HomeMy WebLinkAbout2016-06-07 Finance Committee Summary MinutesSpecial Meeting
Tuesday, June 7, 2016
Chairperson Filseth called the meeting to order at 6:03 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Filseth (Chair), Holman, Schmid, Wolbach
Absent:
Oral Communications
Chair Filseth: Thank you very much. First order is Oral Communications, if there are any members of the public who would like to speak on a topic not on the agenda? No members of the
public, so let’s proceed.
Action Items
Fiscal Year 2017 Proposed Operating and Capital Budget Follow-up.
James Keene, City Manager: Are we ready to go?
Chair Filseth: We’re ready to go.
Mr. Keene: Can I lead off, Mr. Chairman? So, long time no see.
Chair Filseth: Not since this morning.
Council Member Holman: We missed you at lunch.
Mr. Keene: We have this item tonight. Some of us may attend the community meeting tomorrow at Cubberley on the airplane noise issue with our consultants, so we have at least three nights
going and in the spirit of budgeting, I thought maybe we could budget our time very efficiently here today. If you would let me lead off here, you’ve got two items. The first is really
follow up from your action at wrap up as the Finance Committee. I just wanted to touch on… I think I can summarize sort of where we’ve been and where we are really pretty simply. I wanted
to talk about the Finance Wrap Up; secondly, the fact that in the interim between this meeting and the Wrap Up we had to transmit the actual budget document and everything to the City
Council in order to be available to the public for the public hearing that we’ll have on June 13th, and then we’re back at Finance tonight to follow up on some of the three really kind
of outstanding items that you left us with after you essentially adopted the proposed budget and you also adopted some changes to that budget. Maybe you even put that up there right
now, just so we’re clear. You wanted to reduce the tree trimming cycle from 15 years to 10 years and that added $170,000. You added funding to ensure that we could support the two new
Residential Preferential Parking Program (RPP) residential parking programs. You added $500,000 contingency fund, which is one of the topics that you directed we be prepared to come
back to speak to you tonight. And you asked me to come back and talk to you about two potential Full Time Equivalent (FTE) reductions in the general fund and to look at, in addition
to the initial sort of $2 million in capital project reductions that you proposed, actually asked us to come back to also look at options that could potentially completely eliminate
any of the draw on the budget stabilization reserve that was over $5.5 million by the time we got done to this, separate from your $2 million reduction. So today we’re going to ID the
uses for the $500,000 contingency that you directed that you wanted to see Planning put together ala, I think you’re reference was the Sustainability and Climate Action Plan (S/CAP),
the Office of Sustainability budget contingency. We’ll present some options on the capital budget to reduce the Budget Stabilization Reserve (BSR) draw completely, and that really was
as much as a total of $5.5 million and to talk about these two FTE’s. Now a little bit of the tricky part was that I had to transmit the budget to the Council, so I exercised some of
my executive authority and essentially incorporated into the City Manager’s proposed budget the additions that you all had made already, so the tree trimming contract and the RPP’s and
the Planning Contingency and this idea of a two FTE reduction. Kiley and Lalo can talk about that more. That happens to be sort of a plug-in number. That’s the average cost of two positions,
and that will come into play in a little bit. I attempted to anticipate most of your potential reductions, so essentially what we did was identify in the budget transmittal $4.3 million
in total. That would have incorporated that, if you recall, that $2 million in Capital Improvement Program (CIP) reductions you made with another essentially net $2.3 million reductions
and we will speak to those. So at the end, the budget that the public and the Council will have for the 13th still includes a $988,000 draw on the BSR, so we did not get all the way
there. That did leave us, though, at a 20.4 percent BSR percentage. Your policies are to be between 15 and 20 percent. Now, there is a little bit of conflict with what we have in the
budget transmittal and what we actually have in the Finance Committee report, and so I don’t want you to get hung up on all of this. Did you guys read this very carefully and closely,
the report? On Page 4 of the report the actual Page 4, Packet Page 6, there are, in the middle of the page some potential project reductions that were included in this report and they
total $4.927 million and you will see that I included in the budget transmittal to the Council, $4.3 million, actually $4.327 million. In the process of us working through some of these
ideas, and believe it or not, putting the budget transmittal letter out and getting it together, we cut the Ventura buildings improvements, removed that from the list, so I got to be
quite concerned about us cutting that project out with the potential of progress we could have with the school district on, you know, the longer-term lease and the need to potentially
be able to plan and make for some investments. So that is not in the recommendation. In other words, the Ventura building improvements still remain in the capital budget for 2017. So,
here’s where we are. All the changes that you asked are incorporated in the budget. We have recommendations on these project deferrals for a year. You know, we’re not eliminating them,
the Ramos Park improvements, the Municipal Service Center (MSC) improvements in this amount, and Rinconada Park improvements. Rob and Daren are here today if you had questions about
those and Hillary is here if we need to talk more about the Transportation contingency, and I can talk in a little more detail about the two positon reductions we have. That said, I
can tell you this, essentially something needs to jiggle. There really is no action you need to take tonight, other than you essentially accepting the $500,000, you know, I mean our
explanations around the use of the $500,000 and, you know, talking about the two position reductions we have, and if you accept the target of the BSR draw that I have proposed. There
is one action you could specifically take, which would be if you want to eliminate that additional $998,000 draw on the BSR that we were not able to identify a suitable capital project
for, you could do that. And so the question is, how could you fund that? We have been, the Staff has been in the process of reviewing our revenue estimates and I think we feel confident,
but we can’t be exact today, we feel confident that we would be making approximately a $2 million increase to the general fund revenue estimates for 2017, mostly in Transient Occupancy
Tax (TOT) and a little bit in document transfer and some of those other categories. So if you left it the way it is right now, the budget that went to the Council when the Staff updates
the Council with information we’re going to send out this Thursday in advance after your meeting, the Council actually would have in a sense a surplus of $2 million available for fiscal
year 2017. Obviously things that are more acceptable to spend on one-time issue than ongoing, and on the other hand, if you wanted to close out that BSR draw completely, you could say,
“Well, let’s just direct Staff to bring a reduction of that BSR draw completely, and when we do that we’d be presenting to the Council that we roughly have about $1 million or so in
additional revenue for FY2017, if that makes sense. So I think it’s all pretty good. We’re here to talk about, again the three things you specifically wanted us to do, the Transportation
contingency, the two FTE’s and how to eliminate the draw on the BSR. And I’m done.
Council Member Schmid: A quick question, I thought that we had approved two budgets, a scenario A and a scenario B, and you have talked only about scenario B. What happened to scenario
A?
Mr. Keene: When you say, what is scenario A in your mind?
Council Member Schmid: It reaches the budget stabilization to $18.5 million.
Lalo Perez, Chief Financial Officer: We did a blend of scenario A and B and gave you a C that gets to the $4.3 million. So you had $2 million in the first scenario and then $3.5 million
added to that in scenario B for the $5.5 million, so what we’re saying to you is, we’re comfortable with giving you $4.3 million, and in addition we just received information last week
from the County, we can update our tax revenue where we could close to your goal of not impacting the budget stabilization reserve with revenues of $4.3 million of the CIP budgets that
are listed on Page 4, plus the additional $2 million. It’s a little bit more than $2 million, but we’re calling it $2 million for now of revenue, so it’s a little bit of a hybrid of
the two.
Mr. Keene: So now we go back into…
Chair Filseth: Your question’s right. There’s basically three, there’s A and B here which sort of we talked about at the last meeting, and then you guys had to send something to the
whole Council in advance of this so you sent a C, a hybrid is what you said? Did I get that right?
Mr. Keene: But I, unless I’m missing something with the recommendation to close out that $998,000 with the increased revenue. I think that is B. What you don’t have is A. You always
had it, you guys can default to A. It’s very clear, it’s right there.
Chair Filseth: Okay, can I ask a question? Let’s get questions and comments, right, although I think it’s mostly going to be questions. So, with that said, let me go to the Committee
first. Cory.
Council Member Wolbach: So I guess I’m still a little bit confused about why we’re aiming for zero draw down on the budget stabilization reserve. We’re looking at a 20 or over 20 percent
on that, when Council policy is 15 to 20 with a target of 18.5, right in the middle, or a little bit high of middle. So maybe it’s for Staff, maybe it’s for my colleagues, I still don’t
understand why we were targeting something different than Council policy.
Mr. Keene: I think, Mr. Chairman, it’s as much for the Committee, I mean, I’ve heard from some other Council Members not on the Committee who have had some concerns about drawing down
the BSR. I think the larger question you still just need to be keeping in mind, and I think it did form your review of the budget, is, we recognize that fiscal year ’18, next year, is
actually going to be the year that we really have got to pay some attention to, again, sort of a long-term budget balancing strategy, and I would just recall to the Committee, we’d agreed
actually to be able to come back in the third quarter of this calendar year to Finance, so that this Finance Committee could be involved early on in the conversations about how we start
to plan for ’18. So one could make the argument that more money left in the BSR as you go into ’18 is more flexibility for next year.
Chair Filseth: You know, I think, if I could add on to that, I think that’s correct. You know, in context we’re coming off a record revenue year and, you know, if we can’t balance the
budget in a record revenue year, what are we going to do when we’re not having record revenue years and good times? So I think that a lot of the expenses this year are structural and
I think, you know, it’s prep for the future. As you said, and I understand we have this money in the BSR, we could spend it on stuff.
Council Member Wolbach: So I guess, that then raises the question of whether we want to revisit the… You know, I’ll just leave it open for future discussion, but raises the question,
obviously, of whether we want to revisit Council policy if we feel that the Council policy is in error and should not be kept as the target, especially in a good revenue year. Then maybe
we need to revisit the policy. A couple of other questions. The last item on Page 5 of the Staff report, the 2.0 FTE position eliminations, I’m still not thrilled with that so I guess
I would like, I see that is still identified as something that will be forthcoming at a later day, but, I mean, are you going to throw names in a hat and randomly… You know, is it lay-off
Russian roulette. I mean, how are we going to… I know that we want to trim the structural costs that accompany having people on staff, but on the other hand, we also just had a study
session on Council a week ago, we were talking about how tight staff is and how many projects staff has that we’ve given them, and, you know, I would just like a little more reassurance
from Staff that this is something that can be accommodated within the City organization.
Mr. Keene: Well, if I might, Mister Chairman, a couple of questions. The first thing is, we didn’t do the throw it in the hat. We asked for volunteers and Molly and I were the first
to volunteer.
Chair Filseth: I’m number three. We’re not going to save much there.
Mr. Keene: So two comments. One is, you know, we went back and we took a look at this, I have actually talked to the affected department director and you know, if we proceed with this
my recommendation is we would eliminate two sworn positions in the Fire Department. Can’t identify those yet, because we go through our process with meet and confer with the union and
that sort of thing, but we could budget and actually if that was the case, those two positions are a little bit pricier than the dollar figure we have up there, so we would make that
budget adjustment and we would proceed and we could make that work. Now, that being said…
Chair Filseth: That’s not two people. That’s two replacements as two retire?
Mr. Keene: Well, that could be two positions. We have vacancies so we could eliminate that, but it ultimately would affect how we program and what we do, but we can do that, we can do
that. That makes sense, since you gave me this opening, I would say, this really isn’t the way to run the airline. I mean, we need to have a strategic conversation about where we really
want to go. Is the number two, is it 10, is it 50? I mean, seriously, and how we start to plan for that, so I wouldn’t want to get in the habit of every year the Committee saying, “Give
me two more,” or whatever. I would really much rather say, “The Council set the policy target of what you want to do,” and then we really have some time to figure out what it takes.
But if you stay the course with this, we can make this work.
Council Member Wolbach: And also looking at… So looking at the… I won’t make a long comment because I know you want to hear mostly questions right now, but I’ll just say that I like
what you’ve provided here on the Planning and Transportation contingency reserve. That is the kind of explanation I was looking for. And then on, so I’m going backwards, I guess, through
the Staff Report, you have removed the Ventura building improvements because that was the one that stood out to Staff as the most important, that should not be delayed, that would raise
complications and concerns if it were delayed. Did I understand that correctly, that of these various deferrals, that was the one you were least enthusiastic about deferring, correct?
Mr. Keene: Yes. Well I would just say this, that it is a project we could end up not spending that amount of money for, but there’s significant enough interest, there is a need, and
if we are able to make progress, I didn’t want to have the lack of the appropriation, not allow us to move. We felt that the other projects were all, all had better rationales for deferring
the start or whatever for a year.
Council Member Wolbach: Okay, and I don’t know if you or anyone on Staff present tonight can give me some reassurance that the deferral on the roof replacement by a year won’t be a strong
negative for the performance and the staff and everything that happens at the Municipal Services Center.
Mr. Perez: Right. We did have a conversation with Brad Eggleston, the Assistant Director of Public Works and he gave us that assurance that it would be okay, it would be fine to delay
another year. Beyond that we would have to revisit.
Council Member Wolbach: Okay. That’s it for my questions.
Council Member Schmid: Could I make a follow up on the Ventura. You had made a statement about school lease agreement? What did you mean by that? That the City had taken control of Ventura,
it’s City property now?
Mr. Keene: Go ahead.
Mr. Perez: Thank you. The City has it, you’re correct. But there is a provision in the purchase agreement that by one-year notice the school district could buy it back, and there is
a formula on how to calculate the value. I think it’s half and half. Half of it is based on market value, the other half is not, it’s based on the preset amount, so what we’re looking
for from the school district, and we have been in conversations with the staff at the school and they are trying to agendize it with the board, is to get that extension from one year
to ten years, and that’s at the request of Palo Alto Community Child Care (PACCC) because PACCC would like to invest in the facility with the City and if they know that it’s in a longer-term
lease, then it’s worth them putting in some significant dollars. They are talking about maybe redoing the kitchen, for example.
Council Member Schmid: So we are negotiating with the school district that their buy-back provision would be a ten-year lease?
Mr. Keene: Right, would be a longer term. So lease is inaccurate, but the idea that…
Mr. Perez: And that’s why we were kind of toying with maybe holding off on the $600,000 because maybe we could put it in a bigger comprehensive fund, but it hasn’t moved fast enough
with the school district and we didn’t want to wait any more and we think we needed to move.
Mr. Keene: And we didn’t want to say no, that we were not interested in being able to improve the project properly.
Chair Filseth: Council Member Holman.
Council Member Holman: Yeah, thank you for this. (inaudible) So a few things. In the, I guess this wouldn’t be this year though, the position reductions, I agree with you about having
a strategic plan. Let’s just suppose that Pets-In-Need takes over the animal shelter. We’ll save some positions there, won’t we, some City positions?
Mr. Keene: What do you mean save? We would no longer have City positions?
Council Member Holman: Yeah, some of those positions would be replaced with Pets-In-Need.
Mr. Keene: One of the options, yeah, with Pets-In-Need, and I think there was a ballpark six FTE’s associated with it in one way or another, six positions.
Council Member Holman: Would that take place this year or next year? The 2017 budget I would presume.
Mr. Keene: Well, the plan is for… We’re in the process of assessing the Request for Proposal (RFP) and then some negotiations with Pets-In-Need. I mean, the plan would be to make the
decision about going ahead with them or not, this year, and hopefully, sometime in the next three months.
Council Member Holman: Okay. Any idea what that might equate to in terms of FTE savings?
Mr. Keene: No, because I think we had some discussions about whether or not any of those positions are absorbed by them or not, or is it completely other folks. But again, most of our
costs, right Lalo, I think I can say out there is in the staffing. Obviously the facility isn’t worth much putting much effort into keeping it up that much, so it’s pretty much people
and that sort of thing.
Council Member Holman: Well, if we look to the future there will be a better facility too.
Chair Filseth: It’s not in the budget though.
Council Member Holman: No, not yet. So I have some concern about, and Eric’s not here, but I have some concern about two positions out of the same department, and does this at all reflect
maybe, well it wouldn’t be sworn and non-sworn, because there’s still positions. So, can you help me or us understand why two positions out of the same department? There are vacancies
in other departments too.
Mr. Keene: Well, yes, but I mean, we’re trying to think about, are there vacancies that… Well, we’re not looking at just cutting some positions just because they’re vacant right now.
We’re trying to look at some positions, one, where we obviously wouldn’t have to lay somebody off as a vacancy, but where we thought long-term we could actually accommodate that adjustment,
and you know, we think there is some value in disciplining ourselves a little bit in this area to, you know, help assist with how we sort of rethink service delivery.
Council Member Holman: Okay, and I again agree with you, that just because a position is open, it’s like, in a prior downturn you know, we were not filling positions so we were saving
on FTE’s just by attrition and I don’t think that’s a good way to manage, so I agree with you along those lines. The, obviously, we haven’t seen the packet yet that’s going to Council,
but there were some things that we talked about. Is it the Committee that I’m supposing will be referenced in that Staff report that’s going to Council? There was like a 3-1 vote to,
we referred to this as the sustainability contingency saving $125,000 there. There was some talk of, I checked my notes and my memory and I don’t have clear absolute memory on this.
We talked about increasing the Human Services Resource Allocation Process (HSRAP) funding and remembering what Rob said about not a good way to spend that this year, but I thought we
talked about, maybe Cory remembers, I thought we talked about putting another $50,000 or something in that to add, supplement the emergency fund, and then with the goal of reaching the
numbers we put forth last time. I thought we talked about that.
Mr. Perez: Yeah, actually the report’s out. It’s Report 6932 and it was put out last Thursday. All of what you mentioned is in there.
Mr. Keene: This is the City Manager Report (CMR) for the transmittal of the budget document itself, so that’s all in that report.
Mr. Perez: So you made it as part of two Motions that you had, and so we included those Motions in there. Basically what you conveyed to us through your Motion is that these were items
where you did not have unanimous decisions, but you wanted the Council to be aware that you discussed them, so we outlined them, the Motion, as you stated it.
Council Member Holman: And there are other things, but I just…
Mr. Perez: Yes, there are others, correct.
Council Member Holman: I just want to make sure one of them is on there, though. So that’s in the Packet that we received but I haven’t gotten to yet, last night’s Agenda. Is that correct?
Mr. Perez: Yes, but if you don’t have it, let us know.
Chair Filseth: This morning’s Agenda.
Council Member Holman: This morning’s Agenda, yes, true. Okay. One of the things I would like to make sure of, there was like, I think I was the only one, perhaps, but with tree trimming,
appreciate that the Committee agreed to go from 15 to 10 years. I was actually interested in that. I’m not clear about why the number differential is so great, but just retaining our
7-year cycle, and I, if there’s any other information that could be provided because it didn’t seem rational to me that going from a 15 year to a 10 year, which is a 5-year increment
was $170,000, but then going from 10 to 7, which is a 3-year increment was a bigger number than 15 to 10.
Mr. Keene: Yeah, we had a discussion about, and I don’t know how much of that you incorporated into the document itself, but the Staff has been requested to be able to be ready to more
easily explain that at the meeting, if that comes up.
Council Member Holman: Okay, yeah, it will come up. Okay, thank you for that. So I guess I don’t… You’ve got everything we talked about at the Committee before. You’ve got those all
noticed, like the wayfinding, I call it wayfinding. It was called something else.
Mr. Perez: We also included all the minutes, so this baby won’t miss it (crosstalk) The only minutes that were not there are the 23rd, the wrap-up, but those will be there Thursday in
the Thursday pack.
Council Member Holman: Okay, good.
Mr. Keene: Karen, Mister Chair, could I interject just for a second, if this is appropriate at all. I don’t know if there is a way to triage how we’re doing this. I’m just wondering
if any of the issues or questions related to the RPP or the Planning contingency fund, for example, could be dealt with first, that way I could let… I mean, usually the Planning Director
doesn’t get to go to night meetings very often, but I thought that… You know, I thought you could dismiss some of these folks sooner than later.
Council Member Holman: Thank you for that, because I’m usually sensitive to that (inaudible). So I appreciate that.
Chair Filseth: Does anybody have anything about the RPP?
Council Member Holman: I do.
Chair Filseth: Okay, why don’t you go ahead, because I don’t have anything about RPP’s…
Council Member Holman: I do about the Planning contingency, and thank you Jim. So what would there a night without Hillary and a night without Jim. So the contingency $500,000. Thank
you for this description. If you could help me understand, maybe what the dollar range is, the percentages are among these, because there has to be some kind of notion because… Here’s
where I’m going to. It’s like, so and I point to the citizen’s survey and I point to the Council struggling and the Architectural Review Board (ARB) struggling with projects that come
forward, and so, and over time Staff member comments about not having the architectural expertise on staff to be able to make some decisions or recommendations that might be needed to
quick or better results. So, I guess, just looking at these I can see how the third item could gobble up 70 percent of the $500,000 and so I guess I’d like some assurance or some kind
of description of what the dollars or percentages of $500,000 would be allocated or earmarked of the $500,000 for each of these three areas. Thank you.
Hillary Gitelman, Director of Planning and Community Environment: Thank you Council Member Holman. Hillary Gitelman, Planning Director. A good question. I think we were loathed to put
specific dollar amounts here just because we haven’t done enough work scoping out these projects to be able to estimate their costs effectively at this point. We did think that the urban
design support and the Middlefield Road item are two things that we know we want to fund with this allocation, and the third category is kind of clean up. We don’t know what those unanticipated
or (inaudible) related costs might be at this point, so we would… I mean, you have our commitment. I mean, this is our intention to use the funds for the first two and then to the extent
there are remaining funds, we would put it towards other Transportation and Planning issues like those in the third bullet.
Council Member Holman: Okay, and just to, this is me talking here, the urban design support, you’ve mentioned both an urban design professional and architect and you have an “or” between
them. I just want to, hopefully, we have a clear understanding that the architectural expertise or acumen, whether it’s specifically an architect or now, that they have that acumen in
their portfolio.
Ms. Gitelman: Absolutely, and specifically for this project, we’ll be looking for someone with some design expertise, whether they are an architect or an urban designer related to residential
scale projects, because we want them to help us on the ICOR guidelines in addition to advising staff, so we’re going to be looking for that particular area of expertise and I’m anticipating
there will be another, you know, the contract will be focused on that work, and then there will be additional optional tasks where they could support us with other activities in the
department.
Council Member Holman: Like ongoing planning items?
Ms. Gitelman: Pardon me.
Council Member Holman: Ongoing, like ARB planning items?
Ms. Gitelman: Yeah, they would be available to support staff on other ongoing work efforts.
Council Member Holman: Okay. Those were my questions on this topic, on this $500,000.
Chair Filseth: The $500,000. Have you got anything else that Director Gitelman’s staff can relate to?
Council Member Holman: No.
Chair Filseth: I want to ask something about Rinconada Park improvements and I want to ask something about the revenue estimate.
Council Member Holman: Thank you Hillary.
Chair Filseth: Thank you very much for coming folks. You can go back to work now or whatever Lalo… So thank you for doing this. This is sort of what we wanted. We wanted to see, okay,
if we wanted this, what would we be giving up. In the $3.3 million Rinconada Park enhancements, what are we giving up?
Rob De Geus, Director of Community Services: Good evening Council Members. Rob De Geus, Director of Community Services. Really, we wouldn’t be giving up anything because we’re not ready
to start the work next year. There is so much going on with the Junior Museum and Zoo. We have a long-range plan for Rinconada Park, which has yet to come to Council. We have done a
lot of work on it, but it has yet to come to Council for approval. So in reality, it’s not really shovel-ready for us to start in’17.
Chair Filseth: Okay, if I hear what you said, we probably weren’t going to spend the $3.3 million this year anyway.
Mr. De Geus: That’s correct.
Chair Filseth: Boy, that’s the easiest kind of… I did have one question, there was a, and maybe you’ve answered it, right. There was a bunch of discussion about, geez, you know, there’s
$8 million allocated in the vehicle pool, you know. Suppose one of it went to 2018 instead. I actually like the process where we asked you guys to make the best fit as opposed to us
trying to micromanage it. Do you have any comments on that? I think it’s more appropriate.
Mr. Perez: That one’s a little more challenging because it’s so diversified in the funding sources, because it’s, in my mind there’s 13 major funds, and so just about all 13 of them
contribute some sort or another, so the bigger items are going to tend to be, you know, your fire engines, the ladder trucks, the stuff you’re looking at, and so you start getting to
sedans, and what we’re hearing from the staff is, “We’ve been pushing it off as a result of prior Council direction to hold off procurement or replacement until we had the audit items
done.” So we have a backlog of items, but those monies are, in a way, being deferred anyway, but we shouldn’t send them back to the general fund, for example, because they’re really
needed and there may not be enough.
Chair Filseth: Well, some of it was reallocated, but not all of it.
Mr. Perez: Yes, that’s just because there was the backlog. You know, I think if we were in a normal time, there would be a much smaller reallocation number than what you saw.
Chair Filseth: The other thing I wanted to ask was, you said, well the $900,000 gap, we’ll revise our estimate of how much revenue we can bring in this year. So, is there a specific
reason for that, as opposed to sort of, well, you know, it’s a bell curve anyway, right, and we’ll just (crosstalk) It’s sort of how we got into this pension mess 15 years ago.
Mr. Perez: That’s a good question and fair. I don’t take offense to it. Actually, what happened is the County revised their numbers. It’s, so wait, we’re going to come back to you and
give you the majority of the change that’s going to be property tax. And as you may have heard, the school district had an 11 percent, a surmountable increase.
Chair Filseth: Right, I did hear that.
Mr. Perez: So we were more an 8 percent when the County gave us the number for ’17, so now they’re going back and looking at ’16 and they’re saying, “Oh, gee, it’s growing even faster
than we thought in ’16, and here are the reasons.” So that’s what we’re working through and that’s why we’re not ready to get into the details with you tonight, because we got the information
late last week, you had the first meeting yesterday afternoon, and, you know, I had also some questions, as I’m sure you’re going to ask me the questions, so you’ll see that and we’ll
give you the details and we’ll be ready to discuss it on Monday.
Chair Filseth: So once again, we get some luck.
Mr. Perez: You know, and I think there’s good and bad with that. The good is that it generates additional revenue. The bad is that it seems like it is going to get even more or less
affordable for some folks as these values appreciate.
Chair Filseth: Of course, of course. And they may or may not be sustainable. Question?
Council Member Schmid: Well, I’d like to go beyond the questions.
Chair Filseth: Let me see, do I have any other questions? I don’t think I have any other questions. Cory do you have questions?
Council Member Wolbach: Yeah, actually, if I may, I just had a couple others. One, picking up, yeah, just questions for me. Picking up on this discussion you were just having, is it
typical to get this kind of an update at this point in the year from the County? I’m thinking about the analogy to the State process where the budget proposal comes out early in the
year, then you have the May revise based on updated estimates, and then there’s another month following that for discussion. It’s difficult for us to, you know, if we’re looking at a
better year, maybe some of these deferrals we do this year, instead of deferring them, I’m thinking about how it changes our calculations, and it’s tough to do in our last week, when
we already submitted our budget to the full Council and everything.
Mr. Perez: Right. You know, it’s not unusual to have changes. Sometimes we don’t report the changes right away, because we’re at a point where it will just come back to you, either at
the year-end or at the mid-year and make the adjustment. It just happened that, you know, it was the timing, the situation, we could have just gone forward with the $4.3 million number
and left it alone at that, but given that we had this information, we felt it was important for us to bring it to you. You know, the numbers, when we did this were pretty much in April
and because you have to publish the document, so you go with what you have at that point, and our experience has been different now that we have gotten to the beginning of June, so some
of our other revenues have shifted, but they’re not big enough of a shirt for us to get into all those details.
Council Member Wolbach: I guess I’m wondering then if we as a Committee, or perhaps at full Council, when it gets to full Council this coming Monday, if we would want to identify, you
know, what our least favorite trim was. The thing we felt most heartburn about cutting this year or deferring this year, to say, you know, if the revenues increase, that would be where
we would want you to look first to reinvest. That’s just an idea. I’m not making it as a Motion, just a question for us all to think about. Then my other question right now, while Rob
is here, so I eventually noticed, you gave out park improvements and something I should have brought up earlier in this whole discussion. We don’t need to again have a protracted discussion,
but I am concerned about the safety on Los Trancos Trail in Foothills Park and I just wanted, again, looking for reassurance, looking for reassurance that the budget we have provided
does adequately address the funding need to improve the safety where we’ve had bridges out for a couple of years now, and I want to make sure that gets worked on before someone gets
hurt, frankly.
Daren Anderson, Division Manager of Open Space, Parks and Golf: Good evening. Daren Anderson with Open Space, Parks and Golf. Great question about the Los Trancos Trail, the washouts.
This is the backside of the long trail within Foothills Park that’s got structural problems that can’t be remedied through our normal maintenance operations. So staff’s kind of diagnosed
this problem and tried the, kind of ad hoc staff fixes that were not effective, and so we’ve added enough money, we got a price quote from a reputable trail contractor and added this
to the ongoing trail budget so we can get it repaired this coming year.
Council Member Wolbach: That’s great to hear. Thank you for confirming that.
Mr. Keene: Actually the Staff can’t get it fixed, so we’re turning to the City Council, so you guys will actually be going out there this year to actually fix the trail, but we did get
you the money for it.
Chair Filseth: I’m getting tired of this confrontation (crosstalk).
Council Member Wolbach: I run that trail often, so…
Council Member Holman: Can I say at this point, I’m a little sensitive to holes in the ground (crosstalk) so I support the fixes made there.
Mr. Keene: So anything else for our Parks and Rec guys?
Chair Filseth: That was my question too. So can we let Parks and Rec guys go? Are you going to comment and should they stay around for that?
Council Member Schmid: They don’t have to.
Chair Filseth: Thanks guys. What’s now? Oh yeah, so we’ve had Council questions, so before we go to comments, we should see if there are any members of the public that want to speak
to this item. Any members of the public want to speak to this item? As we have no cards, we’ll proceed.
Council Member Holman: Did you want to say something?
Female: I didn’t know which of the items. The last one you spoke about?
Chair Filseth: We’re talking about the budget reconciliation. We have not gotten to the next item on the agenda is Muni Codes changes on purchasing process. So if you want to talk about.
Female: I’m listening so far.
Chair Filseth: Okay. Council Member Schmid.
Council Member Schmid: Yeah, I just want to make a case, the goal of our meeting tonight is to talk about the 2017 budget and our preferred, the Finance Committee’s preferred alternative
to it. I am a strong advocate of scenario A, which attempts to get the budget to our, around our $18.15 million traditional goal in surplus. Just a little context to that. It’s a long-standing
policy that anything over $18.5 million is available for infrastructure. The postponing of infrastructure while we have money does not make sense because it merely says, next year we’re
going to have twice the level of infrastructure payments. There’s no other reason to keep money in, above that $18.5 million and I’d say we voted for infrastructure unless Staff makes
the decision whether they want to use it now or not. I think the other side of scenario A that’s important is the two Staff members, is it a good year a good year that is likely to be
even better. We should keep in mind the longer term goals of the City and one of those is to have a Staff that is sustainable and with our escalation taking place in our long-term liabilities,
it’s important to recognize that over the last three years we have added 24 people, 24 new staff people, which is going to increase those long-term liabilities substantially, so it is
important, even in a good year that we keep our eye on those numbers. So I’m a strong advocate of scenario A as a framework for achieving a long-term, sustainable budget.
Mr. Keene: If I just might clarify, I think on the position reduction, that exists in every one of the scenarios, A, B or, as we call it, C. Secondly, I would say that what the Finance,
well, what we recommended, and then what the Finance Committee has recommended, we had 3.23 general fund FTE’s. The funds that are most susceptible to the ups and downs of our fiscal
situation. With your two reductions, you’ve reduced that to 1.23 positions. We’ve added one position this year, in a year of what nobody would say is reduce demand as a community. As
a matter of fact, the demand is way…
Council Member Schmid: There are four people in other…
Mr. Keene: In other funds, that is correct. The ability to (crosstalk) other funds are more within your discretion.
Council Member Schmid: Well, the same people pay for them, as well as the long-term liabilities.
Mr. Perez: To your point, can we give you a potential scenario, what it would look like to achieve your thoughts.
Council Member Schmid: Well, I think my thoughts with the two positions are in all the scenarios, so that was not different. The key difference is, I do not think we ought to defer,
you know, long-term investment in our infrastructure in order to have a 20 percent BSR. That doesn’t make any sense.
Mr. Perez: I think part of our response is that Staff capacity, when we went back and looked at it.
Council Member Schmid: Yeah, that’s Staff’s desire, but I think the Council should take the position that we do want to invest in our infrastructure and keep our (crosstalk)
Mr. Keene: So I think you can adopt our recommendation and make that statement in there, not in conflict at all. And I would just add to it. Secondly, I think we have existing Council
policy, am I correct, that if we are, anything we have over 18.5 in any given year, the City Manager does have authority to transfer that difference to the infrastructure reserve, and,
in fact, I have been doing that every year (crosstalk) which has been part of that. So I think you could even assume that even without direction, I mean, if things were looking okay,
we would move it. It’s less risky even, is the fact that we don’t have some plans to be able to spend it. So whether it’s in IR infrastructure reserve or the budget stabilization reserve,
it’s all in the same, I mean, different pockets in the same pair of pants.
Council Member Schmid: But from a Council perspective, it is a good policy to be saying, “We want to maintain our infrastructure, our parks, our roads and so on,” and this is a way of
making sure the budget does that.
Chair Filseth: I have two thoughts on that, that I throw out just for, you know, group, sort of all of us trying to get our brain around, right. One is that, and this could be just,
I just need to think through this, which is, somehow the idea that we’re spending more money than we take in, so the budget isn’t balanced, and yet, and we’re burning down the reserve,
and yet we still have “more money than we need in the reserve”. I need to sort of think through how all that works together. At the first order it seems somewhat incongruous, but I believe
it can exist, right. The second one is, if we’re talking about sort of what to do, and this is a more general principal and it goes back to Cory’s point, which I think is a good one,
right, which is maybe we should take a look at where our policy is relative to this, but it seems to me that one of the things that should be on the table, in addition to taking a few
extra dollars and putting them in infrastructure, right, is a Section 115. Which is, also, it’s a third pocket in the same pair of pants that you’re talking about, but I wonder, since
it’s all, since the actual money is sitting around in assets somewhere, right, I mean, some of those vehicles earn a better return than others, right. If it sits in general treasury
and makes 2 percent, whereas if it sits in a Section 115, maybe makes five or six or something like that, whereas if it’s in infrastructure, then you have to sort of figure out exactly
what the equivalent would be. So I guess what I’m saying is I think a Section 115 ought to be one of the vehicles we consider to park excess stuff.
Mr. Keene: You could depart from whatever. You could lead the recommendation as I presented it in the transmittal letter and when that $2 million in additional revenue is up, you could
reconsider moving that to a 115 and the difference there is that money isn’t fungible. I mean, it’s locked up in that fund, but on the other hand, you’ve already made it very clear that
you have an unfunded liability that is not going to disappear on its own.
Council Member Schmid: I guess I want to make sure though, that the City Manager when he introduced the budget said, “We’ve got to really start worrying about 2018 now.” And, you know,
I want to make sure the decisions we make now are the best ones to set up that 2018 will not break the bank no matter what the revenues are.
Mr. Perez: I think that’s why, one of the reasons we felt that, you know, we, Staff felt the recommendation was okay, because we know we need to do the infrastructure and the money is
basically being set aside. It’s not being designated for something else. Once we start designating it for something else, that’s when we get in trouble. If we send it to the 115 trust,
you still have flexibility, because, let’s say we have a real difficult plan in front of you and you don’t like it. And let’s, I’m making up numbers here, that the general funds share
of the pension is $20 million…
Chair Filseth: You could take some out of the 115 and then…
Mr. Perez: And 19 out of here and one from out here there and you’re still good.
Chair Filseth: And the marbles are (crosstalk).
Mr. Perez: Right, and then, you know, you could still, we talked a little bit about this, how Suzanne reminded me, we could send a little bit to the 115 and a little bit to capital.
You have ways to do it, and you would still keep your flexibility. So a couple of ways to get to your point, the $2 million revenue hits your target. A million roughly from the two projects,
Ramos and MSC gets a million and another million from the revenue, there’s a combination. So there’s different ways to do it to your point, if that’s what the Committee wanted to do.
Council Member Holman: I appreciate the conversation that has gone on so far and to Jim’s earlier point and I don’t think we’ll go on too long on this, but a couple of things. So our
reason to do the C, or B actually, is because it’s the responsible thing to do is to balance the budget. I mean, it’s just a practical matter. That said, there are some things that can
still float around at the full Council Meeting, and I didn’t bring the CIP book, but aren’t there a couple of things in there that we also talked about that we wanted to fund, that are
CIP projects, like the Bayland’s walkway, the boardwalk.
Chair Filseth: That’s in there, isn’t it?
Council Member Holman: I thought it wasn’t funded this next year. Am I wrong? I mean the Lucy Evan’s building itself. (crosstalk)
Mr. Perez: We have the funding. I’m not sure what year it’s in, but we do have it funded. Let us look.
Council Member Holman: So for me it’s like rather than going the MSC route, put any extra funds beyond it, B scenario, back into infrastructure. I think the public and my personal perspective
is that is better spent on those and I think we made comment about those before. The other reason to have a B scenario is to have that extra money to put off over into infrastructure
is, and I brought this up before, we have both the Post Office and Avenidas which is also infrastructure, and we don’t know yet and I know, Lalo, you’ve talked about bringing forward
funding scenarios, but wouldn’t it be nice to have the money available as opposed to having to look at other kinds of revenue sources and streams for all of the funding.
Mr. Keene: I think that’s a good point. I would also say that we’ll be to the Council before the end of the year, but you know, we’ve got challenges in the golf course funding. I think
we’ve identified those preliminarily, so we’ll even know that by the end of this month. We actually, I think, even in the Track Watch Program, even though we have funding in there, we
don’t necessarily want you to have full year funding, plus we’re exploring capital investments, you know, as far as technology and cameras out there to look at, sorting of moving in
a new direction. There will be, separate from the systemic challenge of what to do in fiscal year ’18, there will be additional costs that are going to need to be absorbed one way or
another, after you adopt the budget.
Council Member Holman: And that’s why those things, I think it’s good to be a scenario B, if we can achieve that, because we do have these other costs that are going to be coming up
during the year and, you get the point.
Chair Filseth: Okay, it’s 7:00 P.M. Do you have any more?
Council Member Wolbach: Yeah, so to move us along, you don’t need a Motion tonight?
Mr. Keene: That’s correct.
Council Member Wolbach: Correct.
Mr. Keene: I mean, let me just state right now, the budget that has been transmitted to the Council, I don’t want to… We’re only doing A, B, C’s here, so it can’t be that complicated.
I say it’s more like B with an adjustment is what we have. If you want to take it a little bit further and include the fact that, you know, hey, we want to go on the record saying you
don’t want to see any drawdown, and that new revenues take that, you can do that. I do think that what we’ve taken to the Council is essentially the Finance Committee’s review and adopted
budget, and there is nothing that precludes you guys also from saying everything you’re going to say next week as Council Members again at the whole. So it’s really up to you in many
ways. I look to the Chair also. Is there any particular additional message you want to send to the Council after today or not?
Council Member Wolbach: At this point, I’m inclined to say that we just wrap this up, given that it sounds like if we tried to add any additional comment to accompany the budget at this
point that might take us a couple of hours, just listening to different priorities and things here and it might be best to just, to let this ride at this point until next week.
Chair Filseth: That would be my judgement.
Mr. Keene: Okay, because we’re going to have to go through it again in a week anyway.
Chair Filseth: I mean, I think the issue with the, you know, the tax revenue thing, I mean, yeah, we could say, “Okay, we declare it balanced,” because of that, but you know, as much
as I would like to do that because I think it’s important to be precise and transparent in these matters, at this point we’re sort of in the, it’s sort of a confidence interval kind
of thing, right. I mean, you think, there’s a range of outcomes and we’re within the range of outcomes right now and there’s a certain likelihood, and we’re at the point where it sort
of doesn’t matter where you take it, we’re in the range, right? I would be satisfied with where we’re at.
Council Member Schmid: Okay, just a comment. I guess I don’t interpret a rising budget stabilization reserve as a balanced budget. It’s going from $18 million last year to $20 million
in the new budget, and I don’t… Well, let me just say I’m willing to go along with the recommendation that we don’t do anything as long as the understanding is that we retain the policy
that anything over $18.5 million is at the discretion of the City Manager if something comes up, to come in and then say here’s ways of…
Mr. Keene: That policy still exists.
Council Member Wolbach: We haven’t changed it, so we don’t need a Motion to not change it.
Mr. Perez: It’s a two-part increase, because we need to pull it right back out for ’18, so you’re going to go back to ’18 if nothing else changes, right. So it’s a temporary number.
You’re just kicking the can down the road for a year.
Council Member Holman: Yes and no, because some of the projects, I mean, you’re right to say that, I’m not questioning that. At the same time, there are projects every year that get
kicked down the road because something isn’t ready or Staff can’t… So it’s kind of a moving target anyway, so it’s not like we just saying, “Everything we’re not doing in ’17 is going
to get piled onto ’18.” It won’t necessarily happen that way.
Mr. Perez: That’s true.
Mr. Keene: Okay, are we good?
Council Member Holman: Yeah.
Mr. Keene: It was delightful spending some of the spring with you all in Finance.
Mr. Perez: I have to take a quick minute to really thank Kiley, Paul and Steve, the remaining members…(crosstalk) They did an outstanding job, you know, and many, many long hours, so
thank you Kiley.
Council Member Holman: Thank you very much.
Council Member Wolbach: You certainly don’t go unrecognized.
Kiely Nose, Budget Manager: Thank you.
Mr. Keene: Alright, see you guys. Suzanne, I’ll leave this in your hands.
NO ACTION TAKEN
2. Recommendation to Adopt an Ordinance Amending Chapter 2.30 [Contracts and Purchasing Procedures] of the Palo Alto Municipal Code to Establish Contracting and Purchasing Procedures
and to Define the Contracting Authority of City Officers and Employees.
Lalo Perez, Chief Financial Officer: We’re doing a little switch of Staff here, we’re bringing to you, so maybe while we’re switching I can key it up, if you’re okay with that?
Chair Filseth: So just from, you guys are going to have some remarks and then we’re going to see if there’s public comment and then there will be Council questions?
Mr. Perez: That would be great. I think the last time we updated the Municipal (Muni) Code, and maybe Albert has the data, I’m not sure, it has to be over ten years ago, maybe ten years
ago, so we don’t take these changes lightly and we don’t make them on a regular basis. We have here tonight John Montenero and Albert Yang from the City Attorney’s Office. John’s from
my shop. What we want to do is give you some recommendations on Muni Code changes that we believe will better the organization in efficiencies and improvements. You know, one of the
things we talked about in the prior item was that we’ve been adding some Staff and we have definitely been increasing our CIP and you saw that, not just in the general fund, but all
the other funds. Well I haven’t given John any more Staff to procure and these capital programs have very labor-intensive processes, but anything do deal with construction has a lot
of time and the administrative part of the organization, Molly’s shop, our shop, it gets very complex. You’re dealing with millions of dollars and various levels of risk that you’re
trying to protect the City from, you know, with the commodities. We’re one of the only cities to have so many different commodities. As I was telling you earlier… There’s Albert, thank
you Albert. And so with that let me turn it over to John and Albert to make some quick remarks on the presentation and then we’ll go ahead and open it for public comments, if any, and
then your questions.
Chair Filseth: Okay. Welcome guys. Thanks for coming.
John Montenero, Chief Procurement Officer: Thank you. So I’ll be quick, without having bodies to throw at challenges, we certainly looked within and turned to technology and innovative
thinking to try to make up the difference there. As such, it’s paid well. So the City has had some studies done to the first bullet point, a report came out. This was a study that benchmarked
the City against industry best practices and other agencies with similar procurement stature and the report made offerings and recommendations for areas of potential improvement to our
procurement and contract processes. Since then, we have successfully realized a number of recommendations that have been implemented, all while continuing to pursue even more off of
that report. That kind of segways into the other points here. As a result of that, SAP streamlining and our own (inaudible) system, so looked within how we could work smarter, work better.
Found opportunities to automate functions and eliminate some outdated processes. Purchasing has then, as a result, accelerated the purchasing, the processing of requisitions to purchase
orders in an effort to increase turnaround times and also improve some integrity of performance. Additionally, Purchasing is steadily improving on reporting out of the system, developing
richer reports so we can make better intelligent decisions as we move forward. We have competitively gone out to seek an eProcurement system. Since then that system has allowed us to
convert our, the City’s bidding and contracting processes from the paper process into a digital or paperless operation. In doing so, Purchasing has realized efficiencies, proficiencies,
expansiveness, cost savings and improved transparency in our procurement activity, training that’s come around also as well. Administrative Services Department’s (ASD’s) Purchasing Division
has been pursuing strategic training for the staff so we can find ways to work even smarter. Looking at cooperative purchasing, master agreements, anything that can consolidate and further
make efficiency of how we do business out there. We’ve also looked outward at our training towards City departments and added the dimension of doing more group focused training, and
also we’re in development of an on-line self-paste kind of procurement academy if you will, a knowledge center that will allow people to work on another dimension of learning. There
is also, what we’re quite proud of, is a paperless work flow in our office space. We initiated that by, again, competitively acquiring an electronic document management system. We’ve
taken all our files, imaged them and now no longer generate anymore paper documents. We work digitally through our office space on producing all the work that we do. As a result, that
has provided us 25 percent more office space by eliminating file cabinet systems, accelerated document retrieval by as much as 90 percent, cut office supply costs by over 50 percent,
considerably reduced errors in file management and allows for integrative electronic work flows between systems and our customers, other City departments. We’ve improved turnaround times
as a result. We’ve been knocking days off at a time here as we move further downstream with our initiatives for departments to better realize services from us. If I may add, our efforts
have gone unnoticed. Over the months I feel that phone calls from other agencies from as far as Stanford, Connecticut wanting a conference call with me on how we’re doing this, because
they want to get involved in moving in this direction, and they kind of see us as leaders in our little corner of the (crosstalk). Which brings us to Municipal Code changes. So today
we’re seeking changes to the Municipal Code that will further enhance Purchasing’s initiatives to address business needs in a smarter and more responsive manner of having even greater
turnaround times and more dynamic support to our customers. And that leads us into what changes that we’re seeking here. The first bullet point here is a desire to move from our department
limits of 5k to 10k. This is something that the report had benchmarked showing other agencies and where they are, some much higher. But this would certainly play into our efforts to
build on our P-CARD program, utilize cooperative purchasing as a means to save a lot of time for not having to solicit (inaudible). Increasing professional service contracts to $50k.
Chair Filseth: Can I ask a question?
Mr. Montenero: Yes.
Chair Filseth: How long has the limited been $5,000?
Mr. Perez: Since 2004. I just looked to refresh my mind on the report. It went from $3,000 to $5,000 is my recollection. It might have been $4,000 to $5,000, but it wasn’t a big movement
at all. And, you know, for an organization our size, it’s low.
Mr. Montenero: We know of other municipalities, some lager, some with equal procurement stature, (crosstalk)
Chair Filseth: $5,000 seems pretty low
Suzanne Mason, Assistant City Manager: Right. Inflation during that time has been over 20 percent, probably closer to 25 percent.
Chair Filseth: Well, yeah. If it’s 2 percent a year, then it’s still not doubled, but even so, $5,000 seems pretty low.
Mr. Montenero: A similar argument can be made with the professional services threshold. We’re looking to increase that from $25 to $50k. State and other cooperative purchasing agreements
is sort of the nouveaux approach for public agencies now to share resources and take advantage of leveraging spend, some of these being national efforts of sorts, and of course, great
time savings from an administrative standpoint, as well. Decentralized and low dollar procurements for departments, where appropriate. This is an opportunity for departments to, through
these changes to be able to go through our procurement academy (inaudible) to become self-sufficient and allow us the bandwidth to be able to oversee that activity and glean opportunities
for consolidation of contracts and just smarter approaches to how business is done. Maybe measure performance of our vendors through vendor report carding, KPI’s, that sort of thing.
Further cost savings and risk mitigation opportunities there. There is data behind a lot of what we’ve been doing and wanting to do going forward. Here is sort of a breakdown of dollar
thresholds here and as noted, here we look at the, there are the Council contracts, the service contracts, non-Council approved. So when you look particularly at the $10 to $25k areas,
what we’re looking to add in for the departments to do some contracting work with growing the $5 to $10k range is really what we’re hoping to see a change for, creating bandwidth for
the Purchasing Department to be able to function more strategically.
Mr. Perez: I just wanted to say that one of the things that you see in the SEA, we talk about the number of purchase orders versus the number of procurement card, and that’s been steadily
growing over the years. We anticipate that the procurement card activity will increase as a result of these changes and make us a swifter organization, because you’re going to get the
materials you need that much faster, instead of waiting for a procurement process where you can just go on line and buy or deal with the vendor immediately, and we’re in a threshold
between five and 10 that there’s not a lot of risk. We monitor the activities very closely. We have a pretty good on-line system that allows us to validate the information and so it’s
something that we take to heart in terms of making sure we’re still reviewing the activity.
Mr. Montenero: In addition, while we would have to go through the administrative process, write the Purchase Order (PO), the P-CARD had the rebate program built into that which gives
us some bit of revenue back on our efforts.
Mr. Perez: I think it will also allow us to then do better analysis on what we’re buying, instead of constantly just buying. We can also analyze, can we take advantage of grouping transactions
and then getting master agreements and a better deal, because we have now the data that says we buy X amount from you and if we do that, what can we get as a discount? So for example,
Home Depot, we are able to do that once we accumulate the data that says this is what we buy, what kind of discount will you give us.
Chair Filseth: And the thing that enables you to do that is the P-CARD as opposed to purchase orders?
Mr. Perez: The P-CARD allows us to do that and we use an account with Home Depot that tracks the activity for us and then they give us a discount. And then the bank, depending on the
thresholds we hit with the procurement gives us a cash rebate for those activities.
Mr. Montenero: And in the use of P-CARD also shifts transactional activity from the purchasing desk, which frees up a little more time to be a little more analytical or strategic in
how we look at the activity out there and our analysis.
Chair Filseth: Right, that means anybody, well not anybody, but somebody in a remote department could do it instead of going through the Central Purchasing Office?
Mr. Perez: Right.
Chair Filseth: One question. You don’t, I mean, you don’t sort of have lots of $24,995 contracts that were structured that way specifically to get under the… And like $74,950 contracts
split up into three.
Mr. Perez: Well, that’s the kind of stuff we look at in the P-CARD to make sure that people are not, what we call contract splitting, and when we do get those PO’s at those level thresholds,
we do question them, like, are you going to come back with an amendment, you know, in a month or two.
Mr. Montenero: We do watch-dog analysis on how the activity… Try to teach the departments better, smarter, more compliant practices.
Council Member Holman: Can I ask a related question, but, I don’t mean to get into the weeds on this, but I’m aware of this. There is a tendency to go to the big box stores. You mentioned
Home Depot, but I don’t know how much we compare to… I know there are like open recall. You’ve put it on line probably sometimes to go out to individuals, but are there ACE Hardware
versus Home Depot versus blah, blah, blah. The reason I mention this is for practical reasons, because, two of them. One is because some businesses are local and local ownership, and
the other is local sales tax, just in this particular case I’m mentioning. And the other is that, you know, to pick on Home Depot, which I’m not shy about doing, is that they used to
start out in advertising like nobody would beat their prices, blah, blah, blah. It’s like you go to Home Depot now, it’s like they aren’t the cheapest around by any means. So I guess,
I don’t mean to get into the weeds on this, but do we reach out to try to support local businesses and maybe not the big box over the local businesses in a proactive manner?
Mr. Montenero: So if I may, when we talk about say cooperative purchasing, for instance, just because big box store is in that cooperative and they try to leverage spend and we can just
simply go use them, which we learned out of the Office Max audit, that there is a due diligence that we have since adopted to look across the landscape. So for instance, in recently
addressing our City copier need, I looked at cooperatives and actually went to each one, went to all the competitors and said, “What are you doing with cooperatives and not doing with
cooperatives?” And built an analysis out of that to really measure the landscape. You could almost say it was a kind of solicitation process in itself, but yes, we certainly consider
the larger landscape.
Mr. Perez: In terms of your point to the local shop, we run into some challenges. There is one local warehouse, excuse me, hardware that classified themselves as miscellaneous, because
you have to classify yourself when you register your business, what type of business you are, and because we restrict the code as to where you can buy to ensure we have better protection,
miscellaneous is not allowed on the procurement card, so our employees were going in trying to buy stuff and they kept getting denied. So we try to work with those vendors, you know,
the local shops to, “Hey change your designation so we can use you.” So we try.
Council Member Holman: So you’re working through that?
Mr. Perez: We do. I mean, I have to also be upfront, that’s not the majority of our purchase either, but we instructed our field personnel that if you’re in the field, and, let’s just
pick Alma, somebody’s on Alma and you need something and you need it right away, go in the shop and get it, you’re right there. Because by the time you order it from wherever, it’s going
to delay the project.
Mr. Montenero: In our new eProcurement system, it uses the Institute for Public Procurement (NIGP) coding system, which is a national practice and it’s built of parent-to-child commodity
code systems, so it can get pretty granular, so we encourage anyone that we encounter to register in that system and it allows them to select codes so that we can match opportunities
with vendors.
Council Member Holman: Okay, I appreciate that.
Chair Filseth: Go ahead.
Mr. Perez: Okay, so I think Albert is going to give you the tail end of the presentation here and we’ll be ready.
Albert Yang, Senior Deputy City Attorney: Sure, so I’m sure you can tell there is a wealth of red line throughout the ordinance. You know, the majority of it is pretty, you know, kind
of minor, changes in wording. There are two larger changes that I do want to highlight though. The first is a change to the way that we would be able to solicit wholesale utility commodities,
so that’s when we go out and we, you know, purchase gas or electricity through our utility, Utilities Department.
Council Member Holman: You might want to point out what page that’s on.
Mr. Yang: And, that starts on Page 17, I guess it’s the meat of that.
Council Member Wolbach: That’s Packet Page 31, Packet Page 31, is that right?
Mr. Yang: Correct.
Council Member Wolbach: What section was that? Is that 2.30.340?
Mr. Yang: Yes. And just briefly the way that we currently do the solicitation is we have two steps, two different RFP’s or Requests for Qualifications (RFQ’s), the first for the master
agreement, which really just sets forth the general terms and conditions but not any of the business terms, like the pricing of the utility. And then we do a separate RFP when we actually
want to go out and purchase the commodity. So the proposed changes would allow the Utilities Department to skip over that first solicitation and just utilized a preapproved master contract,
and if there is a counter party out there that’s willing to agree to that master contract, great, sign them on. And then when we get to the point where we actually want to purchase the
utilities, we’ll issue a solicitation at that point. So, apparently our two-step process is somewhat unique, like a lot of things in Palo Alto. This would be bringing us more in line
with, you know, the rest of our peers.
Chair Filseth: Do people ever want to renegotiate the terms of the master agreement? They say, well I want my piece and this piece changed and I want this and that?
Mr. Yang: I think that’s certainly a possibility. I can’t speak to how often that happens. If that were the case, then we would have to bring amendments to the master agreement to the
Council for approval. The second major addition to the Code is in Section 2.30.490, and that would be Packet Page 41. That is the addition of procedures for design built procurement,
if the City should ever wish to pursue that avenue. A few years ago now, State law was amended to set forth State-wide procedures on design build. Our proposed changes here generally
track that language, but the State procedure limits design build to buildings, parks and recreation and wastewater facilities, but it excludes things like streets, highways, other water
resources, for some reason. So the proposed amendment here would broaden that scope so that we would have the freedom if we wanted to pursue design build on any public works.
Mr. Perez: I think with that we’re open to the next step in discussions.
Chair Filseth: So I was going to suggest that we see if anybody from the public wants to speak, and then we will take questions from Council. Is there anybody in the public who would
like to speak to this item?
Female: I’m very impressed so far.
Council Member Holman: Usually when we have somebody watching us that doesn’t speak, it’s people wanting to earn their merit badges for scouting or something.
Chair Filseth: Why don’t we do both questions and comments? Council Member Wolbach.
Council Member Wolbach: I actually don’t really have any questions. The Staff report is very good. I think the work that went into this is very good. I’ll mention that I’ve heard for
quite a while from people affiliated with the City in various capacities, that our procurement process can be cumbersome, to put it politely, and it looks like we’re really taking the
steps to improve that, through the Staff level changes, following that report from 2014 and now taking the next step and making the code changes to further move us in the right direction.
The way I see it, I really see four values at point here, that we should be thinking about, and those are: 1) efficiency for the Staff to get stuff done for the City, which is important
for us on Council and for the community and, you know, and for Staff as well; 2) cost effectiveness, to make sure we’re not wasting the public’s money; 3) transparency to the public;
and 4) Council oversight to ensure accountability and responsibility. I actually think that these proposals do a good job of balancing those four. There are a couple of things, one thing
in particular that really stands out, for instance, on Page 5 of Staff Report, Packet Page 12, the emphasis on design/build contracts still having to come to Council before proceeding.
I think that is one thing, I just wanted to say it out loud to make sure we’re clear about that. We’re streamlining the process but we’re not cutting the Council and the public out of
the process, and that’s really critical, and so I appreciate that. For this, I guess, maybe a question. We can’t adopt an ordinance tonight, but we can, a Motion will be needed to recommend
it to the full Council, is that correct?
Mr. Perez: Correct.
Council Member Wolbach: Okay, I’m happy to make a stab at a Motion, but I’ll wait to see if colleagues have any questions before we get to action.
Chair Filseth: Very good. Karen?
Council Member Holman: I don’t have anything.
Chair Filseth: Greg?
Council Member Schmid: A couple of questions. On Page 9, there is a mention there of…
Council Member Holman: Is that Packet Page or page?
Council Member Schmid: Packet Page 9. There is a mention there of piggyback purchasing opportunities. Now it sounds like this means not just amongst ourselves, but cooperating with neighbors,
other cities, or is it a big thing, is this Countywide, Citywide, area wide? How are you thinking of this?
Mr. Perez: It can be national. The key is it has to meet the parameters of what we’re buying. So it can’t be different. Minor things, but it has to be the same. So I’ll give you an example.
The last one we did that comes to mind, the ladder truck, we piggybacked with San Jose. So San Jose had a deal and we went to the vendor and said, “We want the San Jose deal.” The ladder
truck we bought between Mountain View and us, and the vendor said, “If you do it by this deadline, we’ll give you the same price.”
Council Member Schmid: Is there any danger of us beginning to compromise standards in order to get a good deal, we need to use what they’re using instead of what we want.
Mr. Perez: The firefighters will not let us do that. (crosstalk). You bring up a good point, and there has been plenty of times where Staff says, “We like that one, but can we make these
change?” We say “No.” That’s a different animal or a different procurement and you either find another one that’s like it or we go out for bid.
Mr. Montenero: Also our Municipal Code on piggybacking stipulates that the process has to be substantially similar to ours, so it’s not that we’ll, out of convenience, go use somebody
who just did it however.
Council Member Schmid: But is this a goal of really a much higher percentage of our goods would we based in common and maybe cheaper than it is now, is that or goal?
Mr. Perez: I think it’s one of our goals. It’s a combination of goals, I think, and there’s consortiums that are set up and some of them are backed by the State, for example, and where
the State does the bidding, and it helps smaller agencies, and then we feel, why not tag along if it helps us as well, where the State has already negotiated it, pricing for tires, for
example, batteries.
Council Member Schmid: And what percentage of our purchases might end up in such pools?
Mr. Montenero: You know, it’s not something we’ve delved deep into yet. You know, we’re buying vehicles this way now, predominantly, and we’re starting to look at other capital equipment
areas. The smaller things, it’s something that our department needs to do further analysis on.
Council Member Schmid: Yeah, well, it’s an exciting prospect so it makes a lot of sense to push and delighted that you’re doing.
Mr. Perez: And then keep in mind, anything above $85,000 still comes to you and we have to disclose to you how we either bid that or piggybacked. And so I don’t think it’s a high number.
You know, I think we’re looking more on the lower end to make it faster for… You know, anything above 10. Those are the areas we also want to look at.
Council Member Schmid: Okay, you mentioned the number $85,000. Page 22, Packet Page 22, under Public Works Contract, that first paragraph A, it looks like you’ve crossed out $85,000
and gone to $25,000 without...
Mr. Perez: Actually, I don’t recall that that’s changed. That has been $250,000. That’s the exception, Public Works contract says, we changed that in 2004 to that amount.
Council Member Schmid: But this is a red line, isn’t it, red lining $85,000?
Council Member Wolbach: So I’ll get on the same chalkboard and tell you about 2.30.210, Section A.
Mr. Yang: Yeah, so this was actually, this is a language clean up. On Public Works contracts the Purchasing Manager has authority up to 85 and then the City Manager has authority up
to $250,000. The way the ordinance used to read, the City Manager only had authority between $85,000 and $250,000, and we felt that didn’t make any sense, if the City Manager can sign
up to $250,000, he should be able to sign under $85,000 as well. So we’re just crossing off the floor to the City Manager’s authority there.
Council Member Wolbach: So you’re changing the minimum, not the maximum.
Chair Filseth: Okay, $240,000 the City Manager still has to sign off, not the Purchasing Manager.
Council Member Schmid: Okay, but the $250,000 then is a constant?
Mr. Perez: Yeah, I didn’t clarify that there were some exceptions, like this one.
Council Member Schmid: Okay, the other thing is on Page 42, the design/build. Now my understanding of the description is traditionally you have one firm bid to do a design then you go
out and do another round of proposals to get someone to build, and now you’re saying you can go to a firm that does both the design and the build, but on Page 42 it seems to be saying,
in the new language, that whoever does the design cannot participate in any way in the build?
Mr. Yang: So, there is a concept of 10 percent design that comes into play here, where we would hire an architect to help us develop the, basically the RFP for the design/build project,
and then that architect would generally do a very basic 10 to 20 percent of the project and then that would be the basis for our solicitation of a completion of design and then full
construction by a single entity.
Council Member Schmid: The way we’re doing it now, do we actually have three parties then doing the 10 percent, the full design and then the build?
Mr. Yang: Yeah, so sometimes now we do have kind of like a feasibility or you know, preliminary design contract followed by a full design contract followed by a building contract, and
all those are bid separately.
Council Member Schmid: So that’s where the saving is, we still, this upfront design still might be, has to be done separately.
Mr. Yang: Yes.
Council Member Schmid: Okay, those are my three questions.
Chair Filseth: Actually, I only had one which was about the design/build process too, which is, if you do the design/bid/build process, you split the design between somebody who designs
it and somebody else builds it, why do we do that?
Mr. Yang: I think that’s the traditional method.
Chair Filseth: I understand, but I mean, my question is going to be, what do we give up, okay, but what’s the rationale for doing it that way? I mean, we could still do it that way,
but if we have this other option, what’s the…
Mr. Perez: I think mainly it’s to have different parties and have the segregation of duties and the difference in responsibility, so you have…
Chair Filseth: But is it, you know, we want to cost optimize the two phases differently or is there a worry that somebody is going to pad one and make it up on the other or…
Council Member Wolbach: It might be like getting your car repair evaluated at one shop and having the repairs done somewhere else, so that they won’t design the Cadillac version to (crosstalk)
Mr. Yang: I think one of the downsides of design/build, you know, as a single process is that you do need to go and get someone to do that 10% design, create the bridging documents,
scope out the project for you, and even though we do sometimes still do that, with design/bid/build, it’s also quite common just to have a single firm do the whole design followed by
a construction company later. So I think there is probably a little bit more flexibility in that design process to, you know, if the City’s needs change as opposed to having to, you
know, do a lot of work up front and then be fairly committed up front.
Chair Filseth: So do you foresee, assuming this code gets changed, we already have the option to do it both ways, do you foresee the majority going to design/build or the majority staying
at design/bid/build and a few projects going to design/build. How do you see this?
Mr. Perez: I think it’s going to stay mostly the way we are. There are split camps on both and we have Staff that has experienced wonderful design/build and some awful design/build experience,
so I think it really, it gives us the flexibility to have that as a consideration for us to bring to you, the reasons why we should go a particular way for this particular project.
Chair Filseth: Okay, thank you. On the other one, the master agreement, I mean, it sounds like having it come to Council once is better than having to come to Council twice.
Mr. Perez: It also keeps us out of hot water with audits because, you know, we have a master agreement in place.
Chair Filseth: To the extent that you can standardize that…
Council Member Schmid: We did run into trouble on Rinconada Park where they disputed about where they following the design, or not and who was responsible.
Council Member Holman: So that brings up a question for me. So, you know, the audits, so did the City auditor review this for hitches or complexity issues or…
Mr. Perez: Up to the last minute, unfortunately, she couldn’t come tonight, but she said you’re more than welcome to follow up with her in the time that it goes, between now and to the
full Council, but she was supportive of the changes.
Council Member Holman: Okay, that’s good to know.
Chair Filseth: I have nothing else, so do you want to make a Motion?
Council Member Wolbach: I’d love to. I’ll move that the Finance Committee recommend to the full Council adoption of theOrdinance amending Palo Alto Municipal Code Chapter 2.30 – Contracts
and Purchasing Procurements including the Staff report as attachment A.
Council Member Schmid: Second.
MOTION: Council Member Wolbach moved, seconded by Council Member Schmid to recommend the City Council adopt an Ordinance amending Palo Alto Municipal Code Chapter 2.30 - Contracts and
Purchasing Procedures.
Chair Filseth: Do you care to speak to your Motion?
Council Member Wolbach: No need.
Chair Filseth: Care to speak to your second?
Council Member Schmid: Yeah, I just would support what Council Member Wolbach said up front, you know, it’s good after what, 10, 12 years to come back, look at this, the world has changed
a lot and it’s the type of efficiencies that we’re looking for, so delighted to have this.
Chair Filseth: Sharpen the saw. All in favor?
MOTION PASSED: 4-0
Chair Filseth: Motion passes unanimously.
Mr. Perez: Thank you. I want to thank Albert and John for their work on the update. Thank you for your support.
Council Member Holman: Just one question. So, is there any reason this was unanimous, so typically it would go on consent, is there any reason it shouldn’t go on consent, does anybody
anticipate? I mean I’m okay with it being there, but just thought I’d raise the question.
Chair Filseth: I don’t.
Council Member Schmid: Yeah, it looks straightforward.
Council Member Holman: Okay.
Mr. Perez: Thank you.
Future Meetings and Agendas
Chair Filseth: Which brings us to future agendas.
Lalo Perez, Chief Financial Officer: Yes, thank you. Our next meeting is the 21st. We’re going to give you the update for fiscal year ’16, so we talked about revenue increases in ’17,
and I kind of touched on ’16, so there are new revenue numbers for ’16 as well that we’re going to present to you in the third quarter report, so we’ll get into the details then. Then
the Commercial and Residential Impact Fee Nexus Study review coming back to you, and then you go on break.
Chair Filseth: So when is the next one after that, it’s not till the middle of August, right?
Mr. Perez: It’s August, the third week in August. I think you’re on vacation till then.
Chair Filseth: So that would be the 16th?
Mr. Perez: Yeah, and right now we don’t have anything on the agenda. If we happen to add something we’ll definitely let you know in the upcoming meetings. Then we get towards the end
of the year and, you know, right now we don’t have everything we need to bring to you. It’s just a placeholder for a couple of items there. That’s all I have.
Council Member Schmid: Let’s see Lalo, just in terms of regular things, isn’t there like third quarter…
Mr. Perez: Yeah, so that’s the year-end, you’re referring to the fourth quarter, then the Comprehensive Annual Financial Report (CAFR). We are also committed to you before the end of
the calendar year to bring you some conceptual next steps on balancing ’18, so that’s on our radar. I’m having some challenges committing to you that the long-range will be done by December,
given the staffing levels that I have, but (crosstalk) I want her to stay though, because it’s not an easy effort, as you can imagine, but we’re going to try our best. I just wanted
to put it out there that it is a worrisome task at this moment, given that there’s only three left.
Council Member Schmid: But just in a very general statement, I guess we’re coming out of a quarter where we had very intense meetings, but there’s not likely to be a lot of intense meetings
in the third quarter?
Mr. Perez: At this point it doesn’t appear. My peers may have items that I have not heard of yet, so stay tuned, but they are not on my radar yet.
Chair Filseth: Well, we do have the City Manager giving lots of cues that maybe this process needs to start earlier this year and we need to sort of take a look at, start looking at
2018 earlier than we normally do, so that may load up, that may fill up some of the open space on the calendar, if some of that translates into Finance Committee meetings.
Mr. Perez: That’s where my concern comes for the long range. That if we start doing that as the same team, and then even if we back up the bench, they’re going to be green people that
never have been through the Palo Alto process, even if they have budget experience. And the magnitude of the work and the analysis, so I would feel better if we focus on ’18, but you
know, we’ll get to that bridge when we get there, and I just wanted to send the signal early on to you, what my concern is.
Chair Filseth: With that then, we are adjourned.
Adjournment: The meeting was adjourned at 7:50 P.M.
TRANSCRIPT
Page 2 of 39
Finance Committee Transcript
June 7, 2016
FINANCE COMMITTEE
TRANSCRIPT
Page 1 of 39
Finance Committee Transcript
June 7, 2016