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HomeMy WebLinkAbout2024-05-08 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 12 Special Meeting May 8, 2024 The Finance Committee of the City of Palo Alto met on this date in the Community Meeting Room and by virtual teleconference at 9:00 a.m. Present In Person: Burt (Chair), Lauing, Veenker Present Remotely: None Absent: None Call to Order Chair Burt called the meeting to order. Public Comment Karen H. asked the City to consider a budget allocation of $1M to share in the inflationary cost for the museum and Roth Building rehabilitation project at 300 Homer Avenue. In November 2021, the cost for the capital project was $10.5M but the cost increased to $12.7M by the time the tenant work letter was approved. Action Items 1. Summary of the Status of Finance Committee FY 2025 Budget Review from Day 1 Administrative Services Director Lauren Lai delivered a slide presentation. In the proposed budget, the Council has a contingency fund of $125,000. Projections were provided in aggregate for residential and commercial revenue for electric, gas, and water utilities. In FY 2024, the estimated gross revenue was $266.5M. For FY 2025, the projected gross revenue was almost $279M. The Utility Users Tax (UUT) is 5% of gross revenue. The City receives 4.75% of telephone revenue from telecom vendors. In December 2023, staff projected $5.8M in Documentary Transfer Tax (DTT) for FY 2024. Based on actual receipts as of May 2024, staff projected a DTT of $6.9M for FY 2024. The proposed FY 2025 budget before the Finance Committee included DTT of $7.3M. Staff addressed the Committee’s questions. City Manager Ed Shikada stated the telephone user tax included cellular. SUMMARY MINUTES Page 2 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 Director Lai remarked it was difficult to forecast when someone will sell their property but staff could reflect on whether this year’s forecasted DTT amount was too conservative. Regarding the DTT, Council Member Burt wanted to know the proportion of residential to commercial to understand the sales trends. Director Lai did not have that information but offered to follow up if the Committee wanted a response. Staff is monitoring FY 2024 utility revenues to inform revenue projections for FY 2025. The proposed FY 2025 budget included $20M of UUT. The slide presentation reflects the most current amount. Director Lai stated the chart on Slide 6 for the General Fund Transfer to Capital Improvement Fund does not include 2026 when staff estimated the transfer would increase to $16.6M. Budget Manager Paul Harper pointed out there is a transfer of $1M from the UUT going toward sidewalks and street improvements. In prior years, staff categorized it as either part of the base transfer or project specific. Staff recently switched it to project specific but merged it into the base transfer line to compare it over the past six years. 2. Planning and Transportation a) Planning and Development Services (O: 311-327) b) Office of Transportation (O: 183-194) i) Parking Special Revenue Funds Planning and Development Services Director Jonathan Lait presented the FY 2025 Planning and Development Services budget summary. Director Lait addressed the Committee’s questions. The staff vacancy rate was around 10%. Recruitment to replace the departing Assistant Director was unsuccessful a couple years ago. The department has some planned retirements. Recruitment will begin again for the Assistant Director position to oversee planning operations. Efforts to hire an Assistant Building Official have been unsuccessful, so that position is being moved to a Senior Program Manager whose responsibilities would include advancing customer service initiatives, implementing outstanding issues related to the Development Services permit audit, and taking the lead on the Green Code and Earthquake Code projects. On-call contract services for FY 2025 is to perform work that staff does not have the capacity for or to provide technical expertise the City does not have in-house. To facilitate the permitting process, instant permits are available online. Staff can provide the S/CAP Committee additional data on the increase in heat pump water heater permitting through the instant permit process. Discussion ensued on EV charging as well as outreach and education for the community and contractors. SUMMARY MINUTES Page 3 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 Chief Transportation Official Philip Kamhi delivered a slide presentation on the FY 2025 proposed operating budget for the Office of Transportation. One proposed change was to add a 1.0 Associate Planner funded by VTA for secondary (middle and high school) education through the City’s Safe Routes to School Program. The General Fund will pay for the position and VTA confirmed this position would be reimbursed by Measure B funds. The parking fund subsidy is necessary to continue ongoing maintenance and operation of the City’s parking facilities. License plate recognition is used to enhance efficiency. Parking permit fees were reduced in an attempt to increase permit sales. One option to enhance permit sales is to find a new vendor that allows flexible permits. Public Works is the bulk of the expense for garage maintenance. The Palo Alto Link service has funding through October from the initial Innovative Transit Grant. Staff was looking for opportunities to reduce costs and increase efficiency as well as trying to find grant funds and additional partners to help support the Link service. Staff had not considered changing the fare structure. We can increase fares after the initial Innovative Transit Grant expires in October. Link was less efficient during midday; as a result, staff reduced the number of vehicles available midday and expanded into the peak periods where there was a longer wait. Efficiency has improved. The cost per trip was between $33 to $35 when Link started, and the cost has decreased to around $29/trip. Staff projected efficiency to improve by about 17% through continued enhancements to the service, so the cost per trip would decrease by about 17%, lowering the cost to around $24/trip. For this year, staff projected the City’s portion to be $10.80/trip. Discussion ensued on options and alternatives to the Link service. MOTION: Vice Mayor Lauing moved, seconded by Council Member Burt to tentatively recommend the City Council approve Planning and Transportation Services with parking lot items: 1. Review and provide alternative service approach for PA Link with reduced costs MOTION PASSED: 3-0 3. Infrastructure and Environment: Capital Improvement Program (Cont’d.), Enterprise Fund Projects & Internal Service Fund Projects a) Internal Service Funds – Information Technology and Public Works i) Technology Fund (C: 627-654) ii) Vehicle Replacement and Maintenance Fund (C: 655-683) b) Enterprise Funds – Public Works i) Airport Fund [Public Works] (C: 367-388) ii) Stormwater Management Fund [Public Works] (C: 493-520) iii) Wastewater Treatment Fund [Public Works] (C: 547-588) c) Enterprise Funds – Utilities i) Electric Fund (C: 389-439) ii) Fiber Optics Fund (C: 441-457) SUMMARY MINUTES Page 4 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 iii) Gas Fund (C: 459-491) iv) Wastewater Collection Fund (C: 521-545) v) Water Fund (C: 589-623) Budget Manager Paul Harper discussed the Capital Improvement Fund. In response to a question earlier today, the TOT amount was about $7M in 2020 and dropped to about $2M in 2021, so the base transfer amount commensurately adjusted. Management Analyst Peter Hoang delivered a presentation on Internal Service Fund projects. Information Technology Director Darren Numoto provided an update on the four Technology Fund projects. Public Works Director Brad Eggleston stated the Vehicle Replacement Fund included the addition of 12 new electric vehicles in FY 2025 (eight sedans, one fire engine, and three trucks). Director Eggleston summarized the Public Works Enterprise Fund projects. Utilities Director Dean Batchelor presented the FY 2025 proposed Utilities budget summary. Director Batchelor addressed the Committee’s questions. Staff explored the idea of building some canopies and installing solar at the golf course parking lot as well as building canopies for planes at the airport, but the biggest problem is where to put battery storage. City Manager Shikada remarked that there is solar on several of the City’s parking garages. In reply to the Commission’s query about capital for physical security and cybersecurity for our utilities, Director Numoto responded it is not part of IT’s capital projects but is an ongoing effort in partnership with the Utilities staff. All the connectivity runs through City infrastructure, which is isolated and runs behind firewalls. The SCADA system operates all the utilities in a similar format. Camera systems help with physical surveillance. Council Member Burt recalled that Council received an extensive update on cybersecurity initiatives about two years ago and requested staff to provide an update. Director Batchelor addressed the Committee’s questions about Arastradero Creek. The timeline to work in the creek bed was extended until next year. The options were to trench it or remove and relocate the gas line so it does not go through the overflow creek area. The State and DOT were concerned about the exposed gas line. The City put rock in the creek bed as a temporary measure. Staff will also evaluate water and wastewater near the gas line location. There is $1M set aside in the proposed budget; however, staff thought it might exceed that amount. In the next three months, staff should reach a decision on which option to proceed with after talking to consultants and the Army Corps of Engineers. In response to the Committee’s questions, staff replied that this year’s budget proposal decelerated the vehicle replacement schedule because electric versions of many vehicles were more expensive but the fixed budgets only increased by the Consumer Price Index. To keep the City’s typical pace of replacement would cost an additional $2.2M. One of Council’s priority SUMMARY MINUTES Page 5 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 objectives and a priority this year for Public Works is to develop an EV fleet replacement plan including a long-term financial analysis. Council Member Burt suggested including electric bikes in the City’s fleet. Director Eggleston remarked that a small team of City staff would work on an e-bike pilot project this year. Discussion ensued on the utilization of available space in City buildings. Director Eggleston has been attempting to clarify misconceptions about the airport by replying to the numerous messages he received from community members who expressed their concerns. Council Member Burt encouraged staff to have a communication plan for neighborhoods affected by the stormwater project. Council Member Burt thought it was important for Utility customers to receive a clear, simple message that not all of the $200M to $300M was for electrification, almost half was for outdated equipment, and it would improve reliability. Director Lai addressed Council Member Veenker’s questions regarding the Roth Building. The supplementary report asked for an additional $1M to cover cost escalation. Director Eggleston explained the Museum’s original intent was to use all or most of their $3M HUD grant on building out the museum programming space but the Museum now planned to use close to $2M toward cost escalation. Director Eggleston believed the budget was around $15M for the project. The Museum asked the City to change the tenant work letter to add more funding so the Museum can use $1M toward the exhibit buildout. Staff clarified the $15M was for Phase 1, which is only for the rehabilitation of the Roth Building. Phase 2 is the buildout of the museum, including exhibits for guests. Council Member Burt commented it was a renovation of a City- owned building to make it habitable. MOTION: Council Member Veenker moved, seconded by Council Member Burt to tentatively recommend that the City Council approve Infrastructure and Environment: Capital Improvement Fund Projects, Enterprise Fund Projects & Internal Service Fund Projects with parking lot items: 1. Recognize additional funding for the Roth Building (PF-23001); 2. Direct staff to identify $1-2M potential flexibility in the Capital Improvement Fund for additional capital projects MOTION PASSED: 3-0 The Finance Committee took a lunch break. 4. FY 2025 Proposed Municipal Fee & Charges SUMMARY MINUTES Page 6 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 Senior Management Analyst Rene Escobar presented a summary of adjustments to the FY 2025 Proposed Municipal Fee Schedule. The Council last updated the User Fee Cost Recovery Level Policy in FY 2019, which divided fees into low, medium, and high buckets. One major component in determining a fee’s cost recovery level is the number of beneficiaries for services rendered. Generally, a high cost recovery level applied to services where one person benefits from the service and a low cost recovery applied to services that benefit the community at large. When the City introduces a new service, its fee is determined by the City’s cost to provide the service and the appropriate cost recovery level. As part of the FY 2025 proposed budget, staff recommended funding for a consultant to conduct a study that would include the user fee cost recovery level. This year’s new fee schedule included a general rate of increase (GRI) of 5.2% to most fees with any exclusions listed in Attachment A along with the justification. Management Analyst Katie Lee discussed deleted fees and fees not changed by GRI. Staff addressed the Committee’s questions. Community Services Director Kristen O’Kane stated the City’s co-sponsorship policy is for nonprofits and other similar groups that provide a direct benefit to Palo Alto residents but they cannot charge a fee nor fundraise during those events. The City waives fees for co-sponsored events except for a facility attendant fee if it is afterhours. Staff vets requests for co- sponsorship and Director O’Kane denies or approves. The GRI percentage included a combination of factors, including the Bay Area CPI as well as the forecasted seller and benefit costs. Administrative Services Director Lauren Lai explained that staff calculated GRI using actual CPI in combination with a cost of living adjustment relative to the City’s labor contracts and benefit costs. Budget Manager Paul Harper remarked that a cost of fee study would be performed this year. Director Lai stated the best practice was to do an intensive study every three to five years; in between, the common practice is to do incremental increases based on a methodology and a factor. Lieutenant Kara Apple spoke about concealed carry weapon (CCW) fees. In reviewing Santa Clara County and other municipalities’ fee structures for issuing CCW permits, Palo Alto’s charges are in alignment. Palo Alto charges for three hours cost recovery of staff time to process the application from acceptance to issuance. Per the DOJ and the law, the City is responsible for performing a full background check, including references. The fee structure changed in 2024 due to legal changes giving municipalities the ability to charge reasonable cost recovery for the efforts to process the application and allowed fees to be passed out. Now, applicants pay directly for a psychological evaluation, their 18-hour training course, and their permit application fee. Staff will still enforce Senate Bill 426; however, they are not charging fees anymore. MOTION: Council Member Lauing moved, seconded by Council Member Burt to tentatively recommend that the City Council approve FY 2025 Proposed Municipal Fees & Charges. MOTION PASSED: 3-0 SUMMARY MINUTES Page 7 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 5. Infrastructure and Environment a) Utilities: Operating i) Electric Fund (O: 423-436) ii) Fiber Optics Fund (O: 437-444) iii) Gas Fund (O: 445-457) iv) Wastewater Collection Fund (O: 459-467) v) Water Fund (O: 469-481) b) Public Works: Operating i) General Fund (O: 351-362) ii) Airport Fund (O: 363-370) iii) Refuse Fund (O: 371-380) iv) Stormwater Management Fee (O: 381-391) v) Vehicle Replacement and Maintenance Fund (O: 393-402) vi) Wastewater Treatment Fund (O: 403-413) Utilities Assistant Director Jonathan Abendschein explained why staff projected revenue to be lower in FY 2025 versus FY 2024. The net effect was no change in overall revenue for the Electric Utility resulting from rate changes. Load forecasts for the FY 2025 Financial Plan were more conservative than FY 2024. Forecasted FY 2025 electric sales result in a decrease in revenue. Overall, rate changes caused residential classes to increase about 2% and commercial classes to decrease. Changes in tiers resulted in about a 9% increase on the median residential bill. Narrowing the tiers and adding a fixed charge caused lower users’ bills to increase and higher users’ bills to decrease. Changes resulted in a 0.5% increase in the Utility’s average rate. Senior Management Analyst Naomi Hsu provided an overview of the budgetary changes. Utilities Director Dean Batchelor summarized the FY 2025 recommended utility rates, five-year outlook, and FY 2025 department outlook. Public Works Director Brad Eggleston provided an FY 2025 Public Works budget summary and department outlook. Director Batchelor demonstrated a graph of General Fund Gas Transfer Alternatives. Tentatively adopted was an 11.9% transfer of approximately $9M with a 9% rate increase. Staff answered the Committee’s questions. Public Works Director Brad Eggleston explained the Disadvantaged Business Enterprise (DBE) program contracts a percentage of work to DBEs. City Manager Ed Shikada stated there were requirements for plan development and outreach to qualifying businesses. Council Member Burt urged staff to monetize parking underneath solar awnings. Discussion ensued on 94 octane at the airport. Staff is looking into potentially offering 100 octane to meet the requirements of some planes. The incremental cost for unleaded is about SUMMARY MINUTES Page 8 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 $2/gallon. Unleaded fuel is not widespread in the industry. Director Eggleston stated that staff was actively working on one of the Council priority objectives to have a plan for promoting unleaded fuel and potentially phasing out leaded fuel; however, FAA grant guarantees have limitations on what the City can do. Council Member Burt suggested a marketing campaign to appeal to the social responsibility of not emitting lead over our community. Council Member Veenker commented that the Air District was interested in the topic of pollution caused by planes using leaded fuel. Council Member Burt asked about electric police motorcycles. Director Eggleston stated the motorcycle replacement purchase planned from the Vehicle Replacement Fund was not electric. There were issues when electric motorcycles were piloted a couple years ago. City Manager Shikada addressed Council Member Burt’s questions about 445 Bryant. The City will manage the entire building, upstairs and downstairs, to allow flexibility. La Comida would occupy the first floor and the upstairs would be available as a community center. MOTION: Council Member Veenker moved, seconded by Council Member Lauing to tentatively recommend that the City Council approve Infrastructure and Environment: Utilities: Operating and Public Works: Operating. MOTION PASSED: 3-0 6. FY 2024 Finance Committee Budget Initial wrap-up and review of Citywide Internal Support and Administration (Cont’d.) a) Non-Departmental Funds (O: 483 – 489) Budget Manager Paul Harper provided the non-departmental FY 2025 budget summary. Public Comment: 1) Ken H. thought the City should not include the $3.5M PAUSD Cubberley lease in the budget. The lease runs out at the end of the year. The City rents the gyms but the gyms have been closed for the last two years. The City has a Cubberley operating budget so he wondered why the Cubberley lease was non-departmental. He suggested including restoration of the 8-acre Cubberley site in the budget because he believed it was a hazard to children. 2) Carol Garsten is the producer of the free third Thursday music festival on California Avenue and she requested the City to include it in the annual budget process. The website www.thirdthursday.fun had more details on the bands and activities. Council Member Burt inquired as to the purpose of the $2.5M Real Property Investment Fund on Non-Departmental Page 3. City Manager Shikada thought staff discussed this with the SUMMARY MINUTES Page 9 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 Council in closed session. It was the first year for this fund and it was a placeholder for major acquisition on behalf of the City. MOTION: Council Member Veenker moved, seconded by Vice Mayor Lauing to tentatively recommend that the City Council approve Citywide Internal Support and Administration: Non- Departmental Funds. MOTION PASSED: 3-0 The Finance Committee took a five-minute break. Council Member Burt reconvened the Finance Committee Meeting. Human Relations Director Sandra Blanch addressed the Committee’s earlier question on the pilot childcare program. There were 60 employees enrolled. The City advertises the childcare program in its postings, brochures, and new-hire orientation. Employees were very enthusiastic about the program and one new hire chose to work for the City because of this benefit. The program provides employees with up to $10,000 per calendar year to use at Palo Alto childcare facilities. Director Blanch stated there was $400,000 allocated for FY 2024. Budget Manager Paul Harper stated the budget request was to add $60,000 and reappropriate $240,000 for a total of $300,000 for FY 2025. The School District Board approved a program last schoolyear to allow City employees to enroll their children in Palo Alto Unified School District (PAUSD). The City had 12 employees who enrolled their children and the employees enjoy the program. Council Member Burt asked if staff anticipated growth in participants. Director Blanch replied she would follow up with an answer. Council Member Burt asked for details on transit passes for employees. City Manager Shikada remarked that Caltrain passes were available to all downtown employees. Director Blanch stated that a pretax subsidy was available to all employees separate from the Go Pass program. Employees can use the allocation for public transit, bike, or carpool. Chief Transportation Official Philip Kamhi commented it is through Navia Benefits, it loads directly to your Clipper card, and he has successfully used it for BART. City employees meeting low-income requirements qualify for TMA programs. Discussion began on parking lot items. Staff addressed the Committee’s questions. Community Services Director Kristen O’Kane stated the allocation was short $100,000 for youth mental health. Staff planned to do two events next year. The Teen Center is seeing a lot of participation on Friday nights. Staff was awaiting the results of the Youth Council’s peer survey on how we might spend the rest of the funds. Teen Leadership Groups promote the Teen Center Friday night program through social media to their peers. Council Member Burt suggested promoting it through the PTA Council’s newsletters and/or school newsletters. City SUMMARY MINUTES Page 10 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 Manager Shikada pointed out that next week the City-School Liaison Committee will be discussing services focused on teen mental health. Director O’Kane envisioned having a teen center at 445 Bryant on evenings and weekends. Library Services Director Gayathri Kanth stated the rationale for adding a librarian position. There was one teen librarian for the five libraries. After school, Mitchell Park Library has 150 to 200 teens. Rinconada Library is also a destination for teens after school. The teen librarian works with 30 Teen Library Advisory Board (TLAB) members to provide programs for teens. MOTION: Council Member Veenker moved, seconded by Vice Mayor Lauing to refer the following parking lot items for Council discussion: FY 2025 BUDGET PROCESS FINANCE COMMITTEE Parking Lot as of 5/8 at 6 PM Date Parking Lot Items Amount (cost)/source Ongoing Dept 7- May Analyze increasing revenue-generating CSD programming to meet demands - - CSD 7- May Explore financial, outreach, and policy processes for adding East Palo Alto to resident rates for golf course (30,000) (30,000) CSD 7- May Analyze Fire Emergency Medical Response Fee Adjustments TBD TBD FIR 7- May JMZ Revenue Adjustment for Ticketing and Facility Rentals (Report #2403-2797) 300,000 350,000 CSD 8- May Analyze reduction of Capital Funding - - NON 8- May Reduce BSR from 18.8% to 18.5% 1,000,000 - NON 8- May Change the Gas Transfer from 11.9% to 14.5% in FY25 and 18% in FY26 2,300,000 900,000 NON Subtotal Sources (Revenue) $ 3,570,000 $ 1,220,000 7- May Analyze increasing revenue-generating CSD programming to meet demands TBD TBD CSD SUMMARY MINUTES Page 11 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 7- May Study of artificial turf replacement and potential funding needed for study (no FY 2025 financial impact, shift funding from PG-26000 for study costs) - - CSD/ PWD CIP 7- May Parks restroom prioritization with specific information for priority of Pardee Park (no FY 2025 financial impact estimated) - - CSD/ PWD CIP 7- May Add funding for establishing a Citywide Special Events & Programming (~$200k total program) [Requested UNAFF $45k, 3rd Thursdays $40k, Neighbors Abroad $30k, Magical Bridge Programming & Events $150k, cultural events] (200,000) (200,000) NON 7- May Fire Emergency Medical Response Contract [Additional ambulance 6 FTE +backfill, Sworn positions vs Civilian positions OR Contracted Ambulance Services] (500,000) (550,000) FIR 7- May Upstaff Fire Engine 62 with 3 Sworn Staff instead of Overtime (60,000) (75,000) FIR 7- May JMZ Staffing Augmentation and Ticketing System Purchase (Report #2403-2797) (613,000) (946,000) CSD 8- May Review and provide alternative service approach for PA Link with reduced costs 450,000 580,000 OOT 8- May Funding for Roth Building Rehabilitation (PF- 23001) (1,000,000) - PWD CIP 8- May Active Recruitment Digital Marketing Services (50,000) (50,000) HRD 8- May Establish Organizational Development and Safety Division (78,000) (78,000) HRD 8- May Expansion of Library Teen Services (135,000) (135,000) LIB 8- May Public Services Streets 311 Requests (100,000) (100,000) PWD 8- May Sustainability Program Customer Service Support - - UTL 8- May Ability Path Matching Gift* (Ask from non-profit) (250,000) - NON 8- May Palo Alto Transportation Management Association (PATMA) (200,000) (200,000) OOT SUMMARY MINUTES Page 12 of 12 Finance Committee Meeting Summary Minutes: 5/8/2024 8- May Environmental Volunteers Foothills Nature Preserve Program (11,000) (11,000) CSD 8- May California Avenue Interim Improvements (450,000) - PWD CIP 8- May Car-free Streetscape Design for Ramona Street (200,000) - PWD CIP Subtotal Uses (Expense) $ (3,397,000) $ (1,765,000) Potential Funds Remaining (deficit) / surplus $ 173,000 $ (545,000) MOTION PASSED: 3-0 Adjournment: The meeting was adjourned at 5:59 p.m.