HomeMy WebLinkAbout2016-03-01 Finance Committee Summary MinutesRegular Meeting
Tuesday, March 1, 2016
Chairperson Filseth called the meeting to order at 6:06 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Filseth (Chair), Holman, Schmid, Wolbach arrived at 6:10 P.M.
Absent:
Oral Communications
Chair Filseth: Thank you very much. Welcome to the Finance Committee Meeting Tuesday, March 1, 2016. First item on the agenda is Oral Communications and members of the public may speak
to any item not on the agenda and we have three speakers here (Crosstalk). You are correct, we have two for Oral Communications. First would be Rita Vrhel. Rita are you here?
Rita Vrhel: There has been a lot of unflattering news regarding the Track Watch Program. I’m sure that you have read the same unflattering articles. The news reports are, in my opinion,
an embarrassment for Palo Alto. I hope the issue will be investigated, discussed and corrected. This process, I believe, would be wise to include answers to the following questions:
What is the cost of the current contract? What does it actually provide? How much are the boots on the ground Track Watch staff being paid? What are the hiring qualifications required
for this job? Why is or has been no background screening of applicants for previous arrests, including felonies, been required? Has the supervision of the Track Watch staff been adequate?
If so, why were burglaries and other questionable behavior committed? How long will the Track Watch Program continue? What are the parameters required to discontinue this program? Why
is the School Board not paying at least 50 percent of the cost of this program? I am here because I believe I heard at the last City Council meeting when the budget was approved a discussion
of having this School Board pay for 50 percent of this program. I will also speak to this at the City Council and I look forward to any information that can be provided. Thank you.
Chair Filseth: Thank you very much. The next speaker is Alice Smith to Oral Communications.
Alice Smith: Thank you very much. I am here today because I spent the last eight or nine years on the Library Oversight Committee. I do not want to speak as the current Chair of that.
I am speaking for the needs of the City of Palo Alto as a charter city to not take the lowest price offered on any bid. It is not required by a chartered city and I think the City of
Palo Alto should get the best quality for their bucks, not the lowest price for their bucks. I think you need to look at every single public procurement and make sure that you actually
have quality, not low price. We are the City of Palo Alto. We should pride ourselves on getting the best value and the best value is almost never the cheapest. It is what you pay for
and you really need to have your City Manager and your City Attorney advise you on a charter city’s right to not take the cheapest in order to satisfy the needs of the voters. Thank
you.
Chair Filseth: Thank you. With that, we will proceed to the Action Items. Before we do that, the Staff has requested that we continue Item 3, Introduction and Discussion of the Draft
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive (Comp) Plan Update to the 15th of March, since we have a very full agenda tonight, so I am inclined to think that is the right
thing to do; however, at least one person on this Committee would like to speak to that briefly, and so I think the appropriate thing to do, it is a little bit out of order, or a little
bit unusual, but I think the appropriate thing to do is we should bring it up and allow public comment and brief Committee comment first, and then continue it. That is Item 3. First,
let’s do Items 1 and 2. So the first item on the Action Item List is the Receipt of the Library Bond Oversight Committee Quarterly Reports, Discussion and Recommendation Regarding use
of Remaining Library Bond Funds, Decommissioning of the Library Bond Oversight Committee. Is there a Staff presentation? You have the floor.
Agenda Items
1. Receipt of Library Bond Oversight Committee Quarterly Reports, Discussion and Recommendation to Council Regarding use of Remaining Library Bond Funds and Decommissioning of the Library
Bond Oversight Committee.
Richard Hackmann, Management Analyst: Thank you Chair. Richard Hackmann, City of Palo Alto Management Analyst. I just want to thank you for your time tonight on this issue. I was just
speaking with Chair Smith, who is present. This is our seventh year as a City working on the oversight of these bonds, and we are now likely nearing the completion of the process with
the successful renovation and construction of the libraries, so with that before you, you have a few things. First is the acceptance of the Library Bond Oversight Committee (LBOC) quarterly
reports. Those have been transmitted to you throughout the course of the last seven years. They played an oversight role and the role of the Library Bond Oversight Committee is to simply
ensure that the bond funds are being spent properly and when they transmit them to you, they are telling you that to the best of their knowledge, the funds have. Before you tonight the
key decision is whether or not to accept the Library Bond Oversight Committee’s recommendation that approximately $1.05 million in library funds be transferred back to the Infrastructure
Reserve, where they came from, to repay the expenditures of bondable improvements that were made to Rinconada Library. In addition to that, it would also be to accept the Library Bond
Oversight Committee’s recommendation to approve the last and final list of potential expenses from the library funds. That list is approximately $875,000 that may be expended in addition
to the work that has already been completed. This is all part of the comprehensive process of wrapping up the Bond Expenditure Program that we have. Finally, if you accept it, the Library
Bond Oversight Committee’s recommendation to return the approximately $1.05 million in bonds to the Infrastructure Reserve. It would then leave approximately $3 million to defease for
the remaining bonds, so we have a savings of $4 million and we are recommending a repayment of approximately one and a defeasement of $3 million. In addition to that, I just wanted to
let you know that in attendance tonight we have representatives from the Public Works Department, Administrative Services, our City Auditor is here and others, so with that I conclude
the Staff presentation.
Chair Filseth: Thank you. I believe we have one speaker from the public. I should note that Council Member Wolbach has joined us. Ms. Smith, you have the floor.
Alice Smith: Thank you very much. I just wanted to say that our Committee worked very hard and diligently with the Staff and that it was not a simple Bond Oversight Committee. There
was a lot of material, a lot of interest and we all learned a lot and I want to commend the Staff for the work that they did during this period, because, as you know there was a lot
of snipping around and other things, and to the credit of the Committee we came in well under budget and in spite of a very bad purveyor of services on the Mitchell Park, and I think
we should all be very proud of Mitchell Park. It is a lovely facility. We should be very proud of the Downtown Library, which is fabulous, and we should be very proud of what we have
done at the new Rinconada Library extension. All of you should be commended, the City Council, as well as Staff, and I am speaking extemporaneously, but I just think no one says something
positive, and believe me, there was a great deal of effort, time and angst that went into these projects, and it all came out very well. I hope you will take seriously the recommendations
before you tonight. Thank you.
Chair Filseth: Thank you. With that, why don’t we do both comments, questions and Motions altogether. Committee Members? Council Member Schmid.
Council Member Schmid: Yeah, I would like to second the notion of the important work done by the Library Bond Oversight Committee over the last five or six years. It has been extremely
important that we have been on top of those numbers, as they have gone through process of change and adaptation. I tried to play around with the numbers sometimes to see what we were
learning each time we have had a report and could not find any issues with the numbers as they rolled out. Since we have reached the stage, I guess, of the last and final report, let
me ask one little question. I note on Page 31, that is (Crosstalk), it is a Packet Page. Is that the Report Page 2? But it has a summary of the Mitchell Park Library on November 17,
and if you compare it to the August things, they are very reasonable and small changes in expenditures and commitments still to go. But I was struck on the line that says, “Estimate
of Pending Commitments”, as $98,000. When you look at the August numbers, the number was $42,000, so that is a doubling of the commitments on the last and final. Is there any chance
that might double again in the last three months?
Brad Eggleston, Assistant Director of Public Works: Thank you Council Member Schmid. Brad Eggleston, Assistant Director of Public Works. No, there is no chance that might double. We
really are at the final stretch of work that we are doing at the Library. I think one of the few things that was not yet encumbered at the time this report was done, was the new book
drop that is currently under design and is going to be installed, and if I’m not mistaken, the reason you see this significant jump in encumbrances is that we needed to purchase a 10-year
warranty on the Photo (inaudible) System at Mitchell Park Library, and that expense was one that came in toward the end.
Council Member Schmid: Okay, that is good to hear. Let me ask Ms. Smith a question. I guess we went through a long two-year period where we were dealing with a process that was not working
very well. It was not the role or the mandate of the Committee to deal with the particular set of issues that were there, but was there anything, any change in the mandate if given at
the beginning that would have allowed you to identify for us, to alert us to issues that were going on?
Ms. Smith: I would like to answer in a little different way, if I might. To be fair, there was quite a bit of expertise in the Library Bond Committee, and I would say that we spoke openly
about our various suggestions of what might take place using our expertise and our experience, I think, and I would say that we spoke in a way that was very candid to the Staff and that
we had a fair exchange of ideas and, I think, some things improved because, not improved, but were motivated because everybody put their finger down on the table and said, “This is what
we think ought to be going on”. It was a public meeting and I have to say we had one person come in seven years, and left before we got to the meat of the matter. It is incredible to
me when we are talking about $70 million worth of bond money that nobody gave, nobody cared, but we cared and I think we were watchful and we were proactive. Is that a fair answer for
you? It’s not exactly an answer, but that’s the answer.
Council Member Schmid: I just read the Resolution establishing the Committee and it says, “Need to review the expenditures for measure and bond proceeds and assess the consistency of
the expenditures with the bond.”
Ms. Smith: We did that, we certainly did that every single time, and we questioned. We found sometimes the question to ask, especially the issues about what was bondable and what wasn’t,
we asked for outside counsel. We sought independent advice from an outside, was it an auditor, I’m trying to remember now exactly, but we took outside legal advice in order to make sure
that we were on top of what these issues were as they came. Just to refresh peoples’ memories, there were certain issues at Rinconada that had not been included, which included major
changes of the roof and there were some sewage pipes or, I don’t know, three or four issues that had not been identified as bondable, and we sought opinions whether that was bondable
because to defer it until after the entire thing, there is a legal concept called “Economic Waste” and that would have been a nonsense you wouldn’t want to do if you stuck, were exactly
the way the bond, the budget was originally. So we took advice on things such as that.
Council Member Schmid: Thank you very much again and if you and your colleagues do have any thoughts about the original mandate as we establish future committees, if there is something
you think we should address, maybe you could communicate through a letter or something.
Ms. Smith: Okay, thank you.
Council Member Schmid: Thank you.
Chair Filseth: Council Member Holman.
Council Member Holman: Alice, if you might, I have a bit of a follow up. I think it is what, and I don’t want to put words into Council Member Schmid’s mouth, but I think what he is
looking for maybe a little more clearly, is if there was something we could write into the Oversight Commission’s language.
Ms. Smith: For future oversights?
Council Member Holman: Yes, for future oversights, such that if you were identifying issues, so we have kind of a checks and balances. We have very capable and good Staff, and we have
Oversight Committees. Is that what you were trying to get at?
Council Member Schmid: Yeah.
Council Member Holman: And we have Oversight Committees for very good reason. All of the things you mentioned, and should you also be a bit of an alarm over there saying, “Hey, this
is going on too, and we just wanted you to know that we have become aware of this. Don’t know if you are yet, but here’s where our concerns are”. So, is there something that, I mean,
what would you think about putting something like that in your experience?
Ms. Smith: I have to take you back to when we were interviewed. When I was interviewed, I admit to being a very experienced computer lawyer with many, many disputes that I have worked
on over the time and large complex projects, much larger than these projects, and one of the Council Members at that time said, “Remember, Alice, you are not the attorney on this, if
you sit on this you are not their attorney. You’re there as a member of the Commission and you have (inaudible).” Well, frankly, I don’t think it hurt one iota to have somebody who had
a great deal of experience dealing with contractors and my personal opinion is, you just have to get good people on your Commission. I don’t think you can write all the words in the
world into the charge to the Commission. I think you have to have people who can reason, think and help, and that’s my gut reaction, but if you want us to take that back to the Committee
for further thought, we would be glad to take that on, but we would like to end our series if we can, our meetings.
Council Member Holman: I don’t think we are questioning that. We thank you all for your service. It has been a great service to the City. I just had a little bit of a different question.
You spoke under Oral Communications, we don’t generally respond to that, but since we have an attorney here and since it is very relevant to this, I believe we have City Attorney’s Office
looking at our contracting procedures so that we don’t necessarily have to take the lowest bid on a project. Maybe Lalo could answer that too.
Lalo Perez, Chief Financial Officer: You are right. We take the lowest responsible bid. We are allowed to take the lowest responsible bidder. So the key is assessing the responsible
component of the bids.
Council Member Holman: Okay, thank you.
Chair Filseth: Actually, I had one question, which is the disposition of the $4 million, so the proposal is that $1 million goes back to the Infrastructure Fund and the other $3 million
goes, and there were a couple of options in here to defease the Bond. I wanted to make sure I understood what the two options were. One was basically to pay down the principal and the
other was to apply it to payments, I think. Is that right? What is the difference, what is the Staff’s recommendation?
Mr. Perez: Let me ask Tarun Narayan. I don’t want to take all of the show, so let some of the Staff get a chance that actually works on it.
Tarun Narayan, Manager of Treasury, Debt and Investments: Good evening. My name is Tarun Narayan. I am the Manager of Treasury, Investment and Debt. Yes, the two options are basically
to defease the bond, basically pay down the principal and realize interest savings as a result of it. The second one is, when we do the annual debt service payment, when we do the assessment,
is to basically reduce the amount that we are going to collect in that particular year. That just reduces the, you could do it over one or two years, just the amount that each property
owner will pay, but it doesn’t really get you interest savings, things like that.
Chair Filseth: Thank you. Does the Staff have a recommendation?
Mr. Perez: We want to go with the one that is most advantageous to the bond holders, the people who are paying the assessment, and so part of that is going to be our analysis on both
options and then make the recommendation to the Council on the one that we believe saves the most for the people who are paying the taxes.
Chair Filseth: So you don’t need us to do something?
Mr. Perez: Not at this point. We will come back to you with the exact information, because we believe you want to have all the details.
Chair Filseth: All right. Council Member Schmid.
Council Member Schmid: Move the Staff proposal.
Council Member Holman: I’ll second.
MOTION: Council Member Schmid moved, seconded by Council Member Holman to recommend the City Council:
Accept the Library Bond Oversight Committee (LBOC) quarterly reports transmittal;
Accept the LBOC’s recommendation that $1,051,500 in Library Bond Funds be transferred to the infrastructure reserve fund to repay the infrastructure reserve for expenditures for bondable
improvements made to Rinconada Library;
Accept the LBOC’s recommendation to approve the “Last and Final List of Potential Expenses for Library Bond Funds”; and
Accept the LBOC’s recommendation that the LBOC be decommissioned.
Chair Filseth: Would you like to speak to your Motion.
Council Member Schmid: With great thanks for the Committee, for the Staff, for giving the community a great set of libraries. I do with appreciation pass the Motion.
Council Member Holman: I seconded that because I think it is true. I think for the Advisory Commission and also certainly a great number of people on Staff. It was a bit of a bumpy road
with Mitchell Park, but the end results turned out very well and it is a very popular facility. Just for the record, the Staff recommendation is: 1. To accept the Library Bond Oversight
Committee. Council Member Schmid, you made the move the Motion. Do you want to read these for the record and for anybody listening who doesn’t have a report in front of them.
Council Member Schmid: Yeah, I would be happy to do that.
Council Member Holman: Just, my final comments are just thank you to everyone and we have a great set of libraries now, and I said once before which is true for me is, I have five favorite
libraries. It is a great set of community facilities and thank you all.
Council Member Schmid: The Motion is: 1) Accept the Library Bond Oversight Committee Quarterly Reports Transmittal; 2) Accept the Library Bond Oversight Committee’s recommendation that
$1,051,000 in the Library Bond Funds be transferred to the Infrastructure Reserve Fund to repay the reserve for expenditure for bondable improvements made to Rinconada Library; 3) Accept
the Library Bond Oversight Committee’s recommendation to approve the last and final list of potential expenses for Library Bond Funds; 4) Accept the Library Bond Oversight Committee’s
recommendation that the LBOC be decommissioned, with thanks.
Chair Filseth: Is this item the last item associated with Mitchell Park Library construction that is going to come before Council?
Mr. Perez: With the exception of the $3 million.
Chair Filseth: Which way it will go.
Mr. Perez: That will come back later.
Chair Filseth: Okay. Well, congratulations. What a long, strange trip it has been and we have a beautiful library, so thanks to the LBOC. All in favor? Motion passes unanimously. Thank
you all very much.
MOTION PASSED: 4-0
2. Finance Committee Review and Recommendation to the City Council Regarding Adoption of a Budget Amendment for Fiscal Year 2016 to Adjust Budgeted Revenues and Expenditures in Accordance
With the Recommendations in the FY 2016 Midyear Budget Review Report.
Chair Filseth: Next item on the agenda is the Budget Amendment for the mid-year budget review.
Lalo Perez, Chief Financial Officer: Thank you Chair Filseth. Lalo Perez, Chief Financial Officer. Every year we come to you about this time, maybe a little later this year, to report
to you our mid-year status of the Budget for the City. For the most part we concentrate on the General Fund. We have all the funds in the report, next the presentation in your packet,
with slides and I am going to give you an overview, a highlight of what is in the packet, but the packet is obviously all discussable and for you to review and ask us questions. With
me tonight is Kiely Nose, Budget Manager and Tarun Narayan, who is going to talk about the revenues and then there is also behind me Staff from all the other departments, in case you
have questions about their particular requests that are coming through. The first slide we have a, I apologize about my voice. I am going through the downturns of a cold. We have a projected
$3.1 million one-time budget surplus in the General Fund. A lot of that has got to do with revenues and Tarun is going to get into the details of that in a minute here. With that recommendation
of adjustment to the revenues and the expenses that we have projected for you, we are going to end up with a projected reserve of $37 million, or 19.9 percent. As you may recall, the
Council target is 18.5, so this is currently about 2.6 above that target, so that is what we have projected at this point remaining as our cushion in the Operating Budget. I do want
to note, and we are going to have another slide where we will talk about it a little bit more, there is also, you may recall when we closed the fiscal year last year, a $1.3 million
tentative hold for potential funding of the Unfunded Pension Liabilities. That number is not in this number because we isolate it, but it is in that reserve, so the 37 is really 38.3.
With that let me just go to the next slide and have Tarun give you a quick explanation of some of our major tax revenues.
Tarun Narayan, Manager of Treasury, Debt and Investments: Good evening again. Just to kind of give you a really high level highlight, as indicated, the Sales Tax is going by $0.8 million.
Our performance in this revenue has been stronger than what we had expected originally. Sectors such as restaurants, auto sales, construction, particularly from the Stanford development,
leasing and electronic and office equipment have been doing very well. On the Property Tax, the City was recently informed by the County that we will receive $0.9 million from the excess
ERA Funds. The excess ERA funds are the remaining funds after the State has satisfied its K-12 school obligations, the excess funds are then returned to local governments. This will
be the second year we received this, but it is considered a one-time receipt. We don’t expect to be always that will be the case. On the Transient Occupancy Tax (TOT), as noted, the
TOT has been increased by $3.2 million, with $2.3 million being dedicated to the infrastructure. In the first seven months of this year our average room rates have been up by 10.8 percent
while the occupancy has been down, so we have a couple of new, two new Hilton Hotels, another one coming on this slide, plus the Epiphany that came in the year before, so even without
increased capacities and the occupancy has gone slightly down, but our revenue receipts have been much higher than we expected, particularly from the new hotels. They have kind of ramped
up much faster, due to the demand in this area than we originally expected. That’s why of the $3.2 million, $2.3 of it is actually going to be dedicated the infrastructure. On the Document
Transfer Tax, though this revenue source is highly dependent on property sales transactions and volume and price, which makes it a little bit of a wild card, as I always tend to put
it, it has been up about 7 percent over last year, so we are recommending a modest $0.2 million increase in that area. The Utility Users’ Tax, the City’s utility revenues have been down
due to such things as less water usage. It’s been partially offset with higher telephone receipts, but the telephone is the smaller of the two in terms of the amount we received, so
a decrease of $0.7 million is being recommended. This chart merely shows what the adopted-to-projected is and I will leave it at that.
Mr. Perez: In terms of some of the highlights of what is in here, we picked some of the larger ones. So one of the first ones listed is the repayment to the Storm Drain Fund of about
$200,000, and that is related to a Capital Improvement Project (CIP) with a sandbag project and the function is really more of a General Fund function, rather than a storm drain function,
so that is why the reimbursement. In my department there is a request for about $100,000 and that is primarily for purchasing contract administrative work. As we have increased capital
projects, we have an increase in the number of purchase requests, so with that, temporary staffing helps push the projects along in a faster manner. The last one there that we have is
for the Fire Department. This is associated with new hires, training and uniforms for those new Staff members. We have spoken to you about the turnover that we have had recently, and
we have had associated expense with that. In terms of reimbursements and grants, we also have about $177,000 in reimbursement from the State for the Strike Team. As you recall, we are
mandated by State law to respond, but we do get a reimbursement for those expenses. The next one is associated with last year’s year-end. I spoke to you about the $1.3 million earlier.
There is also $7 million that we asked for your approval, and you gave, at the Committee and at the Council, of which $6 million was for infrastructure. You asked us to not label it
specifically to any project, but to be specifically identified for the $126 million plan that is now being updated. Then the other million is for the Rock Building rehab, so that is
segregated until the Rock Building lease comes about, then those funds will be released at that time. The last item there is $1 million for the Technology Fund, and that’s for radio
replacement. The last one is a clean-up. We double budgeted for a particular expense. There is a new requirement for us to account for the actual medical cost between current and retirees,
so the logic is that as we get older, we have more needs for medical costs and when the CalPERS issues the premiums, health care premium, there is no distinction for that. It is the
same rate until you reach Medicare age, so there is a calculation, and Mr. Bartel helps us calculate to determine what is called an Implied Subsidy. We, unfortunately, put it in two
places so the good news is we have another $1.4 million as a result of that.
Council Member Holman: You’re just trying to make us feel good.
Mr. Perez: We goofed on the right way. The General Fund other items here is the $1.3 million that I explained earlier. Just to remind you, on April 5 we have Mr. John Bartel coming to
speak to you, and this is a good opportunity to remind you if you have any questions that you want us to send along so he can prepare for that presentation, I would appreciate you sending
them in. We will discuss funding options at that point, so you don’t need to take any action tonight, we just want to remind you that is there for you. Then something that has been coming
up is Project Safety Net. Our intent is not to talk about the program tonight. That’s not on the Agenda. What we do want to discuss with you is that there has been a discussion at Council
various times where the $1.5 million to date in the expenditures, and we can get into that particular number details, which has been funded out of the Stanford University Medical Center
Development Agreement Funds – should that have been the case or not. I believe there have been different opinions among the Council Members, so what we are saying to you as a Committee
is that if you want to take some action, that it could probably start here at the Committee level with some recommendation to the Council for wider discussion. We don’t have a recommendation
as Staff for you. It is a matter that Council members have made comments. We just noted that in there for your consideration. In terms of Enterprise Funds, I am just going to highlight
on a couple of them. There is a lot of activity. We are going to get a lot more information later on in the evening with items that are on the Agenda, so that is why I am really giving
you a quick highlight. In the Electric Fund there is the net reduction of $2.6 million in reserves. It is all associated, or mostly associated with the lower hydroelectric power generation
and the drought impacts. For the Gas Fund, there is the net use of about $500,000. This is associated with the equity transfer and the equity transfer is impacted by the capital assets,
your capital asset growth, and that impacts the transfer. Then there is also an increased cost due to additional customer connections being requested. For the Water Fund, there is a
net reserve impact of about $400,000, and that’s associated with the drought impact, and again, you will hear more about that later tonight. The last piece that I wanted to highlight
was the Capital Program. The revenues are going up by $9.4 million. We already discussed the 7 and the 2.3, so those are the reasons, and then the additional appropriation, as you may
have read, it went to the Policy and Services (P&S) Committee, so you may not have seen it directly. That is the result of an Audit Review. Our City Auditor and her Staff discovered
that we had used the $1.8 I will call it, in funds from the Parking-in-Lieu and what was supposed to happen is that the $1.8 was supposed to have been used and then bonds on top of that
to cover the garages that were being built. When we issued the debt, we issued it with the $1.8 included in there. So as a result, what we need to do is defease the bonds for the $1.8
that shouldn’t have been issued, so that was discussed at P&S. P&S agreed with the recommendation and it was sent on to Council, so this is to take care of that action. So the University
Avenue Assessment District folks will see a reduction of the $1.8, and again, similar to the General Obligation (G-O) Bond, we are going to review both options and see what is best for
the assesses. With that we are open to questions the Committee may have.
Chair Filseth: Since there are no public speakers, Council Members. Anybody? Council Member Wolbach.
Council Member Wolbach: I’ll move for Staff recommendation.
Chair Filseth: Second?
Council Member Holman: Not yet.
Chair Filseth: Why don’t we come back to that after questions? If nobody seconds it, I’ll second it.
Council Member Wolbach: I didn’t have any questions. The report was excellent. (crosstalk)
Chair Filseth: So the $3.1 million surplus, essentially it looked to me like that basically, all of it gets used to top up the Budget Stabilization Reserve. Is that basically right?
Kiely Nose, Budget Manager: Correct. Right now it is recommended to go there.
Chair Filseth: Okay, and then I think you mentioned this too, but that includes the – in fact it is down here in the fine print somewhere – that includes the $1.3 million set aside for
the Section 115?
Mr. Perez: The1.3 is coming from the prior fiscal year surplus, so when I showed you in the slide – if you don’t mind going back to that slide, Kiely, the one with the … Thank you. So
bullet point two there, the $37 million, the 3.1 is imbedded in that number. On top of this 37 we have the 1.3
Chair Filseth: Right.
Mr. Perez: From last year.
Chair Filseth: Okay. Then the other question I wanted to ask on this revolves around Project Safety Net and, if I understand what you said is that this year Project Safety Net is funded
by the Stanford Med Center Funds, right? So the $37 million and the Budget Stabilization Reserve (BSR) and so forth is independent of what we do this year with Project Safety Net because
that might come from the Stanford Fund. Is that correct?
Mr. Perez: Unless costs change, but yeah. The 1.5 is since fiscal year 12. It is an accumulation of the expenditures from that timeframe. I don’t know if there were expenditures necessarily
in 12 for this particular 1.5, but there is a series of years, so it is a multi-year expense.
Chair Filseth: So if I understand the question you are basically bringing up on this is, “Should we finance Project Safety Net out of the Stanford Funds, or should we finance it out
of the General Fund?” Is that basically the question?
Mr. Perez: And that has been raised by members of the Council, so what we felt was, you needed to have information as to where we stand on the budget. What are your reserve balances
so you can have better information as you consider if you want to take a course of action.
Chair Filseth: So is that a question relevant to the Fiscal Year (FY) 2016 Budget, or is that something we have to consider for next year?
Mr. Perez: Some could argue that it could be a change in direction from 2016 and prior years. That you could go back to the BSR and pull it from there and reimburse the dollars. Chances
are that we could go back and request that you use those dollars for a similar expense, given that we are getting tighter budgets. Others could say, “Well, it seems applicable to that
expense and we just have to keep going forward.” So, there are just different approaches that we have heard and different opinions.
Chair Filseth: Well, it seems to me like if Project Safety Net is going to be an ongoing structural kind of thing, then probably the Stanford Fund is probably not the right way to fund
it because those were finite amounts, and so forth, that do not get built into our cost structures, am I basically asking the right question on it?
Mr. Perez: Yeah, I think that is an excellent observation for all of us to recognize, that the Stanford Funds are going to run out at some point and so if we want to have something in
place from a policy perspective, we need to make some decisions. What we are trying to say is as we make those decisions, if we want to use other funds, there are also other means and
we just wanted to make sure that you are looking at all the information as possible. Rob has joined us too, so he may have something to add to the comments.
Chair Filseth: So we will go to him in a second, but if we could just finish my question, to make sure I am on the right planet here. In the budget update that you are asking us to accept,
Project Safety Net is still funded for this budget cycle out of the Stanford Funds, not out of the General Fund, and all these numbers in that?
Mr. Perez: Can you just share with the Committee what the funding level is at right now for 2016.
Ms. Nose: Sure. In Fiscal Year 2016 the projected costs are about $1.2 million in total, so that is both the track watch as well as the general administration of, so all of that is currently
being funded out of the Stanford Funds, but based on current projections, your Stanford Funds are going to be nearly zero by the end of Fiscal Year 2016, so in Fiscal Year 2017 there
will need to be a discussion and a decision on where the ongoing funding source is going to be.
Chair Filseth: Rob do you want to weigh-in on this?
Robert de Geus, Director of Community Services: Yes. Robert de Geus, Director of Community Services. I just wanted to point out that the $1.5 million that is discussed up there is a
topic because that’s the amount that has been spent on means restrictions specifically, so that is track security, fencing, vegetation removal, and all of those types of things, and
the question that has come up from a couple of Council members is that the money set aside from the Stanford Development Fund for Project Safety Net was intended for the Project Safety
Net collaborative and the coordination and growth of the collaborative, not capital infrastructure, safety improvements. So that is why it came up.
Chair Filseth: Council Member Holman.
Council Member Holman: Yeah, just to clarify that, so 1.2 is the amount that is being suggested for this next Fiscal Year, and that includes track watch and Project Safety Net?
Ms. Nose: That would be the current Fiscal Year projections, so Fiscal Year 2016, yes.
Council Member Holman: And 1.5 is the means restriction only. It wasn’t that much, I don’t think.
Mr. de Geus: Over four or five years, so since we started the Track Security Program and it’s been ramping up because of the second cluster, over that fiveyear period we have spent
$1.5 million of the $2 million for Project Safety Net on means restrictions.
Council Member Holman: Okay, which includes the fencing.
Mr. de Geus: Fencing, vegetation removal, track security guards. As you know, there is additional spending that may need to occur if this camera intrusion system is successful.
Council Member Holman: Okay. I don’t and none of us are on the School Liaison, but what are the conversations to this point in time, or do any of you know, what the school – Cory is,
I’m sorry. What are the conversations with the School District about cost sharing and it’s not just these, there’s other things too that we have a responsibility to our citizens and
school, it seems like there have been a lot of conversations that should kick in to help with a number of these things.
Council Member Wolbach: I’ll actually defer to Rob first on this one.
Mr. de Geus: It is something that we have talked to the School District about before and Caltran to help with some of the costs related to the security on the (inaudible) line and Caltran
did help with the fencing, but could they do more? It would be great if they did. Up until now the School District has declined to support financially on that particular program.
Council Member Holman: Is that intractable?
Council Member Wolbach: Good question.
Mr. de Geus: Yeah, it is a question for the district and they care as much as we do about the safety, it seems.
Council Member Holman: It’s not showing up financially, is it, that concern.
Chair Filseth: I assume it is a Charter discussion?
Mr. de Geus: Yes, it is, and we have a new Superintendent now, of course, and so I am not sure that Jim has had a chance to talk with Max. I know that previously with Kevin Skelly we
had asked him a number of times.
Council Member Holman: So, do I understand the conversation hasn’t happened with Max. He has been here, what, a year and a half or so?
Mr. de Geus: I know I haven’t had it with Max. I am not sure that Jim has. He may have. I know they have been talking about this topic before. I’m not sure if he specifically asked for
financial support.
Council Member Holman: Lalo, do you have something to add?
Mr. Perez: No.
Council Member Holman: Okay. Corey, do you have anything to add to that.
Council Member Wolbach: I actually don’t. We have only had one meeting since I joined the Committee and it was essentially looking at the year.
Council Member Holman: Okay, alright.
Council Member Wolbach: It is a good question.
Council Member Holman: It is, yes. I had a question also about TOT, if I could change gears? About TOT, (crosstalk) so occupancy has dropped a little bit, but room rates have continued
to escalate, so we are still ahead of the game on that. Is there any way of giving a prognosis about where we are in terms of hotel generation, in terms of creating new hotels? There
has been some conversation about we give a great Floor Area Ratio (FAR) incentive to build hotels. Do you have a crystal ball about where we are in terms of that creation of…
Tarun Narayan, Manager of Treasury, Debt and Investments: I’m afraid not. The newer hotels are more the high-end hotels, so they are helping in terms of our overall room rates, but in
terms of, there are some that are being discussed, but I don’t really have any information. Lalo, do you have any information?
Mr. Perez: We know about the San Antonio and that’s not in our numbers, potentially there, right? I don’t know beyond that. What I do, have in conversations with my colleagues is that
we are all facing the same demand in the County. We meet every couple of months and we talk about this, that we all are getting requests for, additional hotel requests, that there is
that need, and so my suspicion would be, without any data in front of me, that is probably what we are seeing in the numbers, because we are all building out, but the rates keep moving
up. There is a demand for the higher end as Tarun mentioned, expanding the suites next to the Westin and there is some expectation that there is going to be a demand for a high-end suite
expense, but it is something we obviously want to keep monitoring and watching and these numbers. We don’t have the impacts of the Super Bowl, for example, so we are very curious to
see what that activity was and how it impacted the numbers, not just for us but in the area.
Council Member Holman: So, not to say that we are there yet, but in talking to your colleagues, is there any thought about when we might reach, for lack of a better word, saturation?
Mr. Perez: You know, I think that is the area there has been concern and that’s one of the drivers for our recommendation to only use 70 percent of the new revenue from the new hotels
than the 2 percent, because if something does happen, with all of this building up, we want to have a buffer, and so it is something that we discussed prior to coming onto the Committee
in the long-range financial forecast with the Committee, and that was one area where the Committee focused and was concerned about that, go back and revisit those numbers then when we
talk to you soon here on the long-range update as a Council we will touch on that, what adjustments we made as a result of that, those issues.
Joe Saccio, Assistant Director of Administrative Services: I’m Joe Saccio, Assistant Director of Administrative Services Department (ASD). Just in case, I don’t want you to walk away
thinking that occupancy has dropped because people are not coming to Palo Alto, it is really because we have expanded considerably the room base. That is the reason for that and at the
same time, and Tarun just mentioned, the high-end hotels are getting really good occupancy and hotel rates that are well above where they were a year ago even, so just to clarify. As
far as saturation goes, we are not seeing what I would call the cannibalization that might go on by adding new hotels and that other hotels are suffering. You have kind of a low-end
group and you have kind of a high-end group, and it looks like both of those groups are doing fairly well, so…
Council Member Holman: My last question about TOT is then we are monitoring the extended-stay revenues?
Mr. Perez: Yeah, and for those that may not know what you are referring to, is that in our ordinance if you stay 30 days or longer, then there is no tax. So the extended-stays are intended
to be that type of stay, longer than 30 days. So we do keep an eye on that. We have some mix of that in our portfolio, but it is a smaller number, of course, than the regular stays.
Council Member Holman: Didn’t we – a conversation for another time – but I think we moderated that somewhat. So one question about, on the chart that is in the packet and in your slides
too, and it is on the Permits and Licenses, and charge for services both. Charge for services, some of those are more directly interpreted than some of the others because these also
– you know, if it is TOT or if it is a Property Tax or if it is a Sales Tax, the City doesn’t have any impact from that? I understand this is on the income side, but charge for services
and permits and licenses as income does also have an impact on the other side because they often require either increased Staff because of increased activity and such, so I am always
a little bit, like, how do I look at those two numbers? So I don’t know, if you have anything to say about that, but it is a different kind of revenue stream particularly.
Ms. Nose: It is, you’re right. They are very closely targeted or pegged for its activity, from a staffing or contractual services perspective, and you will see in here departments actually
adjusting for that, so you will see through Community Services Department (CSD) where they are kind of refining and looking at their projects and their programs and services they are
offering, and realigning their revenues and expenses and you will see them have an imbalance, so they will pull their fees down if the program is not doing as well, and of course, an
increase in the anticipated expenses to reflect that lower activity level. Usually throughout the organization, departments are really good at looking at, “If my activities are higher,
then I am going to request the additional revenue and the additional resources associated with that.”
Council Member Holman: Typically those additions are fully loaded. They are budgeted on a fully loaded basis.
Ms. Nose: Correct.
Council Member Holman: I think that is what I had at the moment.
Chair Filseth: It is kind of interesting. You’re asking, is there a contribution margin chart that looks like this, is basically what you are asking, right?
Council Member Holman: Yes.
Chair Filseth: Do we ever do that?
Ms. Nose: A contribution margin? I would say you are probably more talking about like our cost recovery levels than you are (crosstalk).
Mr. Perez: What’s the Subsidy?
Ms. Nose: Yeah, what is the Subsidy? (crosstalk) During the year we try to keep them pretty balanced, but you will see that as far as (inaudible) in the Municipal Fees.
Chair Filseth: Council Member Schmid.
Council Member Schmid: I would like to ask a question about Slide eight, if you could put it up there. There is a number up there, $1.8 million, but the key word is “Parking Assessment
District”. I think this is one of the first times on my eight years on the Council that it has actually come to a Council meeting. Parking is a profound issue for Palo Alto. We find
ourselves trying to deal with the Residential Parking Program (RPP), Transportation Demand Management (TDM), multimodal, times, delay, Citizens’ Survey said it is issue number one of
concern of people. Here you are asking us to approve transfer to the Parking Assessment District. I have often wondered what that district is, and tried to figure it out. Here we have
an Audit Report that deals with parking, but it doesn’t deal with the Parking Assessment District, except to say we owe them money. What is the Parking Assessment District and what does
it do? Let me talk for a minute here. In here there is also some, we owe some money, we overcharged for parking spaces. The Parking Assessment District is supposed to help allocate parking
places to workers in town to create a balance in the Commercial District. I think there has been a profound failure and we are dealing with that failure, dealing with this overflow of
parking. I guess this is the first time I have seen this audit. I guess it has gone to Policy and Services. I don’t think it came to Council, so I haven’t seen it. This is my first look
at it. I missed it, but it is extremely important, and there are certain things missing in here, and what’s missing is, “What is the Parking Assessment District, and what does it do
for us?” Now I just took some of the places named here that we owe money to for parking, example 240 Hamilton. They claim a right to 20, what’s called “parking benefit units” that they
do not have to provide a parking place because they are part of the Parking Assessment District, and they feel they have a right to 20 parking places. And every single project in the
Downtown that comes to us has a certain number of parking places that they have a vested right to. You count up claims. They are listed here in the engineering report that set up the
Parking Assessment District, and there are 9,148 spaces they claim, so when 240 Hamilton comes and says, “Oh, I have 20,” that is 20 out of 9,100. Now how does the Parking Assessment
District have the right to claim 9,100 spaces? Well, they did a good thing. In 2000, 2002 they put money in the Assessment District and they helped build two downtown garages. They added
704 spaces. But when they did that, in the report they ended up with a claim for 9,140 parking spaces, and they are still claiming those. Every time a building goes up they claim those
spaces, and that is why we have parking in the neighborhoods. Why we need, I notice one of the things we are asked for today is to let’s spend $35,000 on a Commute Survey. We are not
asking the Parking District to do that. We are asking the General Fund to do that. So the question is, “What role and responsibility does the General Fund have?” That is Item 3 on our
Agenda tonight. Who pays? How much does the business side pay? How much do residents pay? That is an important question because we keep coming back to the General Fund. I guess if we
had an Audit of Parking Funds, I think we ought to include the Downtown Parking Assessment District, and explain what the relationship is between their building 704 parking spaces and
they are claiming 9,140. Now before I vote yes on this, yes on the appropriation, maybe it makes sense, I would like an answer to what is the Downtown Parking Assessment District and
what’s the basis of their claim to 9,100 parking spaces. So, I believe that is a question.
Mr. Saccio: I think you are raising some philosophical issues which I won’t address, but when we did that Assessment Study we were looking at how many spaces were provided on site versus
how many spaces were required, based on the square footage of the buildings, and for which there was no provision or parking spaces. So the 9,000 spaces that you are referring to, Council
Member Schmid, was the total number of spaces that should have been provided and weren’t. That was a simple, and I won’t go into the details, a simple way and methodology that did not
confer any rights. It was a methodology used to spread the construction, design, etc. costs among the property owners for the two new garages. It was a methodology and is explained in
…
Council Member Schmid: That was my understanding but I started to go back through each of the applications made to the Council for new construction, and each of them decrees, “I have
37 parking spaces paid for, I have 144 parking spaces, I have 20 parking spaces.” And they come directly from this list.
Mr. Saccio: It is not that methodology if someone reads the report. It is just that. It is not a guarantee to any – let’s just say that it says there were 20 spaces that one property
needed for parking. They don’t get 20 spaces over in the garage that are identified for that specific property.
Council Member Schmid: There are not 20 spaces.
Mr. Saccio: In fact, there should be 9,000 rather than 700 that you referred to earlier.
Council Member Schmid: Let me ask the City Auditor then, when you were doing an audit of parking, why didn’t you raise the issue of these claims for rights to spaces that don’t exist.
Harriet Richardson, City Auditor: We were not looking at that. We were looking at, “Did they charge the right amount,” and as Joe mentioned, when they charge a Parking-in-Lieu fee, that
goes into a fund which is to fund future construction of a parking space. There isn’t necessarily a parking space reserved for them in a garage at that particular point in time. There
may not be a parking space, and this is to help fund future construction of garage space. That’s the purpose of the Parking-in-Lieu Fund, and that is what we were looking at was the
Parking-in-Lieu Fund.
Council Member Schmid: Okay, and let me take it a step further then, 425 University came to us and they said, “We are building so much commercial space, but we have 37 parking spaces
by right.” We don’t have to fill that. That ends up going into the neighborhoods. And we pass an RPP to restrict that, but by what right to they claim 37 parking spaces and why doesn’t
the audit report help us look at that number?
Ms. Richardson: There is not a right to 37 parking spaces. They are required to fund, build or fund a certain number of parking spaces. Those are not guaranteed. The ones that are not
part of their building that are for future construction are not guaranteed to them for their particular business.
Council Member Schmid: Could I ask the City Attorney’s Office?
Ms. Richardson: Could I ask just one more question?
Council Member Schmid: Yeah.
Ms. Richardson: You mentioned that you haven’t seen the report yet. So there is a gap from when we present the report to the Committee, with this Policy and Services Committee and when
the minutes are finalized, so it can get on the agenda, so it’s expected to come on the March 14 Council agenda.
Council Member Schmid: Okay. I guess the problem is, we are being asked to vote tonight on a recommendation and a report that some of us have not seen yet. City Attorney, I guess there
is a question here. When a proposal comes to the Council for new construction, and they say, “Well I have 37 spaces in the Parking Assessment District,” what is the appropriate response
of the City Council and the City Attorney to that?
Terence Howzell, Principal Attorney: The short, direct answer to your question, Council Member Schmid, is that without a review of the Report that you are referring to, I can’t give
a definitive answer. I understand the concern that you have identified. I can appreciate those concerns as well, but I think, based on the information I have in front of me, I cannot
give you a definitive answer. From what I was able to gather from the comments, the Auditor Staff does not necessarily believe that the documents indicate that there was an entitlement
to the particular spots, but it is, the In-Lieu Fees are intended to kind of represent the costs of providing that type of parking in the future, but my understanding just from the discussion,
and again, I would like to review the documents further, is that the documents are not intended to provide an entitlement to a particular number of spots.
Council Member Schmid: Thank you. Yeah, let me just try to draw a conclusion from that, is I would recommend that we do not approve the $1.8 million tonight because we have not yet had
a full discussion of the Audit Report that is making that recommendation, and that this parking issue is such a profound and important issue to everything we do, that we should wait
until we have a response or answer to that.
Ms. Richardson: Can I also clarify what the $1.79 million represents for you. So when the construction was done, there was some money that had already been pain into the Parking-in-Lieu
Fund. That money was taken out and moved to the Project Fund for construction of the garages. Then when they issued the bonds and they started doing the deductions, they counted those
expenditures against the bonds, but they had actually already been paid from the Parking-in-Lieu fees, so it is really reimbursing that double counting. It is a reconciliation.
Chair Filseth: Let me make sure I understand what you and Harriet said about this. First of all, on the issues that Greg is bringing up, I think it is actually quite interesting because
essentially what 425 University, are they actually claiming they have these many parking spaces, or are they simply claiming, “I have a waiver that I don’t have to build 37 parking spaces.”
It’s like we have one rule that says you have to build this many parking spaces, but another one says you have paid so much so you don’t have to do that and it is divorced from whether
those parking spaces actually exist or not.
Council Member Schmid: If I could clarify, what the report has is it has the number of square footage, the parking required, the number of private spaces they have and the subtraction
of that from the required becomes what they call, “Parking Benefit”. Those are the numbers they claim when they come to the Council that they are covered.
Council Member Wolbach: Chair Filseth, I think we are getting pretty far afield from the item that is on our agenda.
Chair Filseth: Okay, let me come back to that. I hear where you are going, so I am going to come back to that, okay. It seems to me, if I understand what you and Harriet said is that
the issue of the $1.8 million is maybe not the same as the one that you are bringing up, which has to do with, do these spaces exist or not. If I understand what you want to do from
a budget perspective, it’s that basically we issued $1.8 million in bonds more than we should have, right, and we need to pay that back because we are not authorized to do that. Is that
correct?
Mr. Perez: That is exactly it. I apologize, I thought that the report was already in your hands, so I was very vague. Let me give it a little more context. There was Council direction
at that time to build the garages. They asked, “How much money do we have in the Parking-in-Lieu Fund.” We said 1.8. The said, “Okay, take the 1.8, use that towards the cost of the garage
and finance the rest.” What we did is we included the $1.8 in the financing, so we believe what the recommendation the auditor made and our belief is that money needs to be reimbursed
because we have to follow the Council directive that was given and we didn’t do that when we issued over the amount that we needed. So all we are saying is, this has nothing to do with
the (inaudible) of the Assessment it is to follow the Council directive at that time and issue the correct amount.
Chair Filseth: So I actually think that Council Member Schmid is opening a really interesting issue. Most of us find a connection between the number of parking spaces and the Parking
Assessment District, In-Lieu Fees and so forth to be rather opaque, so it actually kind of makes sense to me that maybe this is something the Finance Committee ought to take a look at.
With that said, it seems also that I wonder if the issue of the $1.8 million isn’t sort of independent of that. It really has to do with correcting the financing error. Does that characterize
that right?
Mr. Perez: That’s right.
Chair Filseth: Do you agree with that, since you brought it up. (crosstalk)
Council Member Schmid: I was referring, I guess, to the Audit Report and the Audit Report also has listings of requests by specific sites for In-Lieu Parking Fees, and it seems to be
an endorsement of the current means of calculating and collecting of the In-Lieu Fees, and I am raising the issue of is that misplaced. (crosstalk)
Chair Filseth: Let me ask the following question, a correlating question, are we being asked tonight to endorse the audit report?
Mr. Perez: No. The way I am looking at it, and let me see if I can help you set this, that 1.8 was for collection of fees based on a policy that is already done. I think what you are
raising is, “What should be our current policy in these cases that are coming up?” That is now. We are talking about something that happened before and with previous Council direction,
so there are two issues, something that already happened versus what we should be doing now, who should be paying, how should we calculate it, who should be looking at it, what is the
opinion? But that is today, not into the previous transaction.
Chair Filseth: I understand. I think, if I can guess where Council Member Schmid is going, it is the concern that if we simply rubber stamp the $1.8 million, then this issue goes away
and disappears and nobody looks at it again for another year or two.
Council Member Schmid: I guess I want to make the point, I have been on the Council for eight years and this is the first time I had a chance to talk publically about the University
Parking Assessment District, and it is on your slot.
Mr. Perez: Well, from a process perspective, your City Auditor said the report is coming to you. That’s when you get your opportunity to…
Chair Filseth: Harriet, when do we see the report?
Ms. Richardson: I’m expecting it to go to full Council on March 14. We just got the minutes and Dennis in my office put together the Staff report today so we should be put in Minute
Traq tomorrow and adding it to the Agenda.
Chair Filseth: Is that here or…
Ms. Richardson: It would be on Consent. It has already gone to Policy and Services, but you do have the option of pulling it for discussion. (crosstalk) If you want me to move it to
Action, it’s not on the agenda yet, it’s going to be and then tomorrow I can go ahead and just plan now to do that.
Council Member Holman: I think you left it on Consent, it is going to get pulled and referred to Finance anyway, so…
Chair Filseth: It seems like one option could be that Council could choose to do that.
Council Member Holman: Could I ask just one question in follow-up on this?
Chair Filseth: You still have the floor. Council Member Holman would like to ask a question.
Council Member Schmid: I think I have had my share of time.
Chair Schmid: Council Member Holman.
Council Member Holman: Thank you to Council Member Schmid for raising this issue. It has always been, I’d say it is more than opaque, I’d say it is convoluted under an opaque curtain.
It is very much a conundrum to a lot of people to understand that. I guess the other question I have though, is $1.8 million, this is like, isn’t it like ten years ago? So I’m kind of
like…
Ms. Richardson: The final payment was made in 2008.
Council Member Holman: So it’s only eight years ago. I guess I am a little troubled that at one point a $1.8 million, you could call it an error, was made and it took eight years to
find it and it took an Audit to find it. So I am a little concerned about that.
Mr. Perez: And we are too. What it is it’s a series of processes, as you well know. In Palo Alto things don’t happen overnight. These garage discussions started somewhere in the mid-90’s
and it took a long period of time and different people, and when you have different transitions of Staff, unfortunately, that is what happened to us, and it wasn’t caught and the auditor
did catch it. So what we are trying to do is do the right thing based on what the Council directive was.
Council Member Holman: I guess I will repeat something I said the other evening, which is, and Council Member Wolbach will say it is off point, and in a way it is, but in a way it is
not, is that when the City is looking at the new software that we are going to use for all our input, that certainly the City Auditor be included in that, so that we can help develop
systems and training systems that don’t just rely on the same person being in place to be able to track things, because you have been here for a long time, and you can’t follow everything,
but so I am just putting another plug in for that.
Chair Filseth: I am going to make an observation here and then turn it over to Council Member Wolbach, who is waiting patiently over there. I noticed that 9,000 divided by 700 is 12.8,
so as long as each space has 13 more stacked on top we should be set, right.
Council Member Schmid: That’s right, 13.
Council Member Wolbach: Let me say that I do agree that this a fascinating, important topic. I look forward to having more opportunities to discuss it when it seems appropriate. I just
want to make sure we don’t give Staff too hard a time on a subject that they were not prepared to discuss in depth this evening. That said, if my colleagues would like to try again to
move the Staff recommendation?
Chair Filseth: Second.
MOTION: Council Member Wolbach moved, seconded by Chair Filseth to recommend to the City Council adoption of the FY 2016 Mid-year Budget Amendment which includes:
Proposed amendments to the Fiscal Year 2016 Budget Appropriation Ordinance for the General Fund, Enterprise Funds, Special Revenue Funds, Internal Service Funds, and Capital Improvement
Projects Fund; and
Proposed amendment to the Fiscal Year 2016 Budget Appropriation Ordinance Capital Improvement Project; and
Proposed amendments to the Fiscal Year 2016 Table of Organization:
Reclassify 2.0 Buyers to 2.0 Senior Buyers in the Administrative Services Department; and
Reclassify 1.0 Management Analyst to 1.0 Senior Management Analyst, 0.6 in the Public Works Department and 0.4 in the Planning Community Environment; and
Eliminate two 0.5 Account Specialists (part-time benefited) and add 1.0 Account Specialist (full time) in the Administrative Services Department.
Chair: Filseth: Do you care to speak to your Motion?
Council Member Wolbach: Nope, I think we have had enough discussion on this one.
Council Member Schmid: I’d like to propose an amendment that we postpone paying the $1.8 million until we have a full discussion of the audit for further recommendations.
Chair Filseth: Maker of the Motion does not accept the proposed amendment, so is there a second (inaudible) do you want to offer. There does not appear to be a second.
AMENDMENT: Council Member Schmid moved, seconded by Council Member XXX to postpone the Capital Improvement Budget adjustment to transfer $1.79 million to the University Avenue Parking
Assessment District.
Council Member Schmid: Okay.
AMENDMENT FAILED DUE TO THE LACK OF A SECOND
Chair Filseth: I’m going to ask a question, is it appropriate that this group, back on Project Safety Net, is it appropriate that the Finance Committee make a recommendation that going
forward, starting in 2017, that the Project Safety Net funds should come out of the regular General Fund as opposed to the Stanford Fund, or is that something you guys don’t need from
us?
Mr. Perez: I think you could do that in the (crosstalk), I think it would be appropriate when we would bring you the budget for it, that if you have a different direction for us then
you make that at that point because we will be specific at that point as to what we are thinking of where the funding should come from.
Chair Filseth: So that would be the 2017 Operating Budget kind of topic for May?
Mr. Perez: Yeah, in May.
Chair Filseth: Okay, fair enough. Any further comments.
Council Member Wolbach: Yes, I will just jump in here. I was also thinking the same thing, that I want to make sure we do have a discussion about the long-term funding of Project Safety
Net. I think that is a very important discussion and I am looking forward to having that when we discuss 2017.
Mr. Perez: Chair Filseth, if I may add, just so everybody understands, we are not going to, if you were to move forward, the Council were to move forward with these Motions, we are not
defeasing the bonds right away. We would have to come back to you. So we are not taking any action with this 1.8 at this point, we are just moving it from one fund to another. I just
wanted to be clear on the record what the steps were.
Chair Filseth: I see. Okay, all in favor? Motion passes unanimously. Thank you very much.
MOTION PASSED: 4-0
Council Member Schmid: Just a clarification, I guess. We do have scheduled for March 14 the Audit Report?
Female: At Council. (crosstalk) …she is waiting for the minutes.
Ms. Richardson: I do have the minutes today.
Female: Okay.
3. Introduction and Discussion of the Draft Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan Update (Staff requests this item be moved to March 15, 2016)
Chair Filseth: The next item on the agenda is Draft Fiscal Analysis for the Comprehensive (Comp) Plan Update and what I think I would like to do, if we can do this, is take this up,
allow brief comments from the Committee and then move to continue it until the 14th, and in fact, also have the Staff presentation at that time, if we can do that. So Council Member
comments on the Draft Fiscal Analysis. Council Member Schmid.
Council Member Schmid: Draft Fiscal Analysis has been something that has been promised and agendized over the last 16 months for discussion in the Finance Committee and finally it is
here, but now is being postponed two weeks. I notice in the Tentative Agendas for March 14, the day before this will be discussed, there is an update on the formation of the Downtown
Transportation Management Association (TMA), Stanford University presentation on Transportation Demand Management (TDM), Fiscal Year Long-Range Financial Forecasts and local funding
strategies for TDM and other transportation programs. Each of those items is going to be driven by the question of who pays, who benefits, and I think the issue that we are dealing with
in Item Number 3 is a discussion of who pays. If we grow, if there is more office space or more residential, who pays into the General Fund and supports the General Fund? Postponing
that until after we start making financial decisions on TDM and TDA’s, TMA’s, is a serious and grievous error. I assume that what we need to do is to bring up the fiscal analysis next
Monday night in the Council meeting. Is that appropriate?
Suzanne Mason, Assistant City Manager: Council Member Schmid, I just want to clarify one thing.
Chair Filseth: There is no Council meeting next Monday night.
Council Member Schmid: A week from Monday, on the 14th. The day before we’ve got to discuss it in the Finance Committee.
Ms. Mason: Okay, I just want to clarify, and I don’t have the Agenda in front of me, but the Council meeting on the 14th, I believe is a Study Session on the…
Council Member Schmid: The first two, the second two are action items.
Ms. Mason: And then Long-Range Forecast. I do not believe in any of these items you are being asked to make a decision on the funding specifically for these items. It will be a discussion
definitely, of those issues, the needs.
Council Member Schmid: I will note that we just voted $35,000 for a Commuter Survey. That is an example. We voted funding for the Residential Parking Program (RPP), we voted funding
for the shuttle. All these come from the General Fund. Question is, who pays into the General Fund, who benefits from it?
Ms. Mason: It is definitely a discussion. I just wanted to clarify that these were not asking you to make a funding decision that night on anything specific. So I did want to just clarify
that. I also wanted to share the reason we proposed postponing this item was so that it could have a longer, more in-depth discussion, because of the full agenda you had tonight. So
I wanted to make sure you knew that as well, that the Planning Staff were ready to come forward tonight, but it was just felt that on the 15th you would have more time to get into depth
on that study, so I wanted to clarify both of those. We can definitely bring up an agenda review as we are planning with the City Clerk and the Mayor, options for this item.
Council Member Schmid: I appreciate that and I do appreciate that tonight’s agenda is filled and crowded and needs time and effort, but this does say, “Local funding strategies for TDM
and other transportation programs,” and if appropriate we would bring up the Fiscal Impact Analysis at that meeting.
Chair Filseth: So the observation is the funding strategy piece probably, it’s not appropriate to make decisions on that piece in two weeks. That’s your assertion? Other Council Member
preliminary comments on the Draft Fiscal Analysis? Council Member Holman.
Council Member Holman: Actually what I had, I had made a list here, but actually one of the ones that really was on the top of my list was the cost of development, because the report
talks about how much we make from employees being here. There is no doubt we do benefit to some extent, and to a considerable extent from a lot of different perspectives, not just financial.
But as Council Member Schmid was saying, I didn’t see in here how things like RPP’s and all the transportation issues that we are funding, how those are really accounted for here, and
they are significant. We have been paying, I’m not going to have a number at the tip of my tongue here, but we have been paying considerable expenditures from the General Fund to do
the RPP’s and for shuttle expansion and, in terms of Staff time and just hard dollars, and I don’t see that accounted for in here. I also don’t see accounted for in here, I think I saw
one chart in the Report, I saw one chart that looked back and looked forward, but it seemed to me, I would feel better informed if some of these trends were actually better vetted and
not just looking forward. Another thing I didn’t see referenced in here was the absolute importance of keeping Impact Fees up to date. We let our Impact Fees, we don’t even have an escalator
factor in our Impact Fees. That’s another thing, and the other thing was about, we talk about Sales Tax. That’s obviously accounted for in here. But we have talked about, as other communities
are too, talking about putting a tax on services, and so there is no conversation about that in here either. You know, where are we in that? Where are other communities on that? Is it
a reality that is a bonus? I think we can’t just sit still. I think we need to be looking at the future and what we need to be thinking about going forward. I think those are my high-level,
oh, just one last thing. I thought it was interesting on Table Two in the Staff Report, that -- actually, I had a question about this too. No I didn’t, I answered my own question earlier
– about employee workspace growth and it talks about the different scenarios. This is on Packet Page 67 or Page 3 of the Staff Report, that even with the lowest growth scenario we are
looking at 11 percent more square footage over the Comprehensive (Comp) Plan period, which is 3 million more square feet of workspace growth. It would be helpful to know, that is pretty
stunning, and under Scenario Four it is 4 million square feet. One thing that would be helpful is that workspace includes both general office, medical, Research and Development (R&D),
all of that, how much of that is anticipated to be retail and service, versus just workspace, which is all encompassing. If there is a way to break that out, I think that would be really
helpful in understanding what the retail Sales Tax is going to be as opposed to the employees who are going to be spending money here. So those are my high-level points.
Chair Filseth: We may be getting into the Comp Plan stuff as opposed to financial analysis, but okay.
Council Member Holman: It’s related to that though.
Chair Filseth: Council Member Wolbach, any questions?
Council Member Wolbach: No.
Chair Filseth: Council Member Schmid?
Council Member Schmid: Yeah, just a comment, it would be very helpful if you could send a link to the ADE Retail Background Report from May of 2009 to members of the Finance Committee
before we meet. That has a different perspective on retail sales and it is local in nature.
Chair Filseth: Yeah, one of the, I think the reason Council Member Schmid is suggesting that is that one of the important components of this is the way that they allocated Sales Tax
revenues to businesses, residences and so forth. This has one approach. The report that Council Member Schmid is talking about has a different approach and the results are quite a bit
different between the two, and so that may be something worth some discussion, because it (inaudible). Okay, other than that, I don’t have any comments at this time and so, do we need
a motion to continue?
Council Member Holman: We do or should.
Chair Filseth: Move to continue to the 14th.
Council Member Schmid: Second.
Chair Filseth: All in favor? Motion…
Female: To the 15th?
Chair Filseth: The 15th, sorry. Thank you.
MOTION: Chair Filseth moved, seconded by Council Member Wolbach to continue this item to the March 15, 2016 Finance Committee meeting.
MOTION PASSED: 4-0
4. Preliminary Financial Forecasts and Rate Changes for Electric, Gas, Wastewater Collection, and Water Utilities for Fiscal Year 2017
Chair Filseth: Thank you for your forbearance on a little bit of an unusual procedure here. With that we move to Item Number 4, which is the Utility Rates.
Mr. Perez: We will have the Utility Staff come up.
Ed Shikada, Assistant City Manager: All right, I am wearing my Interim Utilities Director hat this evening, and simply introducing our team?
Chair Filseth: Aren’t you supposed to wear a tie if you are a utilities guy?
Mr. Shikada: I wasn’t advised of that as one of the job requirements. So, fortunately, we will continue with Palo Alto (inaudible). We will provide an overview with Utilities’ important
issue to rate fares for residents and businesses in Palo Alto and provide a walk-through with Jane, Eric Keniston and members of our Utility Advisory Commission (inaudible).
Jane Ratchye, Assistant Director of Utilities: Good evening. This is Jane Ratchye, Assistant Director of Utilities, and I am just going to provide a very quick overview. I’m not sure
who is driving this. I just wanted to also advise you that the preliminary numbers that we had in the actual report are different from the ones we will be presenting tonight in this
presentation, and we will show you the differences. It is different from what we actually presented to the Utilities Advisory Commission (UAC), so we update these and we wanted to give
you the latest information that we have. I am going to quickly show you the overall view and we are expecting, we are projecting the need for rate increases in every fund as of July
1, and so I will show you what those are and basically we are going to go through each fund and you will kind of recognize the pictures, and so I think this will happen fairly quickly.
You will see that the drought is a huge driver for all funds and we will just go through and see all the different cost drivers for each of the funds. We know that this is unusual for
us to have a rate increase in every single fund this year, and so we are preparing a comprehensive communications plan and we do have the Communications Manager here if you have any
questions on that plan. The top figure there is the one that is the most updated. These are still preliminary projections and, of course, you will see the financial plans and the rates
in the future. This is really a discussion item tonight, not an action item, so it is sort of a preview of what you are going to see, so you can get ready when you are going to be reviewing
each fund individually. We are projecting an 11 percent increase in electricity, gas 7 percent increase this July, 9 percent for wastewater and 6 percent in water, and we had previously
thought that it was a 9 percent for water. So it is not as bad as it was when we presented this to the UAC, so we will just go right on ahead. We do have, as I said, a comprehensive
communications plan where all avenues of communication with the public are being activated. I am not going to go through this. If you have questions on that later we can direct them
directly to the Communications Manager. I just want to remind you, some of you may be new to this process of looking at the financial plans, but in 2015 we adopted financial plans and
they incorporated a change in the reserve structures, and those are described in the financial plans and there are very clear statements of what the purposes are for each of the reserves
and what guidelines are around those reserves. The biggest one is the Operations Reserve that has a clear minimum and maximum, and then there are other reserves, the Rate Stabilization
Reserve, is meant to be empty. The unassigned reserve is somewhere where if we get above the max of the operations reserves it pours into the unassigned reserve. That is again meant
to be empty. Then the Capital Improvement Project (CIP) Reserve is used for the capital improvement projects. I am just going to hand it over to our Acting Rates Manager, Eric Keniston
and he will walk you through each fund. I think it might be a good idea to have him go through a whole fund and then you can ask questions at the end of each one.
Eric Keniston, Senior Resource Planner for Utilities: Good evening Council Members. We will start off with the Electric Utility. Here, as Jane mentioned, we are looking at needing an
11 percent rate increase in Fiscal Year (FY) 2017 followed by a 10 percent rate increase in the following Fiscal Year. This year we are doing an updated Cost-of-Service Analysis to realign
and look at where our rates are with the various customer classes. The last time we did a cost-of-service study, I believe was 2008, and our last rate increase was July 2009, so it has
been a long time since we have rate changes. With the Cost-of-Service Analysis we might find that there are differing rate increases by different customer classes, so residential is
likely to see a slightly higher rate increase, just based on how usage patterns have changed over time. I think our initial look is that it is right around 14 percent, but if you look
at this, over the course of time from July 2009 to today, that would be as if we had a 2 percent increase every year. The reasons for the rate increases in the short-term, as Jane mentioned,
drought. Drought has been hammering us. It has been hitting all funds. On the electric side, what we normally get in hydro we do not receive anymore. We have to go and get that at market
rates, and while it has been lower than we expected and we are happy for that, it is still draining us and draining our reserves. Going forward, long-term it is primarily new renewable
contracts coming online and new renewable projects. This graph I think adequately illustrates this, and you will see this in all funds. The blue line up at the top shows where revenues
are and the bars show where expenses are and revenue is below expenses and have been for a few years now. We require an 11 percent rate increase just to start getting us on the upward
trajectory to get us to a start to recovery again. You can see the commodity costs increasing. You can see that in the next couple of years capital investment costs will be increasing,
but operations increased modestly. This also illustrates a pattern you will see in all the rest of the funds. The top purple bar is the Rate Stabilization Reserve and those are going
to be gone pretty much withdrawn by the end of 2017. We also have a Hydro Stabilization Reserve, which is meant to be used in times like this where we have dry periods, and that will
also be exhausted almost by the end of 2017, so we will have to start eating into Supply Operations Reserves and our Operations Reserves are going to be hovering right near the minimum
guideline level, might even dip a bit below. We are hoping that doesn’t happen. On the distribution side, again we don’t really have any Distribution Rate Stabilization Reserve at all
left over.
Council Member Schmid: Can I interrupt for just a second. On the one included in our Packet, the supply reserve adequacy, you have risk assessment in there. You have taken it out, why?
Mr. Keniston: Why? It was sort of a redundant study. It wasn’t that it was scary. I believe that it is in the backup slides. I can’t remember on which slide.
Council Member Schmid: You had risk assessment in a lot of the other reserve items.
Ms. Ratchye: We normally would have it in the picture of the previous slide. (crosstalk). Normally it would be there, but for the supply operations, the risk assessment level has to
be compared to not just the Operations Reserve, but also the Hydro Reserve, and so it kind of didn’t fit in here and we are trying to go through it quickly, but suffice it to say that
the figure you had in the presentation that was attached to this report is still, nothing has changed in that and that you can see that the reserve level does not go below that risk
assessment level.
Mr. Keniston: In none of the funds do we project getting down below the risk assessment reserve level. We definitely keep, in the projections we try to keep everything above that level,
at least above the reserve guidelines and definitely above the risk assessment level. So the Distribution Operations Reserve again we actually have been below minimum and we are trying
to get back up to the target level there, but we are again above the Risk Assessment Level, but we are hovering right near the bottom by the end of Fiscal Year (FY) 2016. And these rate
projections that we are showing you now are higher than we showed you in the last year. Last year we were hoping we could do a series of 6 percent rate increases, but the drought has
hit us and we need something stronger than what we projected last time. The big uncertainties, of course, are how long will the drought last? Ongoing we have potential for some very
large capital projects which could be coming up with the potential of maybe a second transmission line, the cost of Smart Rate implementations. Those will most likely be financed out
of, in prior slides we have an Electric Special Projects Reserve and much of that will be financed out of that usually. As I said, also, we have increasing CIP costs in general and that
would be funded out of rates. Quickly, any question on the electric side?
Chair Filseth: Council Member Wolbach.
Council Member Wolbach: So, a significant point of pride in Palo Alto in recent years has been not only has our Electric Portfolio been net zero greenhouse gas, I should say two points,
probably one that it has net zero greenhouse gas, and second, that it is cheaper than Pacific Gas and Electric Company (PG&E) rates and I would just like you to weigh-in on what the
change is as a result of the drought, and also the changes in our expected rates might mean for maintaining our status as a net zero greenhouse gas electricity portfolio and also comparison
to rates charged regionally, in neighboring cities by PG&E, if you have that available. If you don’t, then it would be fine to hear about it at some other date.
Mr. Keniston: So I will speak to the rates first. Currently, in fact, PG&E just raised their rates again. They just had a rate change again today and as of right now we are about 46
to 47 percent below PG&E, so even with this rate increase we are nowhere near to getting to their levels. With regard to carbon neutrality, what we do buy in market purchase power we
buy green off sets, so to counter that.
Council Member Wolbach: Okay, wonderful.
Mr. Shikada: In terms of the rate impact of the Renewable Energy Certificates (RECS), do you have a quantification of that?
Ms. Ratchye: It is very small, the amount that we are allowed to spend under the Council directive. It is 0.15¢/kilowatt hour (kWh) and I think we are spending probably less than one-third
of that even in the drought and the drought is where this is an issue for this, because we don’t get the hydro and so we have more market purchases and then more RECS to green those
up, so, but even then it is just not a significant cost. There is going to be no problem maintaining that.
Council Member Wolbach: I appreciate you confirming those two points of pride for the City.
Chair Filseth: I have a question. The Rate Stabilization Reserves which are going to zero, is that a policy change?
Ms. Ratchye: It is not a policy change from your current policy. It is a dramatic change from before 2015, when we had something called the Rate Stabilization Reserve, which was executively
what we now call the Operations Reserve.
Chair Filseth: Okay. What is the difference between the Rate Stabilization Reserve and the Operations Reserve?
Ms. Ratchye: So, we felt that the Operations Reserve was a more, was a name that is actually describing what it does. It absorbs different costs of all different kinds, and the Rate
Stabilization Reserve is something that we would try to fund if we saw big, lumpy costs in the future and we didn’t want to have rates go like that. So we fund it. The thing is when
we made that change, and this was after the Auditor’s audit of our reserve practices, we had more money than we may have needed in reserves and we filled up the Operations Reserve and
then we attributed some in the initial year of 2015 to the Rate Stabilization Reserve in most of the funds, and we have been drawing that down in the last few years.
Chair Filseth: Yes, it looks like the rate stabilization has gone to zero.
Ms. Ratchye: And that’s the plan, the plan in the reserve management practices that are part of the financial plan is that you will see in all funds, the plan is to have the Rate Stabilization
Reserve be zero.
Chair Filseth: So five years ago, where there both an Operations Reserve and a Rate Stabilization?
Ms. Ratchye: No, there was only a Rate Stabilization Reserve.
Chair Filseth: So, there used to be Rate Stabilization Reserve and that is going to go to zero, and now there is going to be an Operations Reserve, which is not zero. What is the size
of the old Rate Stabilization Reserve versus the new Operations Reserve? Are they the same?
Ms. Ratchye: It was a little larger. They were a little larger. And so we have established – before we had guidelines and we went above the maximum or below the minimum sometimes, and
right now there are controls, there are limits, and so it is a lot more structured.
Chair Filseth: Would I be wrong to characterize this as really sort of, it’s really sort of naming it more precisely as the big difference?
Ms. Ratchye: That is the big difference.
Chair Filseth: Can you look at Slide Eight again. How much is operations increasing? Do you know what the growth rate is?
Mr. Keniston: Operations is increasing by about two to three percent a year.
Chair Filseth: Two to three percent a year. So basically the cost of living in the bay area. Is that, I mean, that is basically people?
Mr. Keniston: Mm-hmm. The cost of labor. We use the same inflation growth measures that they use in in the Long-Range Financial Plan.
Chair Filseth: Okay, thanks. Please proceed.
Mr. Keniston: On to the gas. So in gas we are looking at a seven percent rate increase assuming, and how we describe the gas, because we change commodity prices monthly based on market
price, the seven percent rate increase is, they are assuming that commodity prices remain flat. It won’t, but that is how we, we can’t realistically guess what they are going to be from
month to month, so it is seven percent for really the distribution-related costs. We do know that the PG&E transportation costs have been double some time. We are waiting for that case
to finally settle out. CIP costs have been going up. Costs related to investigation of cross bores have continued. Ongoing after this increase, five percent increases in outgoing years
and one of the things that we have seen is here gas usage has gone down. Now in the last year it is related to a lot of the winter period was very warm. We have had a little bit cooler
winter this year and I am very thankful for that, but one of the things we notice is that during times of drought water usage decreases and because of that hot water usage also goes
down, so we have seen a slump in our usage there. Here again, we see that our revenues are below costs, so the story continues in pretty much all cases. And again, rate stabilization
reserves, we are planning on drawing those down probably by the end of Fiscal Year (FY) 2017 and then Fiscal Year (FY) 2018.
Chair Filseth: Sorry, can you go back to the previous one please.
Mr. Keniston: Sure.
Chair Filseth: Noncommodity rate changes, so what is that, explain that?
Mr. Keniston: Yes, as I mentioned…
Ms. Ratchye: It is actually the total bundled rate change, assuming that the commodity is flat, so it is not just the change in the noncommodity part, because the commodity part changes
up and down and, in fact, it is probably going to be lower than we are putting in.
Chair Filseth: So if you assume the commodity were flat, the total rate should, so actually in fact, the noncommodity stuff is going up faster than the noncommodity rate change because
you are diluting it by assuming a flat commodity.
Ms. Ratchye: That’s correct.
Mr. Keniston: That’s correct.
Chair Filseth: So the noncommodity rate changes are a little bit over, let’s see it’s 2016, so you’re looking at 7553, so the noncommodity rate changes are going to be 8664 or something
like that.
Mr. Keniston: Something close to that.
Chair Filseth: Why is that?
Mr. Keniston: Well, if you look, and again where our revenues have been, we have not been collecting, except for two years when we had…
Chair Filseth: So some years you are going to dig out of a hole.
Mr. Keniston: We are digging ourselves out of a hole.
Ms. Ratchye: And we haven’t had a rate change in this fund since July 2013.
Chair Filseth: It is a good slide. You have a lot of interest. Could we go back to that one, please?
Council Member Schmid: Earlier this evening we talked about a $500,000 transfer from the Gas Fund and the reason given was because of the buildup of the value of the assets, but we have
had three years of very low capital investment so why all of a sudden do we have a large increase in payment to the City?
Mr. Keniston: This is actually, the orange line is what we budget every year. For two years when we, at the end of Fiscal Year (FY) 2013 in our Capital Reserve, in our reappropriations
and encumberances, we had a lot of money built up for projects that we had not started yet, so we did a two-year budgeting hiatus to get those projects built out there. It’s the projects
build in the ground that builds up the asset base, so even though funding was near zero, the assets were growing as we were doing projects and it’s the amount of assets in the ground,
that’s what is addressed.
Council Member Schmid: So there was a lag of several years behind investment and payment.
Mr. Keniston: Yes.
Council Member Schmid: Is that an annual payment to the City or once for all?
Mr. Keniston: We do an annual payment to the City.
Council Member Schmid: No I mean an increase, a substantial increase?
Lalo Perez, Chief Financial Officer: It’s a yearly compilation.
Council Member Schmid: So it has moved up to a higher level?
Mr. Perez: Yes.
Council Member Schmid: With an anticipation in the future with more investment, that will continue to grow?
Mr. Perez: An assuming the capital cost is higher year after year.
Council Member Schmid: So with a flat gas commodity charge, both our investment and the payment to the City are becoming increasingly significant to the rate bearers?
Chair Filseth: Payment to the City, is that the green box (inaudible).
Mr. Perez: Yes.
Chair Filseth: (crosstalk) Sorry
Mr. Keniston: You pointed to the right one.
Chair Filseth: Since we are diving in on this stuff, right, you said that some of the capital investment is main replacement?
Mr. Keniston: Yes.
Chair Filseth: Is there, and the costs of main replacements are going up?
Mr. Keniston: They have been, yes.
Chair Filseth: What are the cost drivers for main replacements?
Mr. Keniston: The cost drivers?
Chair Filseth: Yes.
Mr. Keniston: It’s just there is…
Chair Filseth: People digging up pipes and putting other ones in.
Mr. Keniston: Yeah, but everyone’s doing it right now, so the construction companies are charging more to do these services, plus we are using better pipes, and such.
Chair Filseth: Okay so some equipment. Do we do that or do we hire somebody for main replacement?
Mr. Keniston: We hire somebody, yes.
Judith Schwartz, Utilities Advisory Commission Member: From a perception standpoint, after San Bruno, I think there is really, you don’t want to cut any corners.
Council Member Holman: You mean we would want to hire out as opposed to our Staff doing it? Totally kidding.
Chair Filseth: Why is there no contract out for PG&E?
Mr. Keniston: So this is one of the few funds we are actually currently higher on the reserve side as of the end of Fiscal Year (FY) 2015, but you see it is precipitously dropping and
by the end of Fiscal Year (FY) 2016, if we had no rate increase, that red line would continue straight down and right through the minimum, so that is why we are trying to do a rate increase
now and temper this off with transfers in from the rate stabilization.
Council Member Schmid: Why in this one is there a five times higher than the risk assessment. That seems like an extremely conservative reserve fund.
Mr. Keniston: The risk assessment measures a very specific circumstance, so it is a 10 perent of capital expenditure in any given year plus how much we have had in largest deviation
in sales, so in gas we haven’t had that large of a deviation in sales, maybe 10 percent. That is why the risk assessment level is so low here, but the minimum and max levels are related
to days of operation, so between 60 to 120 days of operations costs, purchase costs, etc.
Council Member Schmid: I guess moving toward flexible rates, depending on the market, should reduce your need for reserves and then if you have a good long-term reinvestment, capital
reinvestments, it seems hard that this shows up every(inaudible) and that our reserves are so far above the risk assessment, it is just quite dramatic.
Ms. Ratchye: I think you are right. On this we passed some of the risk to the customers by changing the rates, the quantity part, and so we don’t have the risk on the commodity side
that we do on the other, so that is a point that we could maybe consider changing the reserve minimum target.
Council Member Schmid: I thought Commissioner (inaudible) brought up the point as a summation that reserve policies might be very conservative, and should we be increasing rates across
all our utilities eight to nine percent to rebuild the Reserve Policy which seems conservative. Isn’t that the issue he raised?
Ms. Ratchye: What he wanted to see was, what would the rate changes be if we took the reserves to the minimum level and we developed that and you will see that when we bring the actual
financial plans for each fund forward. In fact, tomorrow night the Utilities Advisory Commission (UAC) will see it for the water and wastewater. We show what the rate changes would be
and we could reduce the rate changes potentially in one year, but then…
Council Member Schmid: You’re talking about the consequences of reducing it (inaudible) danger.
Ms. Ratchye: Right. We show what that is, but we don’t recommend it. Your question I think gets more to questioning the basis of the reserve minimum.
Council Member Schmid: Yeah, this one is so dramatically different than the other utility.
Mr. Keniston: So on this one, for the gas utility, last year we did say that we were planning on doing a seven percent rate increase, and that’s what we are bringing forward again. The
outer years are one percent higher but we are saying we are hoping for 4’s. At this point in time we are estimating we are going to need 5’s. Of course, things can change depending on
how gas sales do.
Council Member Schmid: But we are trying to drive gas sales down (crosstalk)
Mr. Keniston: Well, here we go. Long-term decrease in consumption due to fuel switching. That is potential things that we don’t have in here but will the end effect be. Another risk
that we have is that we don’t know what will happen to the Cap-and-Trade Program and its allocations after 2020. Currently we are given by the California Resources Board a certain number
of allowances to offset our gas purchases, but we get less and less of those every year, but that plan only goes out for five year. After that it doesn’t say what is going to go on.
Will we have to go out and buy absolutely everything? We are not quite sure. So these are things that we are still working out with them (inaudible). Any other…
Council Member Wolbach: Yeah, on the gas area, in a way kind of similar to Council Member Schmid’s concern about Parking Assessment District earlier, not something I want to get into
in depth tonight though, but I would just raise that I do have some questions and maybe even some concerns about cross boring and how that project has developed, how it has proceeded,
the costs, the implementation and at some point, if there is an opportunity for an update and some clarification for this Committee or Council about that, whether it is at a meeting
or an informational report, I think that might be useful for the Council.
Mr. Shikada: I think it definitely would be in order in the context of the budget that we will be bringing forward, either the Capital Budget or (inaudible). I believe it is in the Capital
Budget, so we will be prepared for that when we bring that forward to the Finance Committee.
Mr. Keniston: Thank you.
Chair Filseth: Any other questions on the gas? I think we are good.
Mr. Keniston: Moving on to wastewater collection, so here we are proposing having a nine percent rate increase. That will amount to a $2.88 per month increase on the residential bills
and this is due to treatment costs being higher than had been initially projected. We are also projecting have a series of nine and ten percent rate increases over the next two years
and going down to six and seven percent. The rising treatment costs, again, if we want to blame drought in the short-term, unfortunately, it has really been great that we have been
conserving water, but the less water that flows down, the stronger the concentration at the end source, so more chemicals are needed to treat and more wear and tear on the plant, etc.
In going forward, in the long term on the treatment plan side, there are definitely upgrades that are needed out there. It is, I believe it is nearing the end of its design life. We
need to start doing work out there to bring it up to snuff, so our projections right now are for, again nine percent rate increases, and here again, you can see the revenue is below
cost and has been for a few years. In this fund, too, in 14 and 15 we had the, what we called the budgeting hiatus, but that is what it was for the CIP Program. Before that even still
we were running below, revenues below expenses, but we had enough reserves to cover.
Chair Filseth: It looks from there like treatment costs have gone up pretty fast.
Mr. Keniston: They are.
Chair Filseth: Why is that?
Mr. Keniston: Again, there is a lot of capital work that is going to need to be done and work done out at the Treatment Plant.
Chair Filseth: So that is different from capital investment?
Mr. Keniston: That is different, yes.
Chair Filseth: Which is also going up, but not as fast.
Mr. Keniston: We are doing capital investment on our own pipes, on the pipes to get everything to the treatment plant, but the treatment plant itself has significant costs.
Council Member Schmid: I thought three or four years ago we made a major decision with all of our partners to rebuild the treatment plant. To get rid of things that were 40 years old
and move into the modern world, and I guess, one of the anticipations were that the treatment costs per unit would be more efficient. Yet you say, “Oh, we are going to have (crosstalk)
Ms. Ratchye: They haven’t started that yet though. There is an incinerator out there they are going to take out and replace. There are lots of capital improvements out at the treatment
plant and the capital costs that are associated with the treatment plant are not included in these capital costs here. They are part of that treatment.
Council Member Schmid: But that starts happening, doesn’t it? So in the next two or three years we would get (crosstalk).
Ms. Ratchye: There will a lot of debt. There is going to be a lot of capital. There is going to be operations costs that are all part of that blue treatment thing.
Phil Bobel, Assistant Director of Public Works: So, when we start to see the capital, the major capital expenses. So the first one that you are going to see as far as a, is what we call
our dewatering building, which is the thing that allows us to phase out the incinerator. So, actually the first time you are going to see an action on that is coming right up. It’s April,
I forget, April 21 I think we are scheduled. We have been through the Planning Commission and the Architectural Review Board (ARB) and now we are coming to Council in late April. You
will be approving the, hopefully, the mitigated negative deck and then we will finish design and will start construction, hopefully, this summer. The way the loan that we are going to
get from the State works, we don’t actually have to start paying that loan back until construction is completed. So it will be like 2019, 2018, Fiscal Year (FY) 2019 when we will start
paying that loan back.
Council Member Schmid: Don’t talk about the capital side of it, I understand that, but the cost-per-unit as we get the new water tower, the new…
Mr. Bobel: Sorry, I thought you were asking about the…
Council Member Schmid: Shouldn’t that begin to show up in 2019, 2020?
Mr. Bobel: We will discontinue the incinerator in 2019 and we will save major dollars on gas at that time, and certain other expenses, so I would have to come back to you with an analysis
of this. It is not a chart I have seen.
Council Member Schmid: Okay. It just seems this continues, the operations continue to grow.
Mr. Keniston: The projections that we have were that costs were increasing by about 6 percent per year going out.
Ms. Ratchye: The operations in this chart is the wastewater collection system. It is not the operations costs of the treatment plant. That’s all part of the blue.
Chair Filseth: That says operations costs within the treatment plant.
Ms. Ratchye: Yes.
Chair Filseth: So I am looking at the green one, which is the operations costs of the wastewater. As I eyeball that, it looks to me like it is growing about 3.5 percent a year in the
long term.
Mr. Keniston: It is about, yeah, 2.5 to 3 percent. It is using the same operations…
Chair Filseth: More than 2.5 to 3 I think. You know, it is going to go from 5 to 8 in 13 years, so it is probably going to double in 20 years and that’s 3.5 percent, so, figure inflation
about 2 percent, so you are almost (inaudible) the rate of inflation. Why is that?
Mr. Keniston: It is about 2.5 to 3 per year is where we are guessing, but that includes salaries and everything else.
Chair Filseth: That’s not what that chart says. That is higher than 3.
Mr. Keniston: Like…
Ms. Ratchye: Well, if you start at 2016.
Chair Filseth: Start at 2013 and go to 2026.
(crosstalk)
Mr. Bobel: Let me just modify that. If the blue does include the capital costs at the treatment plant, so what you, those dramatic costs that you are seeing are due to the capital projects
that we are going to be having.
Council Member Holman: That’s not how it reads.
Mr. Bobel: It just says treatment.
Ms. Ratchye: This is our cost as the wastewater collection utility that ends at the treatment plant, so the treatment cost to us is kind of like the supply cost for electric or gas or
water, and so we have our own operations costs, our own capital for maintaining the mains and replacing the mains, and then the treatment – you could break out that blue bar into operation
costs at the plant and capital costs at the plant.
Mr. Bobel: You could. That is what was confusing me, why I said…
Ms. Ratchye: So those are all at the plant, and so this is, we just kind of see the bill for treatment.
Ms. Schwartz: So it’s a separate entity (inaudible).
Mr. Bobel: So if you look just at the blue up until about 2019, I would contend it probably looks pretty good. It is kind of hard to tell because the orange has dipped down there, which
is the capital on the collection side, okay, the orange is the collection capital. I guess that is why you said it doesn’t, isn’t how it reads, because that orange is just the collection
system capital costs. The treatment capital costs are built into the blue, as I understand that, and that accounts for the larger blue increase as you go forward. It is our capital program.
It is the fact that we have to rebuild the treatment plant and those hadn’t been there last Friday.
Chair Filseth: Any questions?
Mr. Keniston: So again, they will be going through the rate stabilization reserves, using all of those into 2017 and dipping significantly into operations reserves and because of the
inflow from the rate stabilization reserve we will hit target by Fiscal Year (FY)2016 but drop right down to the minimum by 18 and 19.
Council Member Schmid: If you could go back, the rate stabilization you are taking off?
Mr. Keniston: Yes, we are using that.
Council Member Schmid: But it seems as though if you compare from 2015 on the operations reserve triples.
Chair Filseth: It’s a rename.
Ms. Ratchye: Right, and that is because, you can see it in the next slide, but the minimum and maximum those are based on days of cash-on-hand.
Chair Filseth: Yeah, that red line is the top of chart (crosstalk) and you ignore the color change.
Mr. Keniston: Yes. Again, here because we don’t have the sales variability on the wastewater side, the risk assessment and the reserve minimum are right next to each other. So there
is not a lot of wiggle room on this fund for trying to navigate.
Council Member Schmid: And what is causing the reserve drop between 16 and 18?
Mr. Keniston: Again, the increase in treatment costs and because, except for Fiscal Year (FY) 2014 and 2015, our expenses have always been higher than revenues, so we have been running
on reserves to keep us flush.
Ms. Ratchye: And you could mitigate that by having an even higher increase. Instead of nine percent go to something higher, and then it wouldn’t dip so low, but we are recommending
this sort of steady percentage increase each year and not go to something like 12 next year for wastewater.
Chair Filseth: You’ve got all the green eyeshade people over on this side of the table that think we shouldn’t finance out of reserves.
Council Member Holman: Can I ask perhaps a naive question. So this is the project and facility that is shared by other municipalities, so are we charging the right rates to the other
entities so that we aren’t dipping so low here?
Mr. Bobel: We have two kinds of costs that we pass on to the partners. These capital costs and then the operating costs. And both of those are dictated by the contracts or agreements
we have with partners, so-called partners. On the operating side it’s the flow and the strength of the sewerage. That is what determines what we charge them. That, I think, works out
pretty well. The new thing that we face that really wasn’t anticipated well in these agreements was the fact that we are now needing to essentially rebuild the plant, as all the sewerage
treatment plants around the Bay are having to be rebuilt at about this time, so that is, they have a share of capacity in the agreement, and that is what determines the share of capital
costs they pay. But they have to agree to any major capital costs. Like this one I was telling you about that you will be seeing in April. You are also going to see agreement changes
with our major partners to fund their portion of that capital, the loan payback basically. So, are we charging them enough? It is well worked out. What it doesn’t do is set up a reserve
system, frankly, so the reserve system you are hearing about is the Palo Alto wastewater reserve that takes into account Palo Alto’s one-third portion of the sewerage treatment plant
and its collection system. What we depend on our partners to do is to have a reserve as these costs escalate and they have to pay us more money, then they have to have their own reserve
for those increased capital costs. I just wanted to say that too. I’m not sure if that is what you’re getting at or not.
Council Member Holman: Yes, and perhaps another – just comfort me by assuring me that because, I’ll pick on Mountain View and our friend, John McAlister. They have added a lot of new
housing, a lot of new commercial development, so comfort me by just assuring us all that we are taking all of that into consideration when looking at these contracts anew and all of
that new development, how it has an impact on this facility.
Mr. Bobel: So their flows should go up and their proportional share of the operating costs of the sewerage treatment plant will go up as their flows go up. One thing that is happening,
though, as everyone gets smarter and this new development uses less water, if it does, then they will be able to control that expense somewhat, so it will blunt that to a degree and
Palo Alto doesn’t get so much hurt by that, but our little partners, I’m afraid, are going to suffer because their proportional share is low. So when Mountain View saves some water,
it has a bigger impact on them because they are small, and so any percentage change has a bigger impact as a percentage, has a bigger impact on somebody that is small. So I don’t see
Palo Alto as being greatly impacted by this. Everybody has to keep up with everybody else on water safety. This isn’t irrigation. Irrigation doesn’t go down the sewer. So if everybody
saves water to the same extent as everybody else, then the playing field stays even and if Mountain View grows more than we do, their share of the expenses grows more than us. But if,
in addition to growing, they do a better job, these new businesses or their old businesses to a better job of saving water, then they will not see as sharp a rise and we could suffer.
Council Member Holman: Good news and not.
Mr. Keniston: So here last year we said that we were going to do a nine percent rate increase. That is again what we are proposing this year. We have a little bit higher view point for
the outer years again, assuming the costs are going to continue to go up, but we are staying roughly close to what we (inaudible)
Chair Filseth: Thank you for your forecasts matching.
Mr. Keniston: Here are the replacement costs where we are going to be looking at, one of the things we have seen as (inaudible) as the cost of CIP’s went up and replacement costs have
gone up, we are going to be looking at seeing how that goes in the future. Any other questions on wastewater?
Council Member Wolbach: Another one that we don’t have to get into depth tonight but I figure I would raise the question, just to make sure I have some clarity about it. As we are talking
about, are we essentially talking about replacing the entire Wastewater Treatment Plant, or just changing a lot of the equipment inside of the structure?
Mr. Bobel: That is a real great question, because the concrete is doing well out there. What isn’t doing well is all the mechanical equipment, all electrical stuff. But, of course, that’s
the most expensive stuff, so we will be rehabilitating our primary clarifiers, for example, and the concrete will just get some repairs, but all the mechanical equipment and the electrical
equipment, the control systems, all that stuff will be upgraded and changed out when we do that.
Council Member Wolbach: Okay, and related to that, given the proximity to the bay and proximity to sea-level, I hope we are paying close attention to the, at least the median projections
for sea rise over the life span, the projected mechanical life span of this either redone or replaced sewerage treatment facility. I just want to make sure that if we are going to put
a ton of capital costs into redoing it, let’s make sure we prepare for rising sea levels essentially.
Mr. Bobel: We have been trying to get on your calendar and have just done that for early May for a study session on sea level rise and when you think about the sewerage treatment plant
as an example facility, what we are going to engage you in a conversation at that study session is the extent to which, we are planning on building higher levies, as you know, and if
we totally depend on those levies and successfully so, arguably there is no need to do anything different at the sewerage treatment plant. If we believe that those levies may fail or
that their size is inadequate, then you would want to do different things at the sewerage treatment plant. Currently we are not doing different things at the sewerage treatment plant,
but that is an issue worth discussing.
Council Member Wolbach: I’m glad it is on your radar. I look forward to discussing it. Thanks.
Mr. Keniston: Moving on to water, here’s where I get to be the bearer of good news, only a six percent rate increase. As it turns out, San Francisco Public Utilities Commission (SFPUC)
was giving us a higher projection earlier on when we first went to the Utilities Advisory Commission (UAC) and they have since come down quite a bit from where they were at, so we are
now looking at only a six percent. We are requesting convenience and drought surcharge until drought conditions cease. Part of this rate increase we are looking at is going to be commodity
costs as well as some distribution costs, because those are also increasing. Here, again, we have a case where revenues are below expenses. Last year we did a 12 percent rate increase,
but as you see, what also happened was that our sales went down, so even though you would expect with a 12 percent rate increase that revenue would rocket up, it has not happened quite
at that level, so we need to do some, we are going to be on a path to recovery here, with six percent next year followed by 2.5 percent. You can see the path of how wholesale water rates
have changed over time. They have just been going up and up and skyrocketing up and currently they are at a little bit above 4 and are projected to go to 4.43 by 2017 and into the 5’s
in future years. Here again, rate stabilization reserves, we plan on using those up by the end of, or in Fiscal Year (FY) 2017. We are going to also transfer in a little bit from the
capital reserve to take care of some outstanding projects that we have. We will get a little bit of a bump in Fiscal Year (FY) 2017 because those transfer in, but then even with the
rate increases, we drop. We are trying not to hit bottom, although we have done some analysis to check for some other scenarios, but it means that the future rate increases end up being
larger. This is our current plan. Again, here we are staying above the risk assessment level. This is slightly lower, actually, than what we said last year. Last year we thought we might
need to so a series of 8’s, this year we are happy we can have one win, say six percent, the following two years nine percent, and then tapering off to 6 in future years. Of course,
all of this, a lot of this is dependent on what the SFPUC does with their rates. If the drought continues and they end up having to raise their rates more, then those rate increases
will be higher. Again here, continuing uncertainly with regard to capital improvement programs, we do know there is a lot of work that still needs to be done on the water system, main
replacements, reservoir work and the big uncertainty is how long the drought will last. If we knew that, well… This gets into potential costs in the future, size of rehabilitation work
in the future for the SFPUC. They are looking at having to do some rehabilitation on Mountain Tunnel. That could create some larger rate increases in the future. Recycled water projects,
we are going to be investigating those. With that I conclude. Any questions on water?
Council Member Holman: We will talk about recycled water projects later.
Chair Filseth: Yes, we are all conditioned to expect water to get more expensive.
Mr. Keniston: So the end analysis is an overall bill change of about eight percent for Fiscal Year (FY) 2017. Thank you.
Chair Filseth: You know, as I look at this, we got sort of seven, nine, 11 percent, eight average in near years, and then down to like six percent, four percent, three percent down
to where it’s inflation right? Is that realistic?
Mr. Keniston: It’s the goal and the goal is to try to…
Chair Filseth: Is it aspirational?
Mr. Keniston: It’s the goal. We try to get everything up to where revenues are meeting expenses and that is why you see just relative levels of inflationary increases going forward.
Chair Filseth: I mean, you could argue that there is a higher impact in the short term because at some level now you’re soft of replenishing some reserves. Or should we really be expecting
six, eight percent out to 2021, 2022?
Mr. Keniston: Anything beyond two to three years is very much a guesstimate. We are hoping, we will always hope that we get three to four percent. Will it be six, will it be nothing?
We don’t know. (crosstalk)
Council Member Wolbach: Chair Filseth, actually just picking up on that, because I think that is an important point and that is important question about how we do long-term financial
planning, and I will just raise it as a question for now about the further we go out into the future, the more uncertainty there is and when presenting numbers, when discussing numbers,
maybe each year out the chart should have a range. Our target is somewhere in this range, but it will be from three percent up to nine percent in 2020 and three percent up to whatever
in 2021. I am wondering if that is a way that we could do reports in the future, whether we should do it. Does that make sense?
Chair Filseth: I’d kind of like to see the median, right?
Council Member Wolbach: Right, but you’d see here’s the range and here’s where our target is within that range. I guess in this case it would be the bottom of whatever the range is,
and then if there is a mean in there as well. Like I said, it is just a question for now about how we discuss this and present it and study it, because this, again, the further out it
is the more uncertainty there is.
Council Member Schmid: Precision with accuracy.
Ms. Schwartz: I just had one comment on that. We used to do financial planning, about two or three years ago we changed, but it used to be what we budgeted and we projected the budget
amounts, and then you look back and you always, the actual costs are always or generally lower than the budget amount. Like you have to budget for each category and you can’t spend more
than that, and you don’t use exactly up to your budget, and so we looked back to say, “How much do we actually spend in operations costs”, and we have been for the last couple of years
forecasting our spend not the budget number, and so we feel like these are actually fairly accurate. To the extent we know what it is, we are equally likely to be above these as lower.
These aren’t conservative or whatever the opposite of conservative is. (crosstalk). So we actually think they are fairly good and it’s for us to just kind of look out. I mean you are
not making a decision now to have a rate increase of nine percent on wastewater in 2019. You’re making, when we come back with the rates you are going to make that one decision. This
is to show you that costs are increasing in all funds and we are trying to convey that every year, and you can see that the picture that we showed last year is not that different than
the one we are presenting this year.
Council Member Holman: So is a gallon still 128 ounces, or is it now…
Chair Filseth: Greg, go ahead.
Council Member Schmid: Yeah, you look backwards, we are coming out of a period of time when there was no raise in general, or fairly stable. We had a lot of things working in our favor.
The gas and electricity markets falling dramatically helped us. We seem to have a number of special circumstances now on the other side. I guess we had the drought which affects both
electricity and water in a unique way. Given the fact that we had no rain during February it is hard to write that off quickly. We have a lot of special capital improvements. San Francisco
Public Utilities Commission(PUC) is that multi-billion dollar investment (inaudible) is under court pressures to relook at their supply. There is a (inaudible) that need to be done.
Third, I guess we are trying to work as a sustainable community and work toward conservation which has a funny impact on utilities. It takes (inaudible) away. So you have all these things
going on and we have a series of rate increases at least for three years that are quite striking after what we have been through. I’m sure we get feedback on that. Is it the right time
to be rebuilding these reserves to “safe and secure boundary lines” which is well above the risk level? So I think I would raise that as an issue. How aggressive do we want the rebuilding
of our reserves during this period of time. Capital investment, conservation, drought and so on.
Ms. Ratchye: (inaudible) I think.
Mr. Shikada: I think also, perhaps, when we come back, there was a sensitivity analysis that was requested by the UAC to look at not rebuilding the reserves at quite the same pace, and
that might be useful information. I think in general terms, what that concluded was it simply forestalled potentially for a few years, the magnitude of increase, but did require a larger
increase further out. As a newcomer to the Utility World, I would add a couple of other notable factors to the variables that you mentioned, Council Member. One, as was discussed by
the Council yesterday, the need for a new billing system, utility billing system, as a part of the overall Enterprise Resource Planning (ERP) and how that ultimately translates into
costs associated with the running of the utilities. Another would be the cost of energy, in particular electricity, and what is happening with (inaudible) so the potential for merger,
regionalization of the transmission system and how that can relate to costs that ultimately are reflected by electricity retailers such as ourselves as well. So a number of factors that
are occurring both locally and regionally and beyond that are clearly impacts and reasons that our Staff needs to keep very close tabs on what is happening, both internally in our own
expenses, as well as externally by other forces.
Chair Filseth: Don’t look at me. I’m a hawk on this stuff. I don’t think we should spend out of reserves at all. Right, so there is no particular action on this agenda.
Ms. Ratchye: It was really a preview of what you are going to see when you see the detailed financial plans and actual rate projections on the rate schedule.
Council Member Schmid: What is the date on that?
Mr. Keniston: Water and wastewater will be brought to the UAC in March, tomorrow. You will be seeing them in April. The Electric and Gas Financial Plans go to the UAC in April as well.
We do water and wastewater earlier, as well as refuse, because we have to get (inaudible) notices out 45 days before Council and then electric and gas will come to you in May.
Chair Filseth: Very good. Thank you very much for staying with us this late at night and coming before us.
Ms. Schwartz: I came to represent the UAC at this, so is there not a need or do I get to comment.
Council Member Schmid: I guess I would like to hear a little bit about the UAC’s discussion on reserves.
Ms. Schwartz: When we talked about it and we discussed the reasons why and it became clear that the reserves had been used to insulate the populous from what was really happening, and
I think we have this, you know we have by law we have to pass the costs along and so the way we were insulating them was by using the reserves, and we brought the reserves down to the
point where they have to be built up, and I think that really needs to be part of the story, because there is a perception that is not necessarily tied to reality, so when I went to
the State of the City Report the other day, the event that we all have, one of the conversations I had with someone what that we were, she was complaining about how much her bills had
gone up, and when I said that there hadn’t been a rate increase, her perception was they had. So I was coming home at night and my husband and I talked about this conversation and he
said, “Well I think our bills have gone up.” He is an engineer and he tracks everything and the next day he would write a report and he came back and he said to me, “My God, you’re right,
they haven’t gone up, and the rates haven’t changed.” What it was, it was that because there were these seasonal adjustments with weather and what’s happening, his perception was that
they had been changing. The other thing that affects perception in our area is that the PG&E bills have been going up, so one of the things that happens is that people are talking to
their friends. They live in Menlo Park, they live in Mountain View. The conversation has been that they have been going up, so I think that part of what we have to recognize is that
our citizens live not just in the Palo Alto bubble, but that they are hearing things from other places. So I think what that is says to me is that how these things get communicated is
very important. So one of the examples that came up at our discussion at the UAC last time was, “Well, people are being penalized for using less water.” Well, no they are not being penalized
for using less water, it is that the water costs more. Okay, so if you bought a bottle of one kind of water that was very inexpensive and you were getting a bottle of different water
that is more expensive, it costs more, and so I think that is a very important part of how it is framed. I want to suggest one other thing, and this is my opinion, not from the UAC,
but it is a lesion, I think, that we have from some other best practices. So when San Diego Gas and Electric was introducing their smart meter program, they ran reports to see who was
going to get sticker shock because they have had slow meters. So before they sent out any bills once the new meters were deployed, they said, “Okay, these people are going to get bills
that are much higher than they are used to, because they haven’t been adequately charged,” and so what they did was they went out and they met with those people before they got a bill,
in person, and they said maybe your bill was $50. It is now going to be $75, but it is because you had a slow meter, but we are not going to charge you for all the time that you have
been getting a lower bill because you had a slow meter. They had no pushback because everybody understood that they weren’t having to pay for something that they should have been charged
for before. Now, it was very proactive in how they did it. They ran a report, they found out exactly. We’re looking at averages, and one of the things that we may want to do is run a
report and see who is really going to have a big change versus not have a big change, and we may find out that there is a concentration of people who are really affected and we may want
to talk to them more, because we do have this situation where we have people who are conserving really dramatically and so they may not be as affected, but they may get scared if they
are hearing about this big rate increase, but it may not even affect them. I think that is something we can do on a proactive basis. The other thing I think we should do that relates
to your question, is that I think we should let them know that if you have a $75 electric bill, if you were a PG&E customer, it would be $150 or $100 or whatever the difference is. So
I think it is not just that we go to lots of channels to give the information, but what information we give where is, I think, very germane to how people are going to respond. Because
there are also a lot of other people that if their bill went up $20, they are not that price sensitive and it is just not going to matter. So I think that is why we need to maybe have
a little bit more granularity on this.
Chair Filseth: (inaudible) fairly controversial a year ago.
Ms. Schwartz: Right, and it’s been done, the proactive steps when they have been done in other jurisdictions, have been very helpful.
Council Member Wolbach: I know we are not offering motions tonight, but speaking as an individual member of the Committee, I like those ideas.
Chair Filseth: We’re the Finance Committee. We don’t have to worry about that stuff.
Council Member Holman: Thank you for speaking up.
Chair Filseth: Thank you all very much for coming.
NO ACTION TAKEN.
Future Meetings and Agendas
Chair Filseth: Alright, next item is Future Meetings and Agendas. I guess we have a change for the 15th.
Lalo Perez, Chief Financial Officer: Yes we do, so let me update the agenda. So on the 15th we have the Comprehensive (Comp) Plan Update Fiscal Analysis at this point by itself. We are
moving currently what’s there for the pool vehicles to the 5th of April. We will have the Community Development Block Grant (CDBG) process. That is time sensitive. There is a Federal
deadline and timing that we must start in April because then it has to go to Council in May. Then, as I mentioned earlier, we have Mr. Bartel coming to speak to us about the options
on unfunded pensions. Then on the 19th are the items we just concluded. We will have the water, wastewater, storm drain and refuse as well that night. Then Community Services Department
(CSD), Rob, may want to update you on some potential budget scenarios for the Junior Museum and Zoo (JMZ) initiative as it relates to the construction of a new building. There was a
discussion that since the numbers are moving, that it would probably be great to come and have that discussion here.
Chair Filseth: An opportunity for City participation, is that what you are saying?
Mr. Perez: You read into it. So we figure the appropriate place would be the Finance Committee. Then the month of May is dedicated to budget hearings plus on the operating, the capitals
and the rate.
Chair Filseth: So just really briefly, on the 19th are Items Four, Five and Six. I mean we just spent an hour and a half or more on this stuff here. Do you expect those to go pretty
quick, or do you expect much change from what we saw tonight?
Mr. Perez: I think it depends on the scenarios you see and the difference of opinions on the options. From a Staff perspective, you haven’t looked at them, it seems we don’t have much
of a choice, but obviously everybody has different (inaudible).
Council Member Schmid: You mentioned the refuse fund was added to it so we haven’t talked about that.
Mr. Perez: Correct. That is going to be a new one to you. The storm drain is pretty much following the election protocol of Communications and Power Industries, Inc. (CPI).
Council Member Wolbach: And which of these meetings are we starting early versus?
Mr. Perez: Good question. The first meeting of the month is at 6 and the third meeting of the month is at 7.
Council Member Wolbach: That’s right.
Chair Filseth: The second meeting of the month.
Mr. Perez: Sorry, yes I meant the third Tuesday of the month.
Council Member Holman: So, I think, let me just double check something. I think that this month I could actually do the 15th at 6. Let me just double check. Could I just get back to
you?
Mr. Perez: Certainly, and that will be important because we have a consultant coming onboard so we can let them know. I believe they are coming from the east bay, so we would need to
let them know ahead of time.
Council Member Holman: We are talking the 15th, March 15th?
Mr. Perez: That is correct.
Council Member Wolbach: In as much as I think the other three of us have said we can generally meet at 6 PM, it would definitely good to know as soon as possible, so we can schedule
accordingly.
Council Member Holman: This just happened today, the conversation just happened today about the other meeting
Mr. Perez: Maybe you can let the Chair know and the Chair lets us know. Would that be a better way to do it?
Council Member Holman: I can e-mail the both of you.
Mr. Perez: Okay, that sounds good.
Council Member Wolbach: As long as you guys let us know, that would be good. (crosstalk)
Chair Filseth: It will all be done by the time you get here.
Council Member Wolbach: I just want to make sure I don’t double up myself for that hour.
Council Member Holman: Can we, you know we had a long conversation earlier as a part of Item 2, about parking, can we schedule that for Finance or are we going to rely on that item being
forwarded to Finance from the City Council agenda.
Mr. Perez: My understanding and that could be corrected, is that if there is anything (inaudible) it is to follow the Council protocols, so if we get direction from the Council that
works, or if it stays within in the protocol.
Chair Filseth: She is asking an interesting question. If such a thing were to happen, where do we put it? We are losing space on this calendar. A hypothetical case.
Mr. Perez: Got it. It depends on, because we talked at a high level, it depends on how deep we want to get into that discussion, because I think it is a complex item and depending on
where the interest is, it could take some time to prepare, and this is like a multi-department, if I am reading everything, multi-department preparation, not just… It seems to me like
the City Manager, the City Attorney, the Planning Department, it sounds like maybe the auditor.
Council Member Schmid: It is so essential to the other discussions going on, so if it doesn’t happen inside that framework…
Chair Filseth: It is actually a fair question, because as the Residential Parking Program (RPP) goes into place, the pressure of how the City deals with parking is going to escalate
and it has to be done next Tuesday, so it is coming. So it makes sense to open up that…
Suzanne Mason, Assistant City Manager: I was going to say there are also a number of other things going on that will probably be coming to Finance on parking, like the Paid Parking Study
that is going on and other items, so it is probably a dialogue the Council would want to have about how do we look at all these different aspects.
Council Member Schmid: This is not just an aspect. This is the basis of how you deal with pay, who pays.
Chair Filseth: This one is different from parking meters and stuff like that. We are talking about big capital projects, construction and this kind of stuff, land costs…
Council Member Wolbach: So this is definitely a tricky question. We want to do it as soon as possible and we want to make sure that when we do it, that the background has been done so
we can have a productive conversation. I wish I had a good answer about this.
Council Member Holman: So the question that is raised, as Chair Filseth mentioned, is like, “Where do we put it on the agenda?” Council Member Schmid is correct, it influences financial
decisions going forward in a timely manner. The other thing is too, if it’s the item that I understood in going to go on the Council’s Consent Calendar or on the Agenda, that could then
be referred to Finance, I’m not sure that’s going to be encompassing enough, that item is going to be encompassing enough to address the questions that were raised here tonight and which,
I think, would be of great interest to this Committee, the Council and the community.
Council Member Wolbach: So let’s remember that when it is time to refer it back to this Committee, because we might have to be explicit about what scope we want to assign.
Council Member Schmid: The value of this is they did not deal with the Downtown Parking Assessment District, and so that’s the issue we can get into in Finance.
Ms. Mason: So, perhaps that is a good night to have the discussion on the 14th, when this item comes, but there are so many aspects to parking and costing parking and the impacts of
development on parking, that perhaps that is a larger discussion the Council can talk about, how they want to approach that, because there are so many bubbles in the air that impact
the discussion.
Council Member Wolbach: I would just going to say that I would suggest that we try to keep that discussion on this topic procedural on that night, rather than getting into the substance.
Council Member Holman: Although we have to define the scope.
Chair Filseth: Yeah, defining the scope is going to be important.
Council Member Holman: Can I suggest that, for what it’s worth, it would be probably more likely to have the outcome that I think this group is looking for at least, for it to be an
Action Item as opposed to Consent, because typically, not always, but typically Consent Calendar items when they are pulled, they are then rescheduled for a future Council meeting, not
always, but oftentimes.
Chair Filseth: What you would like to have is the whole thing go to Finance first. I mean this is what the Committee’s job is to do, for us to dig into big, thorny, complicated issues,
right, rather than brainstorming it at the whole Council.
Council Member Schmid: You needs to Council to…
Chair Filseth: You want the Council to send it here. What you don’t want to do, what is probably not a productive use of time is, like you said, it is so big and so many moving parts
to it, because the Council could spend four hours on the (inaudible) with all nine of us brainstorming about it and not get anywhere.
Council Member Holman: That wasn’t what I was suggesting. I was suggesting that if it on the Council Agenda rather than us going there, then the Council could that night discuss the
scope to send to Finance. That’s all I was intending. Not for the whole Council to discuss the item that night.
Council Member Schmid: I think it is in the power of the Committee to say, “Even if we voted to nothing to put it on an Action Item rather than a (inaudible).
Chair Filseth: I’d still like to see it…
Council Member Holman: But it’s not agendized for us tonight, though, so we can’t take a vote to put it on. So what we can do is recommend that the Staff, or ask the Staff to put it
as an Action Item on the Council, so we can...
Ms. Mason: I think you mentioned that to Harriet tonight.
Chair Filseth: Because if it goes on Consent, then we also don’t have a lot of time on Council, whereas (inaudible)
Council Member Holman: We are going to have a very narrow scope then…
Chair Filseth: It’s a place to start.
Ms. Mason: The only issue I would raise is that there is a procedural handling of audits and if there is unanimous support by Policy and Services, they have been going to Consent, but
then you as Council members can obviously pull the item, right, so that’s my only thing is that the regular – and I think Harriet heard you about wanting to have a discussion on it,
that you had raised.
Council Member Holman: Was it unanimous at the Policy and Services Committee (P&S)?
Ms. Mason: I believe it was, I’m not sure. Yeah, it went to them the same night we were meeting with you last time. But if it was, then it would be procedurally going on to Consent.
Council Member Holman: That’s true.
Council Member Schmid: So if I changed my vote?
(crosstalk)
Council Member Holman: No because it’s a different motion.
Mr. Perez: I think it’s what you want to do with, is that…
Chair Filseth: Well whichever way it goes to Council, we will deal with it then.
Council Member Wolbach: Okay, so are we wrapped up on that one?
Chair Filseth: Can we adjourn. Thank you very much.
ADJOURNMENT: The meeting was adjourned at 9:03 P.M.
TRANSCRIPT
Page 2 of 67
Finance Committee Transcript
March 1, 2016
FINANCE COMMITTEE
TRANSCRIPT
Page 1 of 67