part of the Annual Status Report on Development  Impact Fees for FY 2020 and adoption of a resolution making statutory  findings for certain funds (CMR 11875). Please see Attachment A, Exhibit 2  for related offseting transactions. ‐$ 105,912$           Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments  recommended in this report. ‐$ (105,912)$          PUBLIC SAFETY FACILITY IMPACT FEE FUND (225) SUBTOTAL ‐$ ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment SPECIAL REVENUE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET RESIDENTIAL PREFERENTIAL PARKING AVENUE FUND (239) Office of  Transportation Residential Preferential Parking (RPP) Fund Revenue Adjustments This action recognizes decreased revenue in the RPP Fund. Revenue in  fund 239 is comprised predominantly of 1‐day parking permits, annual  parking permits, and parking citation fees. All revenue categories are  tracking significantly below budgeted targets due to the suspension of  parking enforcement and extension of annual parking permit expiration  dates, both part of the City's response to the community and economic  impacts of COVID‐19. Parking enforcement is proposed to resume and  annual permits are proposed to expire in Spring 2021; with these actions,  the most significant driver of revenue in the fund, annual parking permits,  is expected to return to normal levels of demand. 1‐day permit and  citation revenues are expected to recover upon reinstatement of  enforcement to average budgeted levels, therefore this action decreases  revenue in these areas representing the losses incurred while  enforcement was paused. The RPP fund is projected to remain solvent  based on the Q4 FY 2021 resumption of enforcement and permit sales.  (Ongoing impact: $0) (218,986)$          ‐$  Fund Balance Adjustment to Fund Balance This action adjusts the fund balance to offset actions recommended in this  report. ‐$ (218,986)$          RESIDENTIAL PREFERENTIAL PARKING AVENUE FUND (239) SUBTOTAL (218,986)$         (218,986)$          ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment SPECIAL REVENUE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET STANFORD UNIVERSITY MEDICAL CENTER FUND (260) Non‐ departmental Transfers from the Stanford University Medical Center development  funds for the Community & Economic Recovery Workplan This action recognizes a one‐time transfer of $650,000 from the Stanford  University Medical Center to the Capital Improvements Fund as part of the  recommendations brought forward to Council on Jan 19, 2021 (CMR  11877) to appropriate funding for specific projects to mitigate the spread  of COVID‐19 to the greatest extent possible. Please see Attachment A,  Exhibit 2 for related offseting transactions. ‐$ 650,000$           Fund Balance Adjustment to Fund Balance This action adjusts the fund balance to offset actions recommended in this  report. ‐$ (650,000)$          STANFORD UNIVERSITY MEDICAL CENTER FUND (260) SUBTOTAL ‐$ ‐$  ATTACHMENT A, EXHIBIT 1 Revenues Expenses Department Adjustment Adjustment SPECIAL REVENUE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET UNIVERSITY AVENUE FUND (236) Office of  Transportation University Avenue Parking Fund Revenue Adjustments This action recognizes decreased revenue in the University Avenue Parking  Fund. Revenue in fund 236 is comprised predominantly of 1‐day and  annual parking permits. Both revenue categories are tracking significantly  below budgeted targets due to the suspension of parking enforcement  and extension of annual parking permit expiration dates, both part of the  City's response to the community and economic impacts of COVID‐19.  Parking enforcement is proposed to resume and annual permits are  proposed to expire in Spring 2021; with these actions, the most significant  driver of revenue in the fund, annual parking permits, is expected to  return to normal levels of demand. 1‐day permit revenues are expected to  recover upon reinstatement of enforcement to average budgeted levels,  therefore this action decreases revenue in this area representing the  losses incurred while enforcement was paused. (Ongoing impact: $0) (756,230)$         ‐$  Office of  Transportation Transportation Management Association (TMA) Contract Funding  Alignment This action recognizes one‐time expense savings of $103,000 from the FY  2021 contract with the TMA. Council approved TMA funding of $453,000  for FY 2021 in accordance with the funding request from TMA reviewed in  budget hearings on May 26, 2020. Subsequently, TMA further decreased  their funding request and the final contract was approved for $350,000.  (Ongoing savings: $0) ‐$ (103,000)$          Fund Balance Adjustment to Fund Balance This action adjusts the fund balance to offset actions recommended in this  report. ‐$ (653,230)$          UNIVERSITY AVENUE FUND (236) SUBTOTAL (756,230)$         (756,230)$          ATTACHMENT A, EXHIBIT 1 Department Adjustment Adjustment DEBT SERVICE FUNDS LIBRARY GO BONDS (370) Non‐ Departmental ‐$ (219,000)$          Non‐ Departmental Library GO Bond Debt Service This technical adjustment corrects the annual debt service expense for  the Library General Obligation Bonds to align with the bond's debt  service schedule.  Adjustment to Fund Balance This action increases the fund balance to offset adjustments  recommended in this report. ‐$ 219,000$           LIBRARY GO BONDS (370) SUBTOTAL ‐$ ‐$  CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET Revenues Expenses ATTACHMENT A, EXHIBIT 1 Department Adjustment Adjustment AGENCY TRUST FUNDS CABLE FRANCHISE FEE FUND (779) Non‐ Departmental Franchise Fee Revenue/Fee Distribution to JPA Members This action reduces cable franchise fee revenue paid to the Cable  Franchise Joint Powers Authority (JPA) by cable providers from $1.9M to  $1.6M due to impacts from COVID‐19. The funding distribution to  various JPA member jurisdictions is also reduced by $0.3M of which  $0.2M goes to Palo Alto's General Fund. (300,000)$         (300,000)$          CABLE FRANCHISE FEE FUND (779) SUBTOTAL (300,000)$         (300,000)$          CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET Revenues Expenses ATTACHMENT A, EXHIBIT 2 Project Title Number Revenues Expenses Comments New Public Safety  Building PE‐15001  $          105,912  $          105,912 Recommendations in the Annual Status  Development Impact Fees FY 2020 report (CMR  11875) University Avenue  Streetscape Updated PE‐21004  $          150,000  $          150,000 Recommendations for the Community & Economic  Recovery Workplan (CMR 11877) JMZ Renovation AC‐18001  $          217,162  $          217,162 Recommendations in the Annual Status  Development Impact Fees FY 2020 report (CMR  11875) Library Automated  Material Handling LB‐21000  $          220,000  $          220,000 Funding to purchase library hold lockers and  lending kiosks using Library Impact Fees Charleston  Arastradero Corridor PE‐13001  $        (358,536) $        (358,536) Anticipated revenue from grants and subsequent  expense alignment. Civic Center Fire Life  Safety Upgrades PE‐18016  $          356,956  $          356,956 Recommendations in the Annual Status  Development Impact Fees FY 2020 report (CMR  11875) Building Systems  Improvements PF‐01003  $          500,000  $          500,000 Recommendations for the Community & Economic  Recovery Workplan (CMR 11877) Safe Routes to School PL‐00026  $‐  $          671,000 Recommendations in the VERBS Grant Project and  Community Engagement Plan (CMR 11757) El Camino Real  Pedestrian Safety and  Streetscape Project PL‐18000  $     (2,000,000) $     (2,844,181) Recommendations in the VERBS Grant Project and  Community Engagement Plan (CMR 11757)  $        (808,506) $        (981,687)                ELECTRIC FUND SCADA System  Upgrades EL‐02010  $‐  $            50,000 Internal labor required to install peripheral  hardware. Caltrain  Modernization EL‐17007  $‐  $          (50,000) Project anticipated to complete with some expense  savings. TOTAL ELECTRIC FUND PROJECT  $‐  $‐  ADJUSTMENTS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 CAPITAL IMPROVEMENT PROGRAM CAPITAL IMPROVEMENT FUND  TOTAL CAPITAL IMPROVEMENT  FUND PROJECT ADJUSTMENTS ATTACHMENT B Attachment B - 1 Review and Authorize the Creation of a Rent Forgiveness Program for City Tenants Recommendation Staff recommends the City Council approve the creation of a rent forgiveness program to qualified City tenants and authorize the City Manager to execute amendments to all leases in accordance with the City Council established program. Options for the structure of a rent forgiveness program for City Council Consideration: • Option A – Rent Forgiveness for All Active Tenants • Option B – Rent Forgiveness for Active and Non-Operational Tenants • Option C – Rent Forgiveness for Active Non-Profit Tenants • Option D – No Rent Forgiveness Executive Summary At the October 19, 2020 City Council meeting, staff recommended that the City Council discuss Palo Alto’s current fiscal status and provide direction to staff on potential budget actions, including on rental relief for City non -profit and for-profit tenants. City Council requested staff bring back options to provide rental relief for a defined period of time for the City’s tenants. This staff report provides a time bounded rent forgiveness program to City tenants with various criteria to meet qualifications. Staff recommends Council approve the following qualifications for tenants to participant in this program: 1. The rent forgiveness program is available to those tenants that have satisfied all responsibilities under their existing agreement, have no outstanding delinquencies for any payments due prior to April 1, 2020, and is a current tenant as the date of the application. 2. Tenant must cite section(s) of the County ordinance that restricted tenant’s operations. 3. Rent over $100 per month including operatin g expenses. 4. Tenants will be required to complete a form describing their impact from the COVID-19 pandemic and provide financial statements demonstrating the amount of reduced business revenue. 5. The business must have had gross revenues of less than $2.5 million in 2019. 6. The business must provide an income statement demonstrating a decline in gross revenue during 1st half of 2020 of at least 50% from 1st half of 2019. 7. If a qualified tenant paid rent during the forgiveness period instead of deferring, it m ay qualify for rent credits to be used for rent owed in the following three months after the parties agree to an amendment. 8. Tenants that meet all qualifications will be required to enter into an amendment, subject to City Manager approval. ATTACHMENT B Attachment B - 2 Background The City rents some of its real property throughout the city to multiple tenants conducting a variety of business. In total, the agreements provide approximately $278,000 per month in projected revenue to the City including Airport tenants, as of Fiscal Year End 2019 – 2020. On March 16, 2020, Santa Clara County Public Health issued a shelter in place order effective the following day to keep the community safe from the spread of COVID-19. This limited activity, travel, and business functions to only the most essential needs. Many of the City’s tenants did not operate during the shelter in place order, resulting in multiple requests made for rental relief. The City responded by providing rent deferral to its Cubberley and Airport tenants. A total of 20 tenants requested for rent relief and over $250,000 in rent that was due in the fourth quarter of Fiscal Year 2019 – 2020 was deferred. Some of the City’s tenants did not apply or did not qualify because they were leasing at other City properties. As a result, th ere is approximately $149,000 in delinquencies from rent owed in fourth quarter of Fiscal Year 2019 – 2020. In the summer, the City established a Small Business Recovery Grant Program from its General Fund that provided up to $10,000 each to 50 local businesses. Separately, the County of Santa Clara adopted a commercial tenant eviction moratorium, which is currently scheduled to expire on March 31, 2021. Under the moratorium, small business tenants have up to six months after the moratorium expires or terminates to repay at least 50% of the past-due rent, and up to 12 months after the moratorium expires or terminates to repay in full the past -due rent. Other government programs also provided support through the Paycheck Protection Program, Economic Injury Disaster Loan, and deferral of property and income tax payments. Discussion Despite the various support available to City tenants, the lingering effects of COVID-19 continue, with some tenants still expressing difficulty in paying rent and requesting for rent forgiveness. To provide additional support to City tenants that continue to struggle with paying rent, and with consideration for the City’s $39 million budget shortfall forecast in the current fiscal year, staff is proposing to offer to certain tenants rent forgiveness for amounts due in the months of April, May, and June 2020. If a qualified tenant paid rent during the forgiveness period instead of deferring, it may qualify for rent credits to be used for rent owed in the following three months after the parties agree to an amendment. Staff suggests making the rent forgive ness program available to those tenants that have satisfied all responsibilities under their existing agreement and have no outstanding delinquencies for any payments due prior to April 1, 2020. Additionally, rent forgiveness should only be made available to tenants whose operations at the premises were restricted by the County ordinance. The program qualifications for Council’s consideration includes options ranging for $0 and up to $875,000 and possibly assist up to 67 tenants (Attachment A – List of City’s Current Tenants). The rent forgiveness considers nonprofit organizations, small businesses, and tenants experiencing a loss of revenue at a certain level attributed to the COVID-19 pandemic. To determine which ATTACHMENT B Attachment B - 3 tenants qualify and are most in need of rent forgiveness, tenants will be required to complete a form describing their impact from the COVID-19 pandemic and provide financial statements demonstrating the amount of reduced business revenue. Those tenants that meet all qualifications will be required to enter into an amendment, subject to City Manager approval. The City Manager requests City Council delegation to determine final eligibility and authority to execute amendments with tenants who elect to participate in the forgiveness program. Here is a list of options for City Council’s consideration: Rent Forgiveness Options to Consider Estimated Impact Cost Estimated Impacted Stakeholders Time Covered Option A – Rent Forgiveness for All Active Tenants $875,000 67 tenants – (For-profits, Non-profits, Small Businesses, Large Businesses) 3 months Option B – Rent Forgiveness for Active and Non-Operational Tenants $751,000 58 tenants – (For-profits, Non-profits, Small Businesses) 3 months Option C – Rent Forgiveness for Active and Non-Operational Non- Profit Tenants $203,000 19 tenants – (Non-Profits) 3 months Option D – No Rent Forgiveness $0 N/A N/A • Option A – would give rent forgiveness for all our current tenants for three (3) months. • Option B – would give rent forgiveness for all active and non-operational tenants for three (3) months. The Shelter-in-Place mandate impacted business operations for most of our tenants which prompted the City to offer rent deferral. • Option C – would give rent forgiveness for all active non-profits for three (3) months. The option would focus our effort in helping our most impacted business given the essential service they provide to the Palo Alto community. • Option D – would not provide rent forgiveness to our tenants. The County’s eviction moratorium has been continued multiple times throughout 2020 and we are unsure when it will expire. If staff is given more time to and gain clarity on when business reopens, we would be able to provide a better approach to the situation. With the vaccine becoming available, staff would foresee late Summer or Fall as an ideal time to revisit the rent forgiveness program. Staff may come back to Council at a later date to discuss scenarios related to large rent amounts becoming overdue. For example, the City has commercial tenants who currently owe multiple ATTACHMENT B Attachment B - 4 months in delinquent rent and are requesting substantial discounts. In one example, a commercial tenant is seeking to reduce rent more than 90% from its current rent of over $40,000 due to substantial loss in revenue. Timeline Staff will notify qualified tenants about the rent forgiveness program requirements and provide forms after Council approval. Resource Impact As of Fiscal Year End 2019 – 2020, the City’s real property assets were projected to generate approximately $278,000 per month in revenue through various agreements with tenants including Airport tenants. The ultimate fiscal impact to the City’s budget would depend on the amount of tenants that apply and are q ualified in any program approved by the City Council. As outlined above, staff would recommend use of the City Council’s COVID-19 Reserve or Budget Stabilization Reserve for financial impacts of this potential program. Policy Implications Policy and Procedures 1-11 provides guidance on leased use of city land/facilities. “The purpose of this policy is to ensure that decisions regarding use of City real property are made in the best interest of the citizens and taxpayers of Palo Alto….Tenant shall be required to provide the City with adequate compensation for the rights granted by the City to the tenant. Determination of appropriate consideration shall begin with the estimated fair market rental value of the lease premises for the use proposed.” While the rent forgiveness program will impact the City’s budget, it is believed to be necessary to assist vital community businesses through an unprecedent pandemic. The granting of rent forgiveness may result in inadequate compensation, but Policy and Procedures 1-11 gives consideration to tenants that provide clearly articulated actual non - monetary benefits to a significant portion of the citizens and taxpayers of the city. Stakeholder Engagement Staff has received a number of requests for rent forgiveness from tenant occupying various City real property. There are some private and public landlords that reportedly have provided limited rent forgiveness. Staff researched neighboring cities including Mountain View, Menlo Park, and Los Altos regarding a rent abatement program. Staff discovered these neighboring cities did not have a rent abatement program but did reference County’s eviction moratorium. Santa Clara County approved a Small Business Loan Program in December 2020. The loan program is expected to provide up to $100,000 per small business and as much as $100 million dollars in total loans. Staff was able to find one example of public rent abatement with the Port of San Francisco. The Port of San Francisco Rent Forgiveness Program focused on eligible tenants that included percentage rent tenants with base or minimum rent obligations, certain categories of maritime tenants, and local business enterprise tenants. The program cost was estimated at $13.45 million which included an estimated 196 eligible tenants. The Simon Property Group is an example of private sector granted rent deferral and abatement to thousands of local and regional small businesses ATTACHMENT B Attachment B - 5 and restaurants entrepreneurs for the period they were closed. The San Mateo County Board of Supervisors has dedicated $2 million to establish a grant program for small -scale residential rental property owners in the County who have been impacted by the COVID -19 pandemic. Staff has received multiple phone calls and emails from City tenants requesting additional rent relief as the pandemic continues. City tenants have expressed their inability to operate their business due to the County’s restrictions. While some City tenants are back in operation, their business has struggled to maintain pre-COVID clientele. This unfortunately has closed the doors for some businesses. Staff has been unable to further assist some tenants beyond citing the rent deferral of April, May, and June. Environmental Review The project is categorically exempt from the requirements of the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing Facilities) of the CEQA guidelines. ATTACHMENT B Attachment B - 6 Exhibit A List of City’s Active Tenants ATTACHMENT B Attachment B - 7 Exhibit A List of City’s Active Tenants ATTACHMENT B Attachment B - 8 Exhibit B County’s Notice to Small Business Tenant Concerning Repayment of Your Rent City of Palo Alto (ID # 12022) City Council Staff Report Report Type: Action Items Meeting Date: 3/1/2021 City of Palo Alto Page 1 Summary Title: Approval of the FY21 Audit Plan and Related Reports Title: Policy and Services Committee Recommends the City Council Accept the City Auditor’s Risk Assessment Report, Annual Audit Plan, and Quarterly Status Report From: City Manager Lead Department: City Auditor Recommendation The City Auditor recommends that the City Council take the following actions: • Accept the Fiscal Year 2021 Risk Assessment Report and Recommend City Council Approval, as presented to the Policy and Services Committee meeting on February 9, 2021 • Accept the Fiscal Year 2021 Audit Plan Report and Recommend City Council Approval, as presented to the Policy and Services committee on February 9, 2021 and modified to include the Public Safety Building Construction audit activity (Attachment A) • Approve the following Task Orders, identified in the Audit Plan Report: o Construction Project Controls o Public Safety Building Construction o Asset Capitalization o Assessment of SAP Functionality and Internal Controls o IT Risk Management o Investment Management o Power Purchase Agreements o Economic Recovery Advisory • Accept the City Auditor’s Office Quarterly Status Report covering October – December 2020, as presented to the Policy and Services Committee meeting on February 9, 2021 Background In its capacity serving as the City Auditor function, and in accordance with Baker Tilly’s agreement with the City (Task #2 of the agreement), Baker Tilly performed a citywide risk assessment. The purpose of the assessment was to identify and prioritize risks in order to develop the annual audit plan (Task #1). During the risk assessment, Baker Tilly assessed a wide City of Palo Alto Page 2 range of risk areas, including strategic, financial, operational, compliance, technological, and reputation risks. The risk matrix is included as an appendix to the report. Baker Tilly provided a presentation to the Policy & Services Committee on February 9, 2021. The City Auditor is asking that the City Council approve the Risk Assessment Report. The Palo Alto Municipal Code (Section 2.08.130) requires the City Auditor prepare and submit an annual audit plan to the City Council for review and approval. The audit plan is normally submitted to the City Council at the beginning of the fiscal year. Given the timing of onboarding Baker Tilly to serve as the City Audit Function, the risk assessment and audit planning process spanned October 2020 through January 2021, the middle of fiscal year 2021. As a result, Baker Tilly has sought to identify audit activities across an 18-month horizon (through FY22). Baker Tilly presented the audit plan to the Policy and Services Committee and is now recommending that the City Council approve the Audit Plan Report (Attachment A). Approval will prompt finalization of the corresponding Task Orders by Baker Tilly and the City. Lastly, Baker Tilly presented a quarterly status report to the Policy & Services Committee on a variety of topics during the February 9, 2021 meeting. The City Auditor is recommending that the City Council accept the Quarterly Status Report. Respectfully submitted, Kyle O’Rourke City Auditor and Senior Manager, Baker Tilly Attachments: • Attachment A: City Auditor's Office - FY21 Audit Plan (FINAL DRAFT) Attachments: • City Auditor's Office - FY21 Audit Plan (FINAL DRAFT) City of Palo Alto City Auditor’s Office FY21/22 Annual Audit Plan January 15, 2021 FY2021/2022 Audit Plan 2 Overview Introduction The purpose of the City Audit function is “to ensure that city management is using its financial, physical, and informational resources effectively, efficiently, economically, ethically, and equitably, and in compliance with laws, regulations, contract and grant requirements, and city policies and procedures” (City of Palo Alto Contract No, C21179340). The Palo Alto Municipal Code (Section 2.08.130) requires the City Auditor prepare and submit an annual audit plan to the City Council for review and approval. The audit plan is normally submitted to the City Council at the beginning of the fiscal year. Given the timing of onboarding Baker Tilly to serve as the City Audit Function, the risk assessment and audit planning process spanned October 2020 through January 2021, the middle of Fiscal Year 2021. As a result, Baker Tilly has sought to identify audit activities across an 18-month horizon (through FY22). Note that Baker Tilly will seek approval of contract task orders iteratively during that timeframe in order to remain agile and accommodate changes to the plan as time passes. Note that this report address Task #2 of the Baker Tilly agreement. Other activities are addressed in separate Task Orders corresponding to the tasks in the Baker Tilly agreement. For example, the City Auditor performs follow up on audit findings and recommendations, as outlined in Task #5. Conformance with Local Ordinances and Standards According to City Ordinance, the mission of City Auditor’s Office is to “promote honest, efficient, effective, economical, and fully accountable and transparent city government. To fulfill this mission, the office of the city auditor conducts performance audits and performs nonaudit services of any city department, program, service, or activity as approved by the city council. (Section 2.08.130). Palo Alto City Charter Article IV Sec. 12 requires the City Auditor to: – Conduct audits in accordance with a schedule approved by the City Council and may conduct unscheduled audits from time to time – Conducts audits of financial transactions of the City Palo Alto Municipal Code Section 2.08.130 requires the City Auditor to: – Prepare an annual audit plan for city council approval – Identify the preliminary objectives of each audit to be performed, reflecting the purpose of the engagement and a preliminary description of the areas that may be addressed FY2021/2022 Audit Plan 3 Audit Activity Types The Office of the City Auditor will conduct performance audits and perform financial/operational analyses of any City department, program, service, or activity as approved by the City Council (City of Palo Alto Contract No, C21179340). Performance Audits According to the Government Auditing Standards (GAO-18-568G, Section 1.21 and 1.22, page 10-12), performance audits provide objective analysis, findings, and conclusions to assist management and those charged with governance and oversight with, among other things, improving program performance and operations, reducing costs, facilitating decision making by parties responsible for overseeing or initiating corrective action, and contributing to public accountability. Performance audits may include the following four (4) audit objectives. – Program effectiveness and results – Internal control design and effectiveness – Compliance with laws, regulations, and policies – Prospective analysis Audit Planning Considerations While maintaining its independence and objectivity in accordance with standards, The City Auditor considers a variety of matters when developing the Annual Audit Plan, including but not limited to: – Risk assessment – Baker Tilly performed a risk assessment and summarized the results in a separate report (Task #2). Generally speaking, audit activities target high(er) risk areas. Note that Key Risks are outlined on the following page. – Ability to add value – audit seeks to add value through independent and objective analysis. – City Council – the City Auditor reports to the City Council and seeks input on audit priorities. – Coverage and Prior Audits – the City Auditor considers prior audits conducted by the City Auditor’s Office, the financial audit, and other audit and consulting reports recently issued. – “Ripeness” and On-Going Initiatives – certain risk areas may be addressed through operational activities, which could mean they are not be ripe for audit to add value. – Scheduling – the City Auditor takes into consideration the timing of an audit and other on-going initiatives that directly relate. Putting an undue burden on City staff may exacerbate the risk at hand or other interrelated risks. FY2021/2022 Audit Plan 4 Key Risks Baker Tilly performed a citywide risk assessment to plan for FY21 and FY22 audit activities and documented the detailed results in a separate Risk Assessment Report. In summary, we identified the following key risks for each function: Function Key Risks Function Key Risks Administrative Services  Tax Revenue & Economic Recovery  Asset Management  Investment Management Information Technology  Cyber Security  Database/Data Management  Disaster Preparedness and Recovery City Clerk’s Office  Public Records Requests  Records Management Library Department  Inventory Management  Recourse Demand  Events and Programming Communication’s Office  External Affairs  Social Media Management  Internal Communications Planning Department  Long Term Planning  Code Enforcement Community Services Department  Contract Monitoring  Background Check Procedures Police Department  Employee/Officer Overtime  Officer Conduct and Use of Force Policies  Recruitment and retention Emergency Services Department  Disaster Response Public Works  Construction Project Management  Facilities Management  Fleet Management  Water Quality Control Fire Department  Recruitment and Retention  Compliance with SB 201 Office of Transportation  Contract Management  Safety Improvement Projects  Traffic Operations Human Resources Department  High Cost Claims  Records Management  Workforce and Succession Planning Utilities Department  Workforce and Succession Planning  Contract Management of Purchased Power  Capital Program Management  Work Order and Asset Management Refer to the Risk Assessment Report for more information about the risk assessment methodology and results of the risk assessment. FY2021/2022 Audit Plan 5 Proposed Audit Activities for FY2021-2022 Included in the tables below are the proposed audit activities for the remainder of FY2021 and FY2022. Each audit activity corresponds to a risk rated as High or Moderate in the Risk Assessment Report and selected based on other factors outlined on page 3. The preliminary audit objectives are described for each audit listed. These objectives and scope of each audit activity will be further defined based on the result of a project planning risk assessment processes performed at the beginning of each activity. Audits are planned in three overall phases – note that the timing may differ slightly for each audit activity: – Phase I – Activities projected to start in March 2021 and end by June 2021 – Phase II – Activities projected to start in May 2021 and end by December 2021 – Phase III – Activities projected to start in January 2022 and end by June 2022 Amendments to the proposed audit plan will be proposed either as needed or after conducting a follow up risk assessment and update the audit plan, as needed, at the on-set of FY22. Amendments may be proposed in response to changes in the City’s environment such as organizational structure, operations, risks, systems, and controls. Please note that the City Auditor will actively manage project and overall budgets and workload in its execution of the workplan. For each audit activity, a task order is submitted to the City Council for approval before the work is commenced. We have prepared and attached to this report multiple task orders that correspond to audit activities we have prioritized (e.g., those in Phase I). Those audit activities for are marked with an “X” in the ‘Seeking Approval’ column of the table below, and the Task Orders are included in the Appendix. FY2021/2022 Audit Plan 6 Phase I Activities Seeking Approval Function Project Title Audit Objectives Timeline Estimated Hours FY21 Cost FY22 Cost Total Cost X Public Works Construction Project Controls Assessment  Identify key processes and controls in the construction project management program.  Assess the control environment and make recommendations for improvement. March – June 310 $61,400 $61,400 X Administrative Services Asset Capitalization Audit  Evaluate process of capturing construction work in progress.  Document and evaluate key processes and controls related to categorizing and recording capital project costs.  Assess compliance with financial policies and relevant accounting standards. March – June 180 $38,600 $38,600 X Information Technology Assessment of SAP Functionality and Internal Controls (FY21)  Participate as an advisor to the project steering committee for Phase 2 of the ERP system upgrade.  Evaluate internal control design as system configuration is analyzed. March – June 100 $23,050 $23,050 X Information Technology IT Risk Management Assessment  Identify key risks and controls within the IT function – including IT governance and IT security.  Evaluate the adequacy of the control environment and offer recommendations for improvement. March – June 350 $61,550 $61,550 X Administrative Services Investment Management Review  Determine whether adequate controls are in place and operating effectively to ensure that investments are managed in accordance with the investment management and other relevant policies.  Assess the organizational structure and operations of the investment portfolio management function against best practice. TBD 400 $82,500 $82,500 X Utilities Power Purchase Agreement Review  Evaluate the process for evaluating and entering into power purchase agreements.  Assess the effectiveness of internal controls in the management of the power purchase agreements and accuracy and compliance of billings. TBD 375 $74,875 $74,875 TBD Ad Hoc Requests TBD TBD TBD $14,640 $14,640 Phase I Sub Total 1,715 $356,615 $356,615 FY2021/2022 Audit Plan 7 Phase II Activities Seeking Approval Function Project Title Audit Objectives (preliminary objectives for audits not currently subject to approval) Timeline Estimated Hours FY21 Cost FY22 Cost Total Cost X Administrative Services Economic Recovery Advisory  Review the City’s long-term financial planning model and offer recommendations for improvement.  Identify and evaluate key revenue source categories that present long term risk to the City's financial sustainability and perform scenario analysis.  Offer ad hoc advisory assistance during the FY22 budget process. March - December 400 $8,462 $76,153 $84,615 Planning Building Permit & Inspection Process Review  Identify highest impact area to focus the assessment (e.g., specific permit type(s), specific sub-processes, etc.).  Document corresponding process(es) and evaluate for efficiency and effectiveness.  Benchmark operational performance against industry practices and established standards. May – September 360 $12,548 $71,102 $83,650 Citywide Nonprofit Agreements Risk Management Review  Evaluate controls in place to ensure that nonprofit organizations are properly vetted prior to selection and monitored through the life of an agreement.  Assess the performance monitoring process against the best practice.  Follow up on relevant audit findings from past audit work. May – September 400 $12,375 $70,125 $82,500 Phase II Sub Total 1,160 $33,385 $217,380 $250,765 FY2021/2022 Audit Plan 8 Phase III Activities Seeking Approval Function Project Title Preliminary Audit Objectives Timeline Estimated Hours FY21 Cost FY22 Cost Total Cost Information Technology Assessment of SAP Functionality and Internal Controls (FY22)  Participate as an advisor to the project steering committee for Phase 2 of the ERP system upgrade.  Evaluate internal control design as system configuration is analyzed. June – April 200 $45,900 $45,900 Information Technology Application Lifecycle Management Audit  Determine whether adequate controls are in place and working effectively to ensure that application systems are properly implemented and maintained.  Assess the maturity level of application management against the IT framework and standards. December – April 340 $65,950 $65,950 Public Works Wastewater Treatment Plant Agreement Audit  Evaluate whether direct and indirect costs incurred by the City are properly allocated to the operation of the Wastewater Treatment Plant.  Review whether costs are properly allocated to the various parties to the Wastewater Treatment Plant Agreement. December – April 400 $82,500 $82,500 Utilities Work Order Process and Accounting Review  Perform an initial assessment to identify high risk subprocesses in the work order process (e.g., labor, materials, specific utility).  Document and evaluate the processes and controls in place to ensure proper recording of costs.  Perform tests to determine the accuracy of attributed costs for a sample of completed work orders. June – December 400 $84,900 $84,900 Construction Audit – Public Safety Building Public Works TBD TBD TBD $82,500 $82,500 TBD TBD / Ad Hoc Requests TBD TBD TBD $20,870 $20.870 Phase III Sub Total 2,100 $382,620 $382,620 FY2021/2022 Audit Plan 9 City Auditor – Budget Overview The following is a reconciliation between the audit plan above and the City Audit budget. Note that the annual budgets agree to the annual budget in the Baker Tilly agreement (Task #4). Budget Item Amount FY21 Cost $390,000.00 FY22 Cost $600,000.00 Total Cost $990,000.00 Total Budget - Task 4 $990,000.00 Net $ - FY2021/2022 Audit Plan 10 Appendix: Task Orders *Note that certain items are subject to change pending Council discussion and approval. 11 Audit Activity 4.1 – Construction Project Controls Assessment PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY21-004.1 Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) 1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): 1B. TASK O RDER NO.: FY21-004.1 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: March 1, 2021 COMPLETION: June 30, 2021 4 TOTAL TASK ORDER PRICE: $61,400 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT $TBD 5. BUDGET CODE_______________ COST CENTER________________ COST ELEMENT______________ WBS/CIP__________ PHASE__________ 6. CITY PROJECT MANAGER’S NAME & DEPARTMENT: Lydia Kou, Chair of the City Council’s Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE:  SERVICES AND DELIVERABLES TO BE PROVIDED  SCHEDULE OF PERFORMANCE  MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable)  REIMBURSABLE EXPENSES, if any (with “not to exceed” amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work described in this Task Order. APPROVED: CITY OF PALO ALTO BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ I hereby acknowledge receipt and acceptance of this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: COMPANY NAME: ______________________ BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ 12 Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements:  Services and Deliverables To Be Provided  Schedule of Performance  Maximum Compensation Amount and Rate Schedule (As Applicable)  Reimbursable Expenses, if any (With “Not To Exceed” Amount) Services & Deliverables Baker Tilly’s approach to conducting the Construction Controls Assessment involves four (3) primary steps:  Step 1: Audit Planning  Step 2: Control review and analysis  Step 3: Reporting Step 1 – Audit Planning This step consists of the tasks performed to adequately plan the work necessary to address the overall audit objective and to solidify mutual understanding of the audit scope, objectives, audit process, and timing between stakeholders and auditors. Tasks include:  Gather information to understand the environment under review o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit results, as applicable o Review additional documentation and conduct interviews as necessary  Assess the audit risk  Write an audit planning memo and audit program o Refine audit objectives and scope o Identify the audit procedures to be performed and the evidence to be obtained and examined  Announce the initiation of the audit and conduct kick-off meeting with key stakeholders o Discuss audit objectives, scope, audit process, timing, resources, and expectations o Discuss documentation and interview requests for the audit 13 Step 2 – Controls review and analysis During this step we will assess the adequacy of the City’s controls and whether documented controls have been implemented and are functioned as intended. We will focus on the following areas:  Construction contracts  Prime contractor bid and award  Contract administration  Schedule management  Communication and document control  Contractor billing review and approval  Change management  Allowance and contingency management  Verification of completed work  Project closeout activities Step 3 – Reporting In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include:  Develop findings, conclusions, and recommendations based on the supporting evidence gathered  Validate findings with the appropriate individuals and discuss the root cause of the identified findings  Complete supervisory review of working papers and a draft audit report  Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses  Obtain written management responses and finalize a report  Review report with members of City Council and/or the appropriate Council Committee  Present the final report to the City Council and/or appropriate Council Committee Deliverables: The following deliverable will be prepared as part of this engagement:  Project controls assessment which will include the construction contract risk/opportunity register Schedule of Performance Anticipated Start Date: March 1, 2021 Anticipated End Date: June 30, 2021 14 Maximum Compensation Amount and Rate Schedule The not-to-exceed maximum for this Task is $61,400. The not-to-exceed budget is based on an estimate of 310 total project hours, of which 10 are estimated to be completed by the City Auditor. Reimbursable Expenses We plan to complete all work remote including all interviews and documentation review. If at any point the City and Baker Tilly mutually determine it will be beneficial to perform a portion of the work on-site, we will submit an estimate of our reimbursable expenses for the City’s approval prior to traveling to Palo Alto. 15 Audit Activity 4.2 – Asset Capitalization Audit PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY21-004.2 Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) 1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): 1B. TASK O RDER NO.: FY21-004.2 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: March 1, 2021 COMPLETION: June 30, 2021 4 TOTAL TASK ORDER PRICE: $38,600 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT $TBD 5. BUDGET CODE_______________ COST CENTER________________ COST ELEMENT______________ WBS/CIP__________ PHASE__________ 6. CITY PROJECT MANAGER’S NAME & DEPARTMENT: Lydia Kou, Chair of the City Council’s Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE:  SERVICES AND DELIVERABLES TO BE PROVIDED  SCHEDULE OF PERFORMANCE  MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable)  REIMBURSABLE EXPENSES, if any (with “not to exceed” amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work described in this Task Order. APPROVED: CITY OF PALO ALTO BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ I hereby acknowledge receipt and acceptance of this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: COMPANY NAME: ______________________ BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ 16 Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements:  Services and Deliverables To Be Provided  Schedule of Performance  Maximum Compensation Amount and Rate Schedule (As Applicable)  Reimbursable Expenses, if any (With “Not To Exceed” Amount) Services & Deliverables Baker Tilly’s approach to conducting a limited scope audit of asset capitalization involves three (3) primary steps:  Step 1: Audit Planning  Step 2: Control Review and Testing  Step 3: Reporting Step 1 – Audit Planning This step consists of the tasks performed to adequately plan the work necessary to address the overall audit objective and to solidify mutual understanding of the audit scope, objectives, audit process, and timing between stakeholders and auditors. Tasks include:  Gather information to understand the environment under review o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit results, as applicable o Review additional documentation and conduct interviews as necessary  Assess the audit risk  Write an audit planning memo and audit program o Refine audit objectives and scope o Identify the audit procedures to be performed and the evidence to be obtained and examined  Announce the initiation of the audit and conduct kick-off meeting with key stakeholders o Discuss audit objectives, scope, audit process, timing, resources, and expectations o Discuss documentation and interview requests for the audit 17 Step 2 – Control Review and Testing This step involves executing the procedures in the audit program to gather information, interview individuals, and analyze the data and information to obtain sufficient evidence to address the audit objectives. The preliminary audit objective is to: (1) Evaluate process to capture construction work in progress, expensing or capitalizing items in accordance with accounting standards; (2) Determine whether adequate controls are in place and working effectively to ensure that assets are properly categorized and recorded in accordance with the accounting policy; (3) Assess the design of the internal controls against the best practice. Procedures include:  Interview the appropriate individuals to understand the process, the information system used, and the internal controls related to asset capitalization  Review policies and procedures as well as the regulations and standards to identify the criteria to be used for evaluation of control design and effectiveness  Perform test procedures including observation of controls (such as application controls) and review of selected documents (such as supporting documents for the recorded transactions)  Compare the process and controls against the best practices Step 3 – Reporting In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include:  Develop findings, conclusions, and recommendations based on the supporting evidence gathered  Validate findings with the appropriate individuals and discuss the root cause of the identified findings  Complete supervisory review of working papers and a draft audit report  Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses  Obtain written management responses and finalize a report  Review report with members of City Council and/or the appropriate Council Committee  Present the final report to the City Council and/or appropriate Council Committee Deliverables: The following deliverable will be prepared as part of this engagement:  Audit Report 18 Schedule of Performance Anticipated Start Date: March 1, 2021 Anticipated End Date: June 30, 2021 Maximum Compensation Amount and Rate Schedule The not-to-exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $38,600. The not-to-exceed budget is based on an estimate of 180 total project hours, of which 10 are estimated to be completed by the City Auditor. Reimbursable Expenses We plan to complete all work remote including all interviews and documentation review. If at any point the City and Baker Tilly mutually determine it will be beneficial to perform a portion of the work on-site, we will submit an estimate of our reimbursable expenses for the City’s approval prior to traveling to Palo Alto. 19 Audit Activity 4.3 – Assessment of SAP Functionality & Internal Controls PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY21-004.3 Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) 1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): 1B. TASK O RDER NO.: FY21-001 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: March 1, 2021 COMPLETION: June 30, 2021 4 TOTAL TASK ORDER PRICE: $23,050 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT $TBD 5. BUDGET CODE_______________ COST CENTER________________ COST ELEMENT______________ WBS/CIP__________ PHASE__________ 6. CITY PROJECT MANAGER’S NAME & DEPARTMENT: Lydia Kou, Chair of the City Council’s Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE:  SERVICES AND DELIVERABLES TO BE PROVIDED  SCHEDULE OF PERFORMANCE  MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable)  REIMBURSABLE EXPENSES, if any (with “not to exceed” amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work described in this Task Order. APPROVED: CITY OF PALO ALTO BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ I hereby acknowledge receipt and acceptance of this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: COMPANY NAME: ______________________ BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ 20 Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements:  Services and Deliverables To Be Provided  Schedule of Performance  Maximum Compensation Amount and Rate Schedule (As Applicable)  Reimbursable Expenses, if any (With “Not To Exceed” Amount) Services & Deliverables Baker Tilly’s approach to conducting a limited scope Assessment of SAP Functionality and Internal Controls (FY21) involves three (3) primary steps:  Step 1: Audit Planning  Step 2: Control Review and Testing  Step 3: Reporting Step 1 – Audit Planning This step consists of the tasks performed to adequately plan the work necessary to address the overall audit objective and to solidify mutual understanding of the audit scope, objectives, audit process, and timing between stakeholders and auditors. Tasks include:  Gather information to understand the environment under review o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit results, as applicable o Review additional documentation and conduct interviews as necessary  Assess the audit risk  Write an audit planning memo and audit program o Refine audit objectives and scope o Identify the audit procedures to be performed and the evidence to be obtained and examined  Announce the initiation of the audit and conduct kick-off meeting with key stakeholders o Discuss audit objectives, scope, audit process, timing, resources, and expectations o Discuss documentation and interview requests for the audit 21 Step 2 – Control Review and Testing This step involves executing the procedures in the audit program to gather information, interview individuals, and analyze the data and information to obtain sufficient evidence to address the audit objectives. The preliminary audit objective is to determine whether controls and segregation of duties are properly designed and in place for the upgraded ERP system. Procedures include, but are not limited to:  Interview the appropriate information technology (IT) personnel to understand the internal controls and segregation of duties considered during the SAP system upgrade project  Interview the appropriate users to understand the process and the internal controls changed as a result of prior audit findings and the SAP upgrade  Perform test procedures including observation of controls (such as application controls) and review of selected documents (such as user access reports) Note that the nature and extent of testing and control review will be dependent on the project delivery schedule. Step 3 – Reporting In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include:  Develop findings, conclusions, and recommendations based on the supporting evidence gathered  Validate findings with the appropriate individuals and discuss the root cause of the identified findings  Complete supervisory review of working papers and a draft audit report  Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses  Obtain written management responses and finalize a report  Review report with members of City Council and/or the appropriate Council Committee  Present the final report to the City Council and/or appropriate Council Committee Deliverables: The following deliverable will be prepared as part of this engagement:  Audit Report Schedule of Performance Anticipated Start Date: March 1, 2021 22 Anticipated End Date: June 30, 2021 Maximum Compensation Amount and Rate Schedule The not-to-exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $23,050 The not-to-exceed budget is based on an estimate of 100 total project hours, of which 10 are estimated to be completed by the City Auditor. Reimbursable Expenses We plan to complete all work remote including all interviews and documentation review. If at any point the City and Baker Tilly mutually determine it will be beneficial to perform a portion of the work on-site, we will submit an estimate of our reimbursable expenses for the City’s approval prior to traveling to Palo Alto. 23 Audit Activity 4.4 – IT Risk Management Assessment PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY21-004.4 Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) 1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): 1B. TASK O RDER NO.: FY21-004.4 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: March 1, 2021 COMPLETION: June 30, 2021 4 TOTAL TASK ORDER PRICE: $61,550 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT $TBD 5. BUDGET CODE_______________ COST CENTER________________ COST ELEMENT______________ WBS/CIP__________ PHASE__________ 6. CITY PROJECT MANAGER’S NAME & DEPARTMENT: Lydia Kou, Chair of the City Council’s Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE:  SERVICES AND DELIVERABLES TO BE PROVIDED  SCHEDULE OF PERFORMANCE  MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable)  REIMBURSABLE EXPENSES, if any (with “not to exceed” amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work described in this Task Order. APPROVED: CITY OF PALO ALTO BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ I hereby acknowledge receipt and acceptance of this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: COMPANY NAME: ______________________ BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ 24 Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements:  Services and Deliverables To Be Provided  Schedule of Performance  Maximum Compensation Amount and Rate Schedule (As Applicable)  Reimbursable Expenses, if any (With “Not To Exceed” Amount) Services & Deliverables Baker Tilly’s approach to conducting the IT Risk Management Assessment involves three (3) primary steps:  Step 1: Audit Planning  Step 2: Control Testing and Review  Step 3: Reporting Step 1 – Audit Planning This step includes those tasks necessary to solidify mutual understanding of the assessment scope, objectives, deliverables, and timing as well as ensuring that appropriate client and consultant resources are available and well-coordinated. Tasks include:  Gather information to understand the environment under review o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit results, as applicable o Review additional documentation and conduct interviews as necessary  Assess the audit risk  Write an audit planning memo and audit program o Refine audit objectives and scope o Identify the audit procedures to be performed and the evidence to be obtained and examined  Announce the initiation of the audit and conduct a kick-off meeting with key stakeholders o Discuss audit objectives, scope, audit process, timing, resources, and expectations o Discuss documentation and interview requests for the audit Step 2 – Control Testing and Review This step involves gathering information, through various means, that will enable the project team to understand Palo Alto’s IT Risk Management and Governance strategy. Tasks include: 25  Request and review background information – the project team will develop an information request(s) in order to obtain an understanding of the Risk Management and Governance strategy within the City of Palo Alto. The request will include, but not be limited to: o Organizational Strategic plan(s) o Organizational Governance Documents o IT Risk Management Strategy o IT Strategic Roadmaps o Organizational Security and Privacy Policies o System- level Security and Privacy Policies o Operational policies and procedures o Consulting reports o Security Baselines and Cybersecurity frameworks o Other relevant information and reports  Conduct interviews with IT management to gain understanding of Palo Alto’s: o Risk Management Strategy to gain an understanding of the organization’s priorities, constraints, risk tolerances, and assumptions that are established and used to support operational risk decisions. o Risk Assessment Process to gain an understanding of how Palo Alto identifies its cybersecurity risks to its organizational operations (including mission, functions, image and reputation) o Organization security baselines and frameworks o Continuous Monitoring strategy  Conduct research into key risks in order to identify relevant information to assess risks  Test design and implementation of controls related to assessment objectives to determine whether controls are adequately designed and implemented to support the IT Risk Management Strategy  Compare the current IT risk management process against appropriate IT governance framework Step 3 – Reporting In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include:  Develop findings, conclusions, and recommendations based on the supporting evidence gathered  Validate findings with the appropriate individuals and discuss the root cause of the identified findings  Complete supervisory review of working papers and a draft audit report  Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses 26  Obtain written management responses and finalize a report  Review report with members of City Council and/or the appropriate Council Committee  Present the final report to the City Council and/or appropriate Council Committee Deliverables: The following deliverables will be prepared as part of this engagement:  Audit Report Schedule of Performance Anticipated Start Date: March 1, 2021 Anticipated End Date: June 30, 2021 Maximum Compensation Amount and Rate Schedule The not-to-exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $61,550. The not-to-exceed budget is based on an estimate of 350 total project hours, of which 20 are estimated to be completed by the City Auditor. Reimbursable Expenses We plan to complete all work remote including all interviews and documentation review. If at any point the City and Baker Tilly mutually determine it will be beneficial to perform a portion of the work on-site, we will submit an estimate of our reimbursable expenses for the City’s approval prior to traveling to Palo Alto. 27 Audit Activity 4.5 – Investment Management Review PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY21-004.5 Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) 1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): 1B. TASK O RDER NO.: FY21-001 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: March 1, 2021 COMPLETION: June 30, 2021 4 TOTAL TASK ORDER PRICE: $82,500 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT $TBD 5. BUDGET CODE_______________ COST CENTER________________ COST ELEMENT______________ WBS/CIP__________ PHASE__________ 6. CITY PROJECT MANAGER’S NAME & DEPARTMENT: Lydia Kou, Chair of the City Council’s Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE:  SERVICES AND DELIVERABLES TO BE PROVIDED  SCHEDULE OF PERFORMANCE  MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable)  REIMBURSABLE EXPENSES, if any (with “not to exceed” amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work described in this Task Order. APPROVED: CITY OF PALO ALTO BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ I hereby acknowledge receipt and acceptance of this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: COMPANY NAME: ______________________ BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ 28 Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements:  Services and Deliverables To Be Provided  Schedule of Performance  Maximum Compensation Amount and Rate Schedule (As Applicable)  Reimbursable Expenses, if any (With “Not To Exceed” Amount) Services & Deliverables Baker Tilly’s approach to conducting a Review of Investment Management involves three (3) primary steps:  Step 1: Audit Planning  Step 2: Control Review and Testing  Step 3: Reporting Step 1 – Audit Planning This step consists of the tasks performed to adequately plan the work necessary to address the overall audit objective and to solidify mutual understanding of the audit scope, objectives, audit process, and timing between stakeholders and auditors. Tasks include:  Gather information to understand the environment under review o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit results, as applicable o Review additional documentation and conduct interviews as necessary  Assess the audit risk  Write an audit planning memo and audit program o Refine audit objectives and scope o Identify the audit procedures to be performed and the evidence to be obtained and examined  Announce the initiation of the audit and conduct kick-off meeting with key stakeholders o Discuss audit objectives, scope, audit process, timing, resources, and expectations o Discuss documentation and interview requests for the audit 29 Step 2 – Control Review and Testing This step involves executing the procedures in the audit program to gather information, interview individuals, and analyze the data and information to obtain sufficient evidence to address the audit objectives. The preliminary audit objective is to: (1) Determine whether adequate controls are in place and working effectively to ensure that investments are properly managed in accordance with the investment policy; (2) Assess the efficiency and the effectiveness of the investment portfolio management against the best practice. Procedures include, but not limited to:  Interview the appropriate individuals to understand the process, the information system used, and the internal controls related to investment management  Review policies and procedures as well as the regulations and standards to identify the criteria to be used for evaluation of control design and effectiveness  Perform test procedures including observation of controls (such as application controls) and review of selected documents (such as supporting documents for the recorded transactions)  Compare the process, controls, and organization against the best practices Step 3 – Reporting In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include:  Develop findings, conclusions, and recommendations based on the supporting evidence gathered  Validate findings with the appropriate individuals and discuss the root cause of the identified findings  Complete supervisory review of working papers and a draft audit report  Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses  Obtain written management responses and finalize a report  Review report with members of City Council and/or the appropriate Council Committee Deliverables: The following deliverable will be prepared as part of this engagement:  Audit Report Schedule of Performance Anticipated Start Date: March 1, 2021 Anticipated End Date: June 30, 2021 30 Maximum Compensation Amount and Rate Schedule The not-to-exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $82,500. The not-to-exceed budget is based on an estimate of 400 total project hours, of which 20 are estimated to be completed by the City Auditor. Reimbursable Expenses We plan to complete all work remote including all interviews and documentation review. If at any point the City and Baker Tilly mutually determine it will be beneficial to perform a portion of the work on-site, we will submit an estimate of our reimbursable expenses for the City’s approval prior to traveling to Palo Alto. 31 Audit Activity 4.6 – Power Purchase Agreement Review PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY21-004.6 Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) 1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): 1B. TASK O RDER NO.: FY21-001 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: March 1, 2021 COMPLETION: June 30, 2021 4 TOTAL TASK ORDER PRICE: $74,875 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT $TBD 5. BUDGET CODE_______________ COST CENTER________________ COST ELEMENT______________ WBS/CIP__________ PHASE__________ 6. CITY PROJECT MANAGER’S NAME & DEPARTMENT: Alison Cormack, Chair of the City Council’s Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE:  SERVICES AND DELIVERABLES TO BE PROVIDED  SCHEDULE OF PERFORMANCE  MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable)  REIMBURSABLE EXPENSES, if any (with “not to exceed” amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work described in this Task Order. APPROVED: CITY OF PALO ALTO BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ I hereby acknowledge receipt and acceptance of this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: COMPANY NAME: ______________________ BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ 32 Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements:  Services and Deliverables To Be Provided  Schedule of Performance  Maximum Compensation Amount and Rate Schedule (As Applicable)  Reimbursable Expenses, if any (With “Not To Exceed” Amount) Services & Deliverables Baker Tilly’s approach to conducting the Power Purchase Contracts Review involves three (3) primary steps:  Step 1: Audit Planning  Step 2: Control Review and Testing  Step 3: Reporting  Step 1 – Audit Planning This step consists of the tasks performed to adequately plan the work necessary to address the overall audit objective and to solidify mutual understanding of the audit scope, objectives, audit process, and timing between stakeholders and auditors. Tasks include:  Gather information to understand the environment under review o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit results, as appropriate o Review additional documentation and conduct interviews as necessary  Assess the audit risk  Write an audit planning memo and audit program o Refine audit objectives and scope o Identify the audit procedures to be performed and the evidence to be obtained and examined  Announce the initiation of the audit and conduct a kick-off meeting with key stakeholders o Discuss audit objectives, scope, audit process, timing, resources, and expectations o Discuss documentation and interview requests for the audit 33 Step 2 – Control Review and Testing This step involves gathering information, through various means, that will enable the project team to understand the current work order process. Tasks include:  Request and review background information – the project team will develop an information request(s) in order to obtain various background information from the City. The request will include, but not be limited to: o Organizational charts o Contact information for key process owners o Active power purchase agreements (PPA) o Policy and procedures documentation related to procuring and managing PPAs and related billings/invoice processing  Conduct interviews with key process owners and management o Interviews aimed at understanding the processes surrounding PPAs and related billings/invoice processing  Perform risk assessment, analysis and testing o Identify initial control or process gaps o Quantify and analyze PPA spend by contract o Perform testing of key controls o Review contract billings for accuracy and contract compliance o Benchmark active PPA terms and conditions against other Baker Tilly client PPAs o Compare current state to industry best practices Step 3 – Reporting In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include:  Develop findings, conclusions, and recommendations based on the supporting evidence gathered  Validate findings with the appropriate individuals and discuss the root cause of the identified findings  Complete supervisory review of working papers and a draft audit report  Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses  Obtain written management responses and finalize a report  Review report with members of City Council and/or the appropriate Council Committee  Present the final report to the City Council and/or appropriate Council Committee Deliverables: The following deliverables will be prepared as part of this engagement: 34  Audit Report Schedule of Performance Anticipated Start Date: March 1, 2021 Anticipated End Date: June 30, 2021 Maximum Compensation Amount and Rate Schedule The not-to-exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $74,875. The not-to-exceed budget is based on an estimate of 375 total project hours, of which 10 are estimated to be completed by the City Auditor. Reimbursable Expenses We plan to complete all work remote including all interviews and documentation review. If at any point the City and Baker Tilly mutually determine it will be beneficial to perform a portion of the work on-site, we will submit an estimate of our reimbursable expenses for the City’s approval prior to traveling to Palo Alto. 35 Audit Activity 4.7 – Economic Recovery Advisory PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY21-004.7 Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) 1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): 1B. TASK O RDER NO.: FY21-004.7 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: March 1, 2021 COMPLETION: December 31, 2021 4 TOTAL TASK ORDER PRICE: $84,615 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT $TBD 5. BUDGET CODE_______________ COST CENTER________________ COST ELEMENT______________ WBS/CIP__________ PHASE__________ 6. CITY PROJECT MANAGER’S NAME & DEPARTMENT: Lydia Kou, Chair of the City Council’s Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE:  SERVICES AND DELIVERABLES TO BE PROVIDED  SCHEDULE OF PERFORMANCE  MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable)  REIMBURSABLE EXPENSES, if any (with “not to exceed” amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work described in this Task Order. APPROVED: CITY OF PALO ALTO BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ I hereby acknowledge receipt and acceptance of this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: COMPANY NAME: ______________________ BY:____________________________________ Name __________________________________ Title___________________________________ Date ___________________________________ 36 Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements:  Services and Deliverables To Be Provided  Schedule of Performance  Maximum Compensation Amount and Rate Schedule (As Applicable)  Reimbursable Expenses, if any (With “Not To Exceed” Amount) Services & Deliverables Baker Tilly’s approach to conducting the Economic Recovery Advisory project involves four (4) primary steps:  Step 1: Project Planning & Management  Step 2: Information Gathering  Step 3: Analysis  Step 4: Reporting Step 1 – Audit Planning This step consists of the tasks performed to adequately plan the work necessary to address the overall audit objective and to solidify mutual understanding of the audit scope, objectives, audit process, and timing between stakeholders and auditors. Tasks include:  Gather information to understand the environment under review o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit results, as applicable o Review additional documentation and conduct interviews as necessary  Assess the audit risk  Write an audit planning memo and audit program o Refine audit objectives and scope o Identify the audit procedures to be performed and the evidence to be obtained and examined  Announce the initiation of the audit and conduct kick-off meeting with key stakeholders o Discuss audit objectives, scope, audit process, timing, resources, and expectations o Discuss documentation and interview requests for the audit 37 Step 2 – Information Gathering This step involves gathering information, through various means, that will enable the project team to understand the various risks facing the City. Tasks include:  Request and review background information – the project team will develop an information request(s) in order to obtain various background information from the City. The request will include, but not be limited to: o Financial reports, including the past five years City Budgets and Comprehensive Annual Financial Report (CAFR) especially major revenue sources including:  Net sales  Property tax  Sales tax  Utility user tax  Transient occupancy tax  Documentary transfer tax  Charges for services  Permits and licenses  Rental income  Other o Existing financial and revenue planning projections o Other relevant information and reports  Conduct up to twelve (12) interviews with City Council and management o Information gathering and assessment interviews, aimed at understanding City functions and identifying revenue and expense risks, will be conducted with City Council members as well as department and division  Conduct research to identify relevant information to assess risks. The following items may be relevant depending on the revenue source or expense type. o Diversity and distribution of each revenue source  Economic base by NAICS code  Major contributors to each source  Geographic location/concentration  Office and industrial rental vacancies  Transient occupancy  Property values  Property turnover (sales)  Student enrollment  Household income  Unemployment rate  Employment and number of jobs  Sales tax base per capita  Property tax base per capita  Other o Projected economic trends 38 Step 3 – Analysis In Step 3, the project team will analyze each revenue source. The analysis, which will focus on a subset of high risk revenue sources, will include the following:  Historical trends  Distribution of revenue sources by revenue type: o Source(s) o Concentration/distribution of revenue received to identify:  Largest payors  Geographic location o Historical relationship between economic factors and other relevant factors to revenue amounts o Perform a sensitivity analysis to determine the range of likely variability based on relevant drivers of sensitivity o Comparison of per-capita revenues by type to other similar cities  Review analysis with City staff  Modify analysis incorporating City staff recommendations as appropriate Step 4 – Reporting In Step 4, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include:  Develop findings, conclusions, and recommendations based on the supporting evidence gathered  Validate findings with the appropriate individuals and discuss the root cause of the identified findings  Complete supervisory review of working papers and a draft audit report  Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses  Obtain written management responses and finalize a report  Review report with members of City Council and/or the appropriate Council Committee  Present the final report to the City Council and/or appropriate Council Committee *Note – Baker Tilly has budgeted to provide ad hoc, as-needed assistance to the City and City Council during the budgeting process. The nature and extent of that work will be determined through discussion with Council. Deliverables: The following deliverables will be prepared as part of this engagement:  Final Report Schedule of Performance Anticipated Start Date: March 1, 2021 39 Anticipated End Date: December 31, 2021 Maximum Compensation Amount and Rate Schedule The not-to-exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $84,615. The not-to-exceed budget is based on an estimate of 400 total project hours, of which 20 are estimated to be completed by the City Auditor. Reimbursable Expenses We plan to complete all work remote including all interviews and documentation review. If at any point the City and Baker Tilly mutually determine it will be beneficial to perform a portion of the work on-site, we will submit an estimate of our reimbursable expenses for the City’s approval prior to traveling to Palo Alto.