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HomeMy WebLinkAbout2016-08-16 Policy & Services Committee Summary MinutesPOLICY AND SERVICES COMMITTEE TRANSCRIPT Page 1 of 77 Special Meeting August 16, 2016 Chairperson DuBois called the meeting to order at 6:01 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California. Present: Berman, DuBois (Chair), Kniss, Scharff Absent: Oral Communications None. Agenda Items 1. Auditor's Office Quarterly Report as of June 30, 2016 Chair DuBois: So our first item on the agenda is the Auditor’s Office Quarterly Report. Harriet Richardson, City Auditor: Is this on? Good evening, Mr. Chair and members of the committee; Harriet Richardson, City Auditor, here to present the Auditor’s Office Quarterly Report as of June 30, 2016. So couple of highlights during the audit, during the quarter we completed, published, and presented two audits, the Cable Franchise and Public Education Government Fees Audit and the Disability Rates and Workers Compensation Audit. Also three people in my office, me and Mimi went in and Lisa Wehara each gave presentations at the annual conference for the Association of Local Government Auditors in May. I gave a presentation with an auditor from Portland on how we conduct our National Citizens Survey compared to how they conduct their citizen’s survey and also discussed our approach using the Citizen’s Survey in an audit which we did with our Annual Services Audit. Mimi’s presentation discussed how our office has implemented SharePoint as an efficient means for documenting our audit work and quite a few other audit offices around the country are replicating what we've done as an economical and efficient way to document their work. Lisa’s presentation TRANSCRIPT Page 2 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 provided an overview of the Animal Services Audit at a session that was devoted to winners of the annual Knighton Award for the best audit shop. She presented in the medium size office category and I mentioned last time that we would be getting the award and I did bring the award so you could see it. And then I participated in an all-day session at the United States (U.S.) Government Accountability Office and subsequent task force conference calls to discuss proposed changes for the government auditing standards and to provide input on a proposed tool that is being developed for auditors to use to assess internal controls in a performance audit. So summary of the audits, so I already mentioned that we completed the Cable and Disability Rates Worker's Compensation Audits. We are in the process of completing an audit for continuous monitoring. We call it [inaudible] pay. It's really accounts payable and that's looking at determining if we can use data analytics to identify, to prevent or identify if we do pay a vendor twice on the same invoice. So where we have a draft report on that says in progress due to preforming additional field work. They have completed that field work at this point and we are in the process of drafting that report now. We expect to present that to this committee in November. We are also working on a fee schedule audit. Originally we had a broad scope that said we’d narrow it down to what we were going to look at as we got into the audit and some cost of services at were some fees were already audited or reviewed under cost of services study and so we're focusing on Community Services and we're in the fieldwork phase of that. We expect to finish that by November also. So the next audit was one audit that we are actually splitting into two, the Utilities Customer Service Rate and Billing Accuracy Audits. We plan to look at water, gas, and electric and we have done most of the work on water based, but based on the number of issues we’re identifying we have determined that we will separate that into two audits and we expect to present the water portion of it in December. I have on here that we will present the gas and electric in April. That may get deferred depending on how we do on our other audits that we have planned on our new audit plan that I'll be presenting next. And then we're also doing continuous monitoring audit of overtime to see if there's ways that we can use data analytics to identify trends and how we use overtime and determine if there's ways that we could better manage our overtime based on that data. And then we also have an audit in progress on sustainable purchasing to look at whether or not the City is complying with the City's environmental sustainability purchasing requirements as required when that opportunity is available. We do have several of these scheduled to end in November, but it's unlikely that we’ll put all of those on a single agenda so and you have other things besides our audits. So it will likely be that some of those will get delayed into December or January for presentation. We continue to monitor Sales and Use Tax. You do have a correction memo for the numbers that are in here. During this quarter we collected $27,845 TRANSCRIPT Page 3 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 from our efforts and $9,590 from our vendors’ efforts for a total of $59,551 for the year. That is quite a bit lower than what we've collected in previous years, but we just got notification that for the next quarter we're going to have a very large sum coming in from a very old vendor form request for to the State Board of Equalization that’s going to be over $200,000 so that one’s for a multi-year collection of state sales tax, of sales tax. And then in June we always report the sales tax that we get from the development agreement with Stanford University. That's based on a calendar year so it's for calendar year ‘15 and we get the information in the May/June timeframe. So for this year we received $963,464 as a result of that development agreement. To date we’ve received 2,000 about approximately $2 million for 2011 through 2015 as a result of that agreement. We continue to participate in our advisory roles: the Utilities Risk Oversight Committee, the Information Security Steering Committee, and the Information Technology Governance Review Board. We recently have taken on an advisory role to participate in both the strategic and technical planning groups for the new enterprise resource planning system. The purpose of that is really to see as they're planning the audit if we see something that looks like it may be going astray from what we'd expect to see if we audited after the fact that we try and get it corrected and get them on course, the right course before it gets, gets there. The next section of the Report is the Status of the Audit Recommendations. So we have what, two… four, five, six, seven, eight audits with open recommendations dating, the audits dating from 2010 until the two most recent ones in 2016. The graph below that shows that none of the recommendations were reported as implemented during this quarter. During the year a total of 25 were implemented. There is still 41 outstanding from audits prior to 2016 and 32 from the audits that we conducted this fiscal year. And then the last item on here is the Fraud Waste and Abuse Hotline. During fiscal year 2016 we received 13 complaints. One of those is still open. We continue to receive complaints that primarily are personnel types of issues rather than fraud, waste or abuse types of issues and we’ll be coming back at the Council’s request to Policy and Services next month with a report about how we might address that. And that completes my report for our Quarterly Report right now. [Inaudible] Answer any questions. Chair DuBois: Thank you for the report. You had some questions? Council Member Kniss: So I’ve got a couple of things, right? Maybe we’ll go backwards. So you said that the about the hotline which has been a hot topic since I’ve been here. It's something that you wanted to reevaluate because you're saying it's primarily about… am I not on? TRANSCRIPT Page 4 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 James Keene, City Manager: Oh, no. Excuse me, I’m sorry. It’s just moving the mic just in case I had to say anything, but I’ll happily move it away. Council Member Kniss: So we have been discussing this for a long time and I think as you said it’ll come up next month? Ms. Richardson: Yes. Council Member Kniss: But I think it's important that we really take a good look at it. I don't think our City Manager is very enthused about it as I recall and so maybe we need to take a look at if it's not fraud abuse and so forth, but instead is personnel kinds of issues that that may not be worth our time. And I don't remember what it cost, but I'm going to presume that it’s everything [inaudible]. Ms. Richardson: I’ll be presenting that and looking at do, do we keep it and just define fraud waste and abuse better and advertise it to employees so they know what types of things to report or to do we do something different? So it will be a discussion item for next month. Council Member Kniss: And if you look back to seven, Page 7 and look at this for overtime it seems to me that whenever we've had these discussions that all overtime is not created equal. Ms. Richardson: That's correct. Council Member Kniss: So I'm not quite sure how you're going about that. I think you understand my… what I’m saying. So could you say a little more about that? Ms. Richardson: What we're looking at is if you look at data and really focus on when overtime is used and what the purpose of the overtime is and you start disaggregating the data instead of just looking at it in the aggregate can you identify trends that might help you look at different ways to staff that might be more efficient than using overtime? Council Member Kniss: Well, I’m also thinking that overtime for the Fire especially at this time of year is different. Ms. Richardson: Right. TRANSCRIPT Page 5 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Council Member Kniss: When Police are short on staff that's different. Ms. Richardson: Right, we understand … Council Member Kniss: And the same with Utilities with rights … Ms. Richardson: We’re looking at four departments primarily: Police, Fire, Utilities, and Public Works. Council Member Kniss: And [inaudible] seem to usually have very good reasons for why they have overtime. So that's what I, I guess what you're saying is it's the aggregation of this information is going to give you the data that you want? Ms. Richardson: Disaggregation. Council Member Kniss: The… Ok, the disaggregation. Ms. Richardson: De-aggregation? You choose the right one. Council Member Kniss: Ok, ok. I hear that, but that seems to be… Ms. Richardson: It's another way of looking, looking at data that might help you see things in a different way. Council Member Kniss: Ok, I’ll wait to see that. Those are my questions Tom. Chair DuBois: Great. Greg, Marc? Vice Mayor Scharff: I’m good. Chair DuBois: I just had one question which was seems so we had $200,000 in sales tax coming in, again on from a total basis where does that put us compared to last year? Ms. Richardson: Well that will count for the, to the first for the first quarter for this coming year. Chair DuBois: Ok. TRANSCRIPT Page 6 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Ms. Richardson: For this for Fiscal Year (FY) ‘17 and that puts us way ahead of anything we’ve collected in prior years. Chair DuBois: Ok, well we did have … Ms. Richardson: It’s a single, pardon me? Chair DuBois: We did have some large [inaudible] Ms. Richardson: Right, we… it's kind of up and down. This year was quite low compared to previous years. Chair DuBois: Ok, and then again there’s that backlog that you’re waiting to hear? Ms. Richardson: Correct. Chair DuBois: Has that backlog gotten larger? Ms. Richardson: It fluctuates. You might get a few that get resolved and then you add a few and so there's a little bit of up and down there. Last time that we had 50, last quarter we had 56 outstanding so we're up to 63 right now. Vice Mayor Scharff: So I just want to follow up, maybe I misunderstood. The $200,000 that you’re talking about I thought that was past collections [inaudible] the State didn’t give us that they were supposed to or is this? Ms. Richardson: It’s past collections that a vendor misallocated to other jurisdictions. Vice Mayor Scharff: Ok, that’s what I thought, right? So it's not, yeah. So when would that if that had normally come through, come in and… Ms. Richardson: It would have been spread out over the period of time that it should have normally come in, which was actually it was a long period of time. Third quarter of… third calendar quarter of 2007 or 2006 through the second quarter of 2014. Vice Mayor Scharff: So here again I think disaggregation is better than aggregation in that when we look at our 2016 sales tax and our 2017 sales TRANSCRIPT Page 7 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 tax are we going to include that $200,000 in those numbers as if we, as if we collected it in 2017, which we show off the… Ms. Richardson: Yes, yes. Vice Mayor Scharff: But that’ll screw up the numbers in terms of a trend of are we collecting more sales tax or less sales tax because that sales tax really should've been counted in previous years. Ms. Richardson: Correct and I’m not sure how Administrative Services Department (ASD) reallocates that, is anyone? Vice Mayor Scharff: [inaudible] cash based accounting. Ms. Richardson: So we’re going to be getting a large sum, I already told Jim about that. A large sum of money; it’s sales tax, but it’s from the this these different years and he’s saying it’s going to throw off our how it looks like how much we collect this year when it’s really. David Ramberg, Assistant Director of Administrative Services: It will, yeah. We’ll accrue it in the current year. Vice Mayor Scharff: Right here you just do a footnote. Mr. Keene: We’ll do a footnote. Vice Mayor Scharff: Just says it so it's not… That would be great. Ok, sorry. Chair DuBois: But overall it sounds like sales tax has gone down. Ms. Richardson: Well, I wouldn't say in general. It's just that the misallocations that we've identified have gone down. Chair DuBois: Right, that’s yeah. Vice Mayor Scharff: Ok, sales tax receipts have not gone down. Just so we’re clear. Chair DuBois: Any other questions? Get a Motion? TRANSCRIPT Page 8 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Council Member Kniss: We’d like to have sales tax going through. I move adoption of the report from the Auditor. MOTION: Council Member Kniss moved, seconded by Chair DuBois to recommend the City Council accept the Auditor’s Office Quarterly Report as of June 30, 2016. MOTION PASSED: 4-0 2. City Auditor's Office Fiscal Year 2017 Proposed Work Plan. Chair DuBois: Alright, so on to the next item. Council Member Kniss: Always like hearing about money, Harriet. Harriet Richardson, City Auditor: So the next item is the Auditor’s Office Fiscal Year (FY) 2017 Audit Plan. And when I prioritize these I try to look at you know different types of risk and I most of these came in actually as requests and I prioritize them based on what I thought were the riskiest areas that we needed to look at as well as my own staff and how I could spread them around the different projects during the during the year, keeping in mind that we do have one auditor who is Enterprise Funds so she only audits Enterprise Fund activities. So I'll start on your Packet Page 14 which is with our non-audit services and special projects. So we will continue to do the Annual Performance Report this year and as you know we've streamlined that so we have quite a bit fewer hours allocated to that this year. And we have started the process for the National Citizen Survey already. That should start going out being mailed out to residents by the end of August. And then we have our annual Citizen Centric Report which is just the four page summary of the financial situation of the City and performance data. And then continue with the sales tax allocation reviews that we currently do, which I just spoke about in the quarterly report. And then the hotline I put I don't normally spend about 60 hours on the hotline, but I put some time in there because we've done a survey of other jurisdictions and I'm going to be using the results of that survey to help inform the Staff Report that I’ll write for the discussion item next month. And then we coordinate the annual External Financial Audit with the certified public accounting firm that does our audits. That's currently with Macias, Gini & O'Connell. And then we review and monitor the status of prior audit recommendations as those reports come in which I report on the quarterly report each… I report the status that we know, but the department’s report the actual status and separate reports. And we do verify those statuses as TRANSCRIPT Page 9 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 we receive the reports before they're presented to you. And then our quarterly reports that I do each quarter and then the advisory roles that I just talked about on the quarterly report and again that we have added the Enterprise Resource Planning (ERP) strategic and technical planning committees as an over in an oversight role. And then this last one, Internal Control Training, this is actually been on our last two audit plans and we didn't do it then because we were waiting for the Government Accountability Office (GAO) to publish another document sort of a management and valuation tool that assists management in implementing internal controls, but they decided not to do that. And so I have talked with our Administrative Services Department (ASD) Director and we’re going to coordinate an effort to do some internal control training. One of the reasons this is going to be important is as the GAO revises the government auditing standards they're pulling a lot more from the Standards for Internal Control into the auditing standards which means that we are as auditors are going to have to do more work on internal controls. And that typically is where we find deficiencies that we report in our audit findings. So based on that if we do some training it should help departments be understand at least what they should do to implement good internal controls and reduce their audit risk. So we have about 1,100 hours allocated for those types of projects. Then getting into the performance audits the first section here is the audits that are currently in progress. And then the second section is new audits. So as I mentioned on our quarterly report we’re in the process of doing the Utilities Customer Service Water Rate and Billing Accuracy and then Gas and Electric Rate Billing Accuracy will be a separate audit. I’m actually we have done some work on that and then stopped and I'm actually going to defer that to later in the year because of some of the new audits that I have planned that I think are going to be a higher priority right now. And we have the Fee Schedules Audit, the Procure to Pay, the Continuous Monitoring of Overtime, Sustainable Purchases all in progress that I have already talked about. We have preliminarily started an audit on allocated charges that I have not sent out an audits start letter on. What we're wanting to do is look at the budget process to ensure that charges are allocated equitably based on the benefit the department’s received for the centralized City services. We're focusing on the General Fund and the IT allocations on for that particular audit. Moving into the new audits I have three audits on here for ERP planning. And the idea behind this audit is to try and identify concerns with the current ERP system, our SAP system that should be fixed to prevent basically garbage out becoming garbage in in the new ERP system when it's implemented. So the first one is data integrity, reliability, and security; we’ll be looking at those things in the current SAP system and make recommendations that go to make sure those types of things are corrected before transferring any data over to the new ERP system. We're going to look at segregation of duties. This particular segregation of duties is when TRANSCRIPT Page 10 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 you don't want one person doing multiple tasks that could allow them to basically commit fraud, steal, do things like that. So in ERP and SAP there is some concerns about how it was set up that some things were not adequately segregated among different staff and we're going to look at that and see how that can be fixed within the new ERP system. We’ll make some recommendations; probably have some matrices to help people understand how those should be separated. And then we're also going to be looking at data and system governance. Right now it's difficult to know who is really responsible for data when IT implements the system, but they say departments own the data. But when as auditors we go out and we’re asking for information the departments generally don't know the back anything beyond the screen they see. They don't understand the back workings, behind the screen workings of how things come together. For example, on the Utility Billing Audit we had to build the tables that go into a bill because we couldn't identify those easily from any records that the City has. So really looking at that and making sure that those types of things are well documented as we move into a new ERP system. The next audit is a limited scope audit just looking at the business registry, looking at the rules and processes that were used to establish it and see if we can make some recommendations to clean up the data and assure a smoother process in the future. And the next one this one was specifically requested by the City Manager's office for us to look at the Hydromax cross for inspection crop a contract. So the contractor who was doing that work had to stop due to some complications, but there's more work that needs to be done. And so they asked that we look at that to see if there's adequate documentation for what was done. Are we getting our money's worth for what was done and do we, are we on the right track for continuing providing the correct oversight and that sort of thing. The next audit is Code Enforcement. We were asked to look to evaluate the policies and practices for responses, responsiveness, consistency, and follow up especially for repeat offenders and complex cases. And the next audit is contract risk and oversight. Really looking at we focus in on certain types of contracts on that to determine if the City receives the good value for its money, the goods and services it paid for it paid for, revenues its entitled to, that we're not duplicating services through varied multiple contracts, and that potential contract extensions are appropriately disclosed in the contract documents. And then if you turn to the last page we have two more audits there. One is looking at the just analyzing the agreements that we have with the School District. There's a lot of contracts out there or a lot of agreements and multiple City departments have responsibility for various aspects of different contracts and so we're really just kind of pulling it together for informational to see what the benefits, who is getting those benefits, who's paying for what, and looking at how that should continue in the future. And in some cases it might be recommending we continue financial support, return TRANSCRIPT Page 11 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 operational support over to or operations over or vice versa. We'll look and see how those, how those work out. And then the last one that I have a request for was to look at the civilian whether civilian is, civilianizing certain sworn positions and public safety would result in some cost savings without increasing risk to an unacceptable level. So we would be benchmarking against other public safety organizations to see if there are options for doing that. And then at the bottom of the page I've got two sections there. The first section is audits that were on our Audit Plan last year that are not included this year and I’ll explain why. And the last section are new audits. They were new suggestions that I just couldn't fit into the audit plan. So on the ones that we did not include the bottom three payroll process that application controls and data reliability we’ll be touching on each of those in the ERP audits that we're planning so I didn't see a need to do those as separate audits. The first three utility meter routes, utility asset management staff, and utilities staffing because we only have one enterprise auditor there was only so much that she could do so I haven't included those. Procurement Process is the Procurement Manager has been making quite a few changes to the procurement process and so based on that we didn't see the same level of risk in the need to do that as an audit. Mobile device usage and security IT we're starting a project on that and so we didn't start that audit, but now that we're doing the ERP audits we probably won't be able to fit IT in for a fourth audit. And then the last few public benefits and impact fees were simply just a matter of scheduling and not being able to fit them in. And then the new suggestions that the bond were all a matter of scheduling and not being able to fit them in; so that completes my recommendations for our audit plan for FY ‘17. James Keene, City Manager: Thank you, Mr. Chair and thank you Harriet. I had a just a couple of comments on the proposed Audit Work Plan and apologize I haven't had a chance to talk with Harriet about these. I don't think there’s a real issue per se or anything, but first of all obviously it's pretty clear that the Auditor has an ambitious performance audit work plan for FY ‘17. Here when you look at the items that begin on Page 15 and carry over into Page 16 in addition I really think that the proposed audits identified especially these where the bulk of the of our resources are going to need to go related to the ERP planning and all of those are absolutely critical performance audits that need to take place. I did want to make a comment on just three of the proposed audits. First is this limited scope item on the business registry. And I would just say that of course we're at the very beginning of the FY here and a lot of these are going to depend upon her capacity during the course of the year. Some of them may be towards the later part of the year. Right now our own staffing situation is we've got a gap in that. So to the extent that the Auditor may need some TRANSCRIPT Page 12 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 direct staff support for doing that I don't think in the near term we're in a position to be able to support that. If she's able to sort of do that analysis without you know having to be able to work with you know Tom Fehrenbach who was the lead on the business registry and he's now departed. We could do that, but with that note. Secondly, under Code Enforcement, the Planning Director this morning after the leadership team meeting asked me to bring this up. That her suggestion would be to defer until later the audit on Code Enforcement and the reason for that is if you recall that the Council added funding for a key third Code Enforcement staff person who's been you know not on the job and up to speed for you know I mean for certainly under a year and we'd be in a much better position we think to get, do a good and meaningful audit after we have a little more track record with this additional staff person. I think was a key recommendation from the Council to be able to add that additional capacity. And I think if we did the audit in the beginning part in any way of the year you just wouldn't get the full measure of it. And then lastly just on the last page I would say is the analysis of the agreements with the Palo Alto Unified School District (PAUSD). I would just share that I had, you know I’ve had to put and those of you who were on the City School Liaison Committee. During the break I did have a chance to catch up with the School Superintendent on a number of issues. I did mention I’m not sure I got exactly the specifics of a performance audit being done, but that we anticipated that there would be reviews taking place this year on some of the different sort of shared service agreements that we have with the School District and that we would obviously keep them involved and I’d certainly would be in regular communication with the School Superintendent. So I did want to just make those three comments. Thank you. Vice Mayor Scharff: Great. Alright, so I guess I agree with the City Manager. I don’t think we should do Code Enforcement this year. We can just hire another person; I think City Manager is right. I think it would be the wrong time to do that audit. I also agree with the business registry that with Tommy leaving I think it doesn’t make any sense. I don't see quite how we do that audit. And so I would probably not do those two audits frankly right now. I did have a question on the civilianization of sworn positions. I think this is a good audit if it moves us towards what the Chief has already said he wants to do. And I guess I was a little I know we've done a study in the past. We hired fire consultants to come in and do this and make recommendations as to how the Fire Department operates and then based on that we did a lot of I would say restructuring of the Fire Department. So I can’t remember if that was already included in some of the work that was done. I was also wondering if you know, Police and Fire seem specialized to me. I could be completely wrong and so is it a better use of resources for us TRANSCRIPT Page 13 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 to do this through the Auditor’s Office or to hire a consultant who specializes in this? I just wanted to raise that question and I guess I wanted to get the City Manager’s view on that. And then I also have some concerns about the analysis of the agreements to the PAUSD. I do think that that is an area of which at some point we should take on; however, you know this includes things like who pays for the crossing guards? I don't quite want to take on right now not paying for the crossing guards. You know the School District has a huge budget issue which is you know primarily of their own making. Council Member Kniss: Greg, are you talking about the track? Mr. Keene: No, he’s talking about the school crossing guards. Vice Mayor Scharff: No, I’m talking about the crossing guards. I mean I believe we pay for those and the School District doesn’t. And you know, I think we should move towards the School District pays for half of it or something along those lines. I think so, but I guess I’m raising we have a lot on our plate right now in all sorts of things and I'm just wondering if this is the moment where we should do this or not do this. And I'm sort of on the fence. I’m not really arguing one way or the other, I'm just saying that of all the audits this is going to be the most political and the most where we, you know, create a bunch of issues that we're going to have to then deal with and that's not necessarily a bad thing, it’s just a timing issue. And right now the School District is going to be more difficult on these issues because they have a big budget issue. So for them to come up with a bunch more money to start paying for things I think that could be more, more difficult. And what I would hate to see is us to do the audit, decide then to not take no action on it because it's too difficult politically because the School District doesn't have any money right now as opposed to a more ideal time to do it. So that's the only thing I raise that question. I actually wanted feedback from the City Attorney, from the City Manager on both those concerns. Mr. Keene: Mr. Chair? Great, so let me start with the second item on the School District issue. I, first of all I think you bring up some very good points. I mean there are a whole range of formal relationships that we have and informal. We’ve got the school crossing guards, we run the shuttle bus program that you know provides transportation, we’ve obviously had the Track Watch Program guarding the tracks in relation to the teen suicide issue and that sort of thing which is a huge cost. And just this past year the whole issue of middle school athletics and things that come up. That being said I mean I think first of all the you know, the Auditor is very structured and required to be so in her approach to get to work plan clearly pacing on this work plan even during the course of the year. I mean things could be TRANSCRIPT Page 14 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 put off in my idea and I actually do think that it would not be really an appropriate signal to send to the School District that we're going to start this conversation off by putting doing an audit. I mean it seems to me that there are conversations that can happen at the City School District. I mean a City/School subcommittee between Board Members and Council Members about just this range of issues and how to go forward, but if this was the recommendation and act I’d just would I’m sensitive to your concern. I may ask the Auditor to jump in on the second item as relates to the public safety civilianization of sworn positions. We did do a comprehensive cost of services in coverage study I don't know about five or six years ago. It dealt with a whole range of issues. These were some of them. The ideal worked out with station location, response times, a whole bunch of things. So I don't I clearly think that additional analysis in some form will be necessary if we really want to. It's not so much a question of just moving forward with this, but able to have the rationale and documentation to explain to the public or to labor groups or whatever why this is in the City's best interest. As it relates to the question of would an outside consultant be a better route to go I’d really kind of defer, I’d certainly want to get Harriet’s perspective on that first. Ms. Richardson: So it is something that auditors in other jurisdictions have looked at so and they're… yes, I do acknowledge there are people who specialize in this type of thing. I think that there's a lot of literature out there also that can help us with assessing what types of positions are appropriate for civilianization and what types should be sworn. And there's a variety of factors that we would consider that we would list in the audit report about that would need to be considered when you make a decision should we convert it or should we leave it as sworn. So I don't think that our recommendations would be completely black and white. I think that they would, might be a little bit more these are some for consideration, these are some that you could probably easily convert, but I don't think it's going to be a clear list of these ones convert and these one stay. Chair DuBois: …questions from Marc and Liz. I just want to say if you want to speak on an item later there are speaker cards. You can fill them out and bring them up to the Assistant City Clerk. So Marc. Council Member Berman: So thank you, Greg, for bringing up the Palo Alto Unified School District’s (PAUSD’s) timeline is sensitive. And yeah, that makes a lot of sense. On the business registry I'm you know, I understand that Tom isn’t with, you know, Tom left, but we do seem to have some issues with you know the accuracy of the data in that in that registry. And I’m, I don't know what's been done to try to make sure that the next round TRANSCRIPT Page 15 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 of data is you know either more accurate or perceived to be more accurate. Maybe the current data already is accurate, but clearly there are a lot of opinions in the community that there were some gaps there. So you know, do you think Harriet that you can conduct a pretty high level evaluation of the rules and processes? Even without Tom being here that could be valuable and helpful to staff to try to improve that process before the next round and if not or Jim if you don't think that would be helpful then what are we going to do to make sure that you know, that data is more comprehensive and more accurate this time around? Ms. Richardson: I do believe that there’s some things we can look at that would be, it would be high level. We're looking at the process. We're not getting into a lot of details, but we would look at what possibly went wrong. There are a lot of other cities that have some sort of business registry and even just talking to some of them and saying how do you ensure accuracy in getting some benchmarking against other cities would probably want to be the way we would start this audit. And I do you can see I don't have a lot of hours on it. We're not intending to get real deep on it. It's really looking at the rules and is there a way to clean that up for how people register to make sure that the business registry is accurate. Council Member Berman: Great. And if we, you know, if some things do get knocked off of this work list what, you know, what on the carryover audit topics is this listed in kind of order of priority or what would you prioritize? Ms. Richardson: I would probably start with something from the new suggestions list and not from the old lists for the reasons I cited earlier why I didn't include them. So there's been there's all of these were requested… Council Member Berman: By individual Council Members and… Ms. Richardson: Yes. Council Member Berman: Got it. Ms. Richardson: Yes, so it’s just like it’s a yes. They were all requests by a Council Member. Council Member Berman: Ok. TRANSCRIPT Page 16 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Ms. Richardson: And so I think it would really be thinking about what we can do within the same amount of time and would provide the most benefit to Council. The Facilities Management was really looking at how we maintain our infrastructure that we have. Parking Assessment District there were some concerns that came out about when we did the Parking Funds Audit. That came up about the rules for how that's managed. Transfer Development Rights was really looking at whether or not we have good records on all of those. I can tell you right now that I did talk to Hillary in Planning and they actually have someone in their department who's been doing a lot of work to collect data and go through old records and get a good set of data to make sure that they do have they are aware of all the ones that have been established and the ones that have been sold. Planning Codes was just released seeing is they’re comparing what we do and have in our planning codes to some other cities that seemed to be more simplified than what we have and making some recommendations there. Financial Condition Report was really looking at where do we sit for long term. It kind of ties into long term liabilities including infrastructure and the analysis of revenue expenditures and reserves get cut [inaudible] probably tie most of that into a single financial condition report. Council Member Berman: Got it, thanks. Mr. Keene: Just a suggestion, you know assuming that something does come off it's about at the most about a quarter of a Full Time Equivalent (FTE) for years’ capacity and you know probably the Auditor could be in better shape when the item from the committee goes to the Council and be in a position to have done some time assessment as to what, what that quarter FTE could buy as far as some of these other audits when the recommendation came forward and not have to make a decision on the fly. Council Member Berman: Absolutely, yeah. No, I was looking for what she thought, not necessarily a hard suggestion. Yeah, great. Thanks. Council Member Kniss: So let’s go to the PAUSD. As a former trustee a long time ago, but I remember even then that they actually the City came to the rescue many years ago. I think it is a pattern. Maybe not a bad pattern, but I think if we don't begin to assess what it's really costing us we have the Track Watch that I think ran at least a million this year, am I right? Mr. Keene: Significantly over a million dollars. Council Member Kniss: Right. TRANSCRIPT Page 17 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Mr. Keene: And we only actually we don't even have full year funding [inaudible] issue. Council Member Kniss: On the I don't know how much the crosswalks are? Mr. Keene: $350,000 - $400,000. Council Member Kniss: Yeah, yeah. So, so I think one of the things that would help me make a decision on this is to know what is the amount of money really involved? At some point we really do have to have this conversation. When I was on Finance at least two years ago we had a discussion then about approaching the School District on sharing cost especially for the Track Watch. And I think we also need some sort of philosophical discussion about is when kids are not on a school ground are they our responsibility? So if they're getting there in some way or another and what are the other, what are the other woven in costs? And it's it's we have an interesting situation because we have no control over the School District whatsoever. And so many of the decisions that are made we’re excluded from those as well and that's not a bad thing, but I think realistically at some point we have to actually take that on and I it probably isn't going to be wildly popular. So you bet on [inaudible]. Chair DuBois: Anything else? Council Member Kniss: Nope, that’s it. Chair DuBois: Yeah, so I was going to make a comment on that one as well. I guess I just wanted to clarify what the purpose was because it again, I can see kind of immediately jumping to cost sharing, but there could be other reasons to do the audit. Ms. Richardson: Right. It was really looking at the different programs that that are shared and evaluating whether they should truly be shared or should they be operated by one party or another. And I don't think that necessarily means that we wouldn't provide financial support. I think part of it does, some of it probably comes down to what you were saying. Are we responsible for those kids? If we're operating it do we take on that responsibility versus whether they're operating it and we're just providing financial support. Council Member Kniss: That’s a good [inaudible]. TRANSCRIPT Page 18 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Chair DuBois: Yeah, so again I think and I'm not sure we requested it either, but I think if we do it in the right way that probably is the most politically sensitive audit on this list. It’s a very, a vicious worklist. But overall it seems like it strikes a nice balance between different areas. So again if the purpose is to really understand all of our obligations with the School District because that seems reasonable to me then we can decide what the outcome of that is. On Code Enforcement I think that is a really useful one. I would just prefer to see it shifted towards the end of the year. It's a smaller audit. Ms. Richardson: And it and it likely would be because we have the audits in progress and then based on the timeline for ERP they're planning to issue a Request For Proposal (RFP) in March. We will need to get started on those pretty quickly to be able to provide some input even though the audits might not be complete. So it would end up being one pushed out. Chair DuBois: And I think then the owner’s been here for a little while, right? So if we did it towards the end of the year? Mr. Keene: Yeah, if we could plan that and I mean the Planning Director suggested and I think it was a good offer too that you know, there's nothing that would preclude us from doing a public study session with the Council on the status of Code Enforcement. That’s different than an audit, but there is an opportunity to at least get an interim report as to how things are going and how they’re working. Chair DuBois: Ok, and then on the data clean up one I kind of had the same thoughts I think that Marc did, which was again it's also relatively small hours. I think if it's more process oriented you could look at potentially even look at it after the fact in terms of how the data is analyzed and if we can spot check the data for inconsistencies and that kind of thing. You’re going to, it may not make a difference if we have a person there for you to talk to if you’re just working with the data. So my take would be to kind of keep the plan as it is and maybe just shift priorities throughout the year without the ordering. Vice Mayor Scharff: So I've been sold on the business registry. I think if we keep it high level it’s only a 125 hours. On the Code Enforcement it's 575… Chair DuBois: It’s half the size of a business registry audit Vice Mayor Scharff: It’s three times, it’s almost three times the size of a business registry audit which [inaudible – multiple people talking]. Almost TRANSCRIPT Page 19 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 four times. So I mean I think, I think we should do it, but I think this is not a 2016 audit. I think it's a 2017 audit and I see no reason why we should try and shoehorn it in, I mean a 2018 audit not a 2017 audit. Council Member Berman: I'm assuming if we moved it the other work plan it might roll over anyways. Vice Mayor Scharff: But why not just start it then? I mean why not just say because it's 600 hours, what does that mean? Does that… I mean that’s a lot. That’s a big audit, 600 hours. So I wouldn't do that one. Now I mean I think we should do it, I just wouldn’t do it this year. And the agreements with the School District I think it depends on how we worded that. So I think it would be helpful to identify all agreements with PAUSD with the parties involved in each and evaluate the required services under each. I'm not so sure we really want the Auditor… Mr. Keene: We shouldn’t, right. Vice Mayor Scharff: To, to be making a recommendation, to be making recommendations about who… it’s one thing to identify everything and say these are all the agreements, these are how they're being done. I think that's useful information, but I don't want the Auditor saying we should do this or we should do that. I don’t think that's a good idea. And I guess I won't support it. I guess I've been sold on the public safety one and I think I’ve been sold on everything else that we would do. So for me, for me it's moving the Code Enforcement one off to next year and then it depends on… so I guess with that said what, how would you, what would you do on the PAUSD audit? Do you think it's worth going forward with it if I'm not going to want you make recommendations that would say anything about cost sharing or necessarily I'm not sure you say who should run it. I mean take, take crossing guards for instance. You know, it's clearly a School District function, right? [Inaudible] crossing guards, but the City does it. So I mean how would you, how would you approach something like that as an auditor? Would you say I've gone and looked at 12 other school districts and cities and the school districts pay for that in six of them and you know the city pays in six or the school district pays in all 12 and the city doesn't pay in any. I mean how would you approach it? Ms. Richardson: Most likely that is how we would approach it. We'd look at similar types of school districts to see and I don't know what those school districts would be right now, but that's most likely what we would do if we were making just comparisons. And we could even do that without making TRANSCRIPT Page 20 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 a recommendation as to whether the City should continue supporting or not. We could still do some benchmarking in that and then leave it up to Council. I mean then you have the information you can make a decision based on that. Vice Mayor Scharff: So is it really an audit if you don't make recommendations? I don’t think I’ve ever seen an audit come out of your office without recommendations. That's my only, you know. Council Member Kniss: I mean is it just information? Vice Mayor Scharff: Right, I have never seen an audit that doesn't have recommendations and you know… Council Member Kniss: Could you do an information only really is the question. Ms. Richardson: Right, right. We could do that. Vice Mayor Scharff: You could? And you're sure? I mean this doesn’t go against auditing? Ms. Richardson: No. Vice Mayor Scharff: Ok. Council Member Berman: Harriet would tell us. Vice Mayor Scharff: Ok. Well alright, I’d be fine if we’re doing it for informational purposes as long as we’re not... Mr. Keene: But, but this whole issue of even the determination you're talking about leaving out. I mean… Vice Mayor Scharff: Absolutely. Mr. Keene: Yeah. I would just think you would strike that second half of that language. Just say the required services under agreement and costs, you know, borne by each party or something. TRANSCRIPT Page 21 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Vice Mayor Scharff: That’s right. Chair DuBois: And maybe benchmarking. Mr. Keene: And benchmarking, yeah. Vice Mayor Scharff: Correct. So I just sort of like a mini-Motion. Are we all agreed that that's what we want to do on the school? Chair DuBois: I am. Council Member Kniss: I can, I think it’s a good middle good middle of the road decision. Bad pun. Vice Mayor Scharff: Ok. Alright. So I guess that’s what we want. Chair DuBois: So in terms of the work plan in terms of either if we pull Code Enforcement off then I guess you would come back to, would this come back to Council on consent with the proposal? Ms. Richardson: I can do that. I can put it in as consent if you'd like me to do it that way. We do, we do forward this with any changes that you recommend now as a consent item and I can just go ahead if you want me to add one of these other ones in I can do that. Vice Mayor Scharff: So there's two approaches we could do. We could either do that or we could have her forward everything else for the work plan and then you could come back to us and we could talk about one of these and then recommend that to Council if we want. Council Member Kniss: A better decision. Vice Mayor Scharff: What? Council Member Kniss: A better decision. I'm not sure the other five would agree to not go with the Code Enforcement. That's been a popular, popular item. Ms. Richardson: It was recommended by a Council Member who is not on this Committee. TRANSCRIPT Page 22 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Council Member Kniss: Yes. Vice Mayor Scharff: Well, if we don't put it on Consent… Chair DuBois: It comes back as an Action Item and then you could, kind of an alternative… Vice Mayor Scharff: But wait you’re doing it wrong. If you don’t put it on Consent the whole point of having a Committee goes away. I mean why have a Committee? I mean there's three Council Members to pull it. Chair DuBois: Not everything that goes to Committee is unanimous. Things go to… Vice Mayor Scharff: No, that’s what I mean. Right. But I mean the goal is to make it unanimous and to get through the business because I know we get things through too fast and we sit around and have nothing to do at Council. Mr. Keene: Every time. Vice Mayor Scharff: Every time. Ms. Richardson: Another option would be to leave it on, but say start late in the FY so it's basically being mostly performed in FY 18. Council Member Kniss: For the Code? Ms. Richardson: Yes. Chair DuBois: Once a new person is [inaudible] Council Member Berman: I would support that. Vice Mayor Scharff: Yeah, go with it. Council Member Kniss: Yeah, that’s… Mr. Keene: Well yeah, let's do that because… TRANSCRIPT Page 23 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Vice Mayor Scharff: That’s fine. Mr. Keene: It needs to go on Consent. Somebody can always pull it off Consent. So this, this ought to force somebody pulling it off consent. Vice Mayor Scharff: So why don’t we do that? As long as it’s clearly understood. Chair DuBois: So do we have a Motion then to… So I’ll move we go with work plan with the changes discussed. Council Member Kniss: With the Code starting at a later date. Vice Mayor Scharff: Correct. Council Member Kniss: and I’ll second it. Chair DuBois: All in favor? Alright, well thank you very much Harriet. MOTION: Vice Mayor Scharff moved, seconded by Council Member Kniss to recommend the City Council approve the Fiscal Year (FY) 2017 Proposed Audit Work Plan with the following changes: A. The audit for Analysis of Agreements with PAUSD should read “Identify all agreements with PAUSD and the parties involved in each and benchmark against other school districts to determine which services are generally provided by a school district or the city.” B. The Code Enforcement audit should begin later in Fiscal Year 2017 so the bulk of the work is performed in Fiscal Year 2018. MOTION PASSED: 4-0 At this time the Committee heard Agenda Item Number 4. 4. Consider Options for Changing the Palo Alto Minimum Wage, Currently $11 Per Hour, By Further Increasing the Rate and Considering Exemptions and Direct Staff to Take Related Action or Maintain the Existing Rate and Rate Increase Scheduled for January 2017. TRANSCRIPT Page 24 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Chair DuBois: Ok, we can go ahead start this item on an update on the minimum wage. David Ramberg, Assistant Director of Administrative Services: Good evening, Chair and members of the Policy and Services Committee. My name’s Dave Ramberg. I’m the Assistant Director of the Administrative Services Department (ASD) and I’m joined here as well by Cara Silver from the City Attorney's office for this item tonight. We’ll jump into a few slides. I hope you all have the slides at your places. I did want to make one correction to the staff report on Page 1 of the Staff Report I think it's the second line from the bottom there's a typo where we say 19. You probably caught that by 2019 that should be $15.00 by 2019. Elsewhere in the report it's correctly called out. So for tonight the topics that we're going to cover briefly in these few slides that I have about six slides, six or seven slides, is just really to bring you up to speed on kind of where we're at with minimum wage since last year and then run through the recommendations that we're suggesting for consideration tonight. So we're going to talk about the current status of where we're at and then we're going to cover a recap of the State and regional minimum wage status, propose changes from the Cities Association which is kind of the big topic for tonight that’s covered in the staff report, highlight a couple exceptions for consideration by the committee and then jumping into recapping with what the recommendation is for the committee to consider for tonight. So going on then to Slide 3 to remind everyone that Palo Alto adopted a change in the minimum wage in 2015 that went into effect in 2016. So the current minimum wage in Palo Alto is $11.00 per hour. With under the current ordinance the minimum wage is scheduled to increase by the Consumer Price Index (CPI), the national CPI which right now is about a percent. So it would look to the August to August change in the CPI which is coming out to be reported here shortly. If it stays about the same the new minimum wage under the current ordinance would change to $11.11 roughly in January of 2017, so just coming up here. We are required in the Ordinance to announce what that change will be in by October 1st. So that's really the most immediate kind of timeframe item that we need to be considerate of as we talk about things tonight. And then December 1st we do the actual publishing of the new schedule and announcement that we make available to all the businesses via the website. Those are the two key dates coming up based on the current ordinance. Jumping then to moving on to Slide 4, just a quick recap of some of what's happened maybe since the last time we were all together or at least refreshing of what the current state is. California is at on a schedule to be at $15.00 by 2022. San Jose is currently at $10.50 with an annual Consumer Price Index (CPI) increase built in. Sunnyvale recently went to an $11.00 minimum wage. Mountain View is at an $11.00 minimum wage as TRANSCRIPT Page 25 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 well. Mountain View is currently scheduled to go to $15.00 by 2018. And then you see there Palo Alto at $11.00 right now as well. Next Slide 5. Council Member Berman: Sorry that, one question on that last slide. So my understanding was Sunnyvale’s going to $15.00 an hour by 2018 as well. Council Member Kniss: They have. They’ve adopted it. Council Member Berman: I just checked their website earlier today. Mr. Ramberg: Great. Thank you for that clarification. And we would say that Sunnyvale is going to $15.00 by [inaudible] Council Member Kniss: Right, by 2018? January 1st? Or 2018. Man: Yes. Woman: Just like Mountain View. Mr. Ramberg: Thank you. Slide 5 then the proposed changes from this Cities Association of Santa Clara County this is what this slide recaps which is kind of the basis of a lot of the discussion in the Staff Report. The proposal there is to have a $15.00 per hour by 2019 it’s the $15.00 by 19 proposal. It would be phased in starting in 2017 at $12.00 an hour, go to $13.50 cents by 2018 and $15.00 an hour by 2019. It would then increase by CPI by the Bay Area CPI after 2019. And there are no… Vice Mayor Scharff: January 1, 2020. Mr. Ramberg: Thank you. And there are no built in additional exceptions recommended in the Santa Clara County Cities Association proposal. And then speaking of exceptions there are a couple exceptions worth bringing forward that we're requested to bring forward for Council consideration. One is referred to as the State’s learner exception. We wanted to emphasize that this really is already built into the definition of employee in the Palo Alto ordinance. So the State learner's exception allows for employers to pay a minimum of 85 percent of the minimum wage for the first 160 hours of employment. Palo Alto assumed that exception in adopting the State's minimum standards when we brought in our Ordinance. So that's built in. Some cities have gone beyond that and that's the possible discussion topic if so desired. Berkeley and San Francisco have gone beyond that State's level. TRANSCRIPT Page 26 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Vice Mayor Scharff: Well where’s Mountain View and Sunnyvale? Mr. Ramberg: They haven't made any changes to that. Vice Mayor Scharff: So they have a learner exception? Mr. Ramberg: Correct. Mr. Ramberg: They've incorporated the State’s. Woman: What? Person: No. Woman: Oh, we have no exemptions. Mr. Ramberg: They’ve incorporated the State’s definition of … Woman: No, oh, someone else can field that one. Mr. Keene: Maybe Cara, our City Attorney. Cara Silver, Senior Assistant City Attorney: Yes, that’s correct; Cara Silver, Senior Assistant City Attorney. So the this is a little bit complicated the State law contains a learner’s exemption as David mentioned and this City of Palo Alto incorporates the definition of this the State’s definition of employee thereby incorporating this learner's exception. So it does apply in Palo Alto’s ordinance and in Sunnyvale and Mountain View’s ordinance which has a similar structure. Mr. Ramberg: The other exception is one for… Mr. Keene: Well there was a request to bring this forward, the wait staff. Mr. Ramberg: Correct, yes. Thank you for that reminder Jim. The Council asked for information on the wait staff exception. And I believe you all received information from the City Attorney on that and that can be discussed further as needed. This would be an exception within the restaurant workers category and we don't have examples of other jurisdictions at this time incorporating a wait staff exception. TRANSCRIPT Page 27 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Chair DuBois: The other thing the state splits it by small company/large company. Is, do other cities do that? Ms. Silver: So just recently in connection with Senate Bill (SB) 3 the new State law increasing the minimum wage there is a distinction between small businesses and large businesses. And so I think that's what you're referring to? Yes. Chair DuBois: Yeah, I was asking Cara about it. Are cities emulating that at all? Ms. Silver: As far as we've researched in California there are no cities that have that distinction. In the recently adopted ordinances San Mateo just recently considered an ordinance and it actually went on second reading last night and I don't know if they passed it or not. And they have an exemption, a one year delayed deferral for nonprofits. So that's sort of the most recent thing that we found. Chair DuBois: I guess was that the end of the report or? Mr. Keene: Can I just add something, Mr. Chairman? As it relates to the any sort of a special exemption you know just [inaudible] those specific. I mean in addition to the information you can get from the City Attorney I think just in general that aside from many perspectives about fairness just the fact of creating exemptions really complicates the ability to kind of collect and maintain and enforce issues. Even some of the issues we've had with the business registry had to do with starting to put lots of different layers of categories and it’s self-reporting and it’s varied and it gets confusing for folks. In addition as David mentioned none of the other jurisdictions are exempting wait staff and we contract actually with San Jose to provide for the enforcement of this function. So I mean as the City Manager I mean my perspective would be it injects the opportunity for lots of errors in collection that sort of thing and complicates our contract in relationship I think potentially with San Jose as to how to enforce the ordinance. Thanks. Chair DuBois: Alright so we have quite a few members of the public [inaudible] public comments next. Because we have so many you have two minutes to speak and if when I call your name if you could come up to the microphone. So first speaker is David Page and we have Michael Martin on deck. TRANSCRIPT Page 28 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 David Page: Hi, thanks. Thanks for having this, taking the time to listen to us tonight. I’m in favor of the $15.00 minimum wage. When I was looking through the literature about this it seemed like the toughest concern, biggest concern was about the potential loss of jobs. And if you're considering helping out these people that are making $11.00 an hour a couple more dollars an hour would be really appreciated, but on the other hand somebody is making $11.00 an hour losing their job isn't going to be helpful at all. So I think that would be a really difficult call to make if we were living in a different part of the country without this extremely expensive cost of living that we have here in the world famous Silicon Valley. So given that consideration I say let's go for the $15.00 and no exemptions. Thank you. Chair DuBois: Thank you. Ok, Michael Martin followed by Susyn Almond. Michael Martin: Good evening. I'm not going to say this more eloquently than Galen Fletcher said in his email to the to the Committee and or as succinctly as Laurie said in hers as well. Fleming's is a company I work with. We're very strongly in support of living wage. As a company we have long been paying in excess of minimum wage to non-tipped employees. Frankly $15.00 an hour is probably not enough to work a single job and live in Palo Alto and we understand that as well. Our tipped associates probably make anywhere from $20.00 to $40.00 dollars an hour. Our non-tipped associates we would like to be able to pay them an equal wage, $25.00 to $30.00 an hour. So we were just looking for an exemption and for that; however, I we also understand we lobby the State of California we realize that's probably the best place for that exemption to come forward, but thank you. Chair DuBois: Thank you. Susyn Almond followed by Camelia Coupal. Susyn Almond: Hi, I’m Susyn Almond and I'm here to tell you the family side of this. My kids went to Palo Alto schools and my son has for the last five years worked minimum wage at McDonald's, Jamba Juice, and delivered your pizzas among other things. The way that he's able to stay on the peninsula is he lives with eight other people in a two bedroom apartment. So in the last couple of years we, I have lived in Mountain View and Sunnyvale and advocated and we’ve successfully passed minimum wage. So what I'm here to ask is that you do the same, you pass it forward to Council, no exemptions and help our all of us out. Thanks. Chair Dubois: Ok, Camelia Coupal followed by Paul George. TRANSCRIPT Page 29 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Camelia Coupal: Hi, I am in agreement with the $15.00 wage increase, but for restaurants and small businesses like Coupa Café having the wait staff exemption is necessary because there is a discrepancy between front of house and back house staff. So if you have a front of house staff making $15.00 with tips or making over $30.00 an hour discrepancy within the same people who should all be you know, trying to earn in the industry at the same level or range of $15.00, $20.00 an hour, but when you're adding tips which is the majority of the wage that they're going to be getting anyway the increases it's too high when you're comparing front and back of house. So I do think we need for restaurants the wait staff exemption. Thank you. Chair DuBois: Thank you. So Paul George followed by Alison Hicks. Paul George: Hi, Paul George with Municipal Peace and Justice Center. Through my organization I've been involved in literally every one of the local efforts to raise minimum wages. Most recently in San Mateo that was just mentioned and I thought I'd share some of the experiences there because the second reading was actually the third reading. They had an original bill where they had all kinds of exemptions build in and I think it's helpful to learn from them. First of all on restaurants our legal advice mostly from California Labor Federation and legislative analysts in Sacramento is the California law does not allow exemptions for tipped workers. The law is pretty clear to protect tip workers from just kind of exploitation that they have to get the same wage. Two tier wages offsetting tips things like that are pretty clearly banned. I sent you a copy of the analysis that we use. San Mateo backed off when they saw that. Another one that they had originally built in was for teenagers, but we pointed out to them that not all teenagers are there for spare pocket change. A lot of teenagers are working for minimum wage and actually contributing to the family income and there's no way you can write an ordinance that's going to be able to tell whether someone's working to put food on her family's table or for a summer job. So that's an exemption that got left out. On nonprofits it's an excellent question. San Mateo who originally just put nonprofits in their ordinance and then realized that places like the Chamber of Commerce are a nonprofit so they reduced it to 501(c)3 organizations. Those are tax exempt nonprofits and you might want to be careful about that one. And Councilman DuBois asked about defining small businesses. San Mateo originally had in their first ordinance a definition of under 50 employees, 50 employees or under and the question came up what about the places that have 52 or 53 employees, will they lay off two, three, four workers to benefit from a lower tier wage? The same thing could be said of if you set the limit at 20 or 30 or 10, there's always going to be that that break. In the end actually the TRANSCRIPT Page 30 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 employers in San Mateo said make it clean, it's easier for us, it's easier for enforcement. So thank you. Chair DuBois: Alison Hicks followed by Jesse Cool. Alison Hicks: Hi, I'm Alison Hicks. I'm with two groups: the let me see if I, The Raise the Wage Peninsula and South Bay Coalition and also I’m with the Raise the Wage Mountain View. I wanted to echo what Paul George said that when we were doing the work in Mountain View the legal opinion we got was that a two tiered wage for tipped workers and non-tipped workers was not legal and that's one of the reasons we didn't go for it in Mountain View. And then I just wanted to urge you to go to do a clean ordinance, a clean $15.00 by 2018 and to do it as quickly as possible. I have two big reasons for that. The first reason is that as you know from the presentation California wide there's going to be $15.00 by 2022. And that will apply to places like Bakersfield and Eureka, places where the cost of living is nowhere near as high as it is here. When we went to $15.00 by 2018 in Mountain View it was a somewhat new thing to do. Now this is not controversial anymore and I think we need you to move fast so that if you move more slowly the wage will be virtually the same as it is in the rest of California and we're living in a very different situation here in Mountain View in terms of cost of living. The second reason I'd like you to do it, the first was to get ahead of the rest of the wages around the State. The second reason is that low wage workers here are really living in a desperate situation. Let me tell you what happened to me the other day. I got I live in a family, a neighborhood of single family homes. I woke up in the morning I opened my kitchen window to look at the trees across the street and I couldn't see them. Instead of a man, a gentleman opened his kitchen window several feet from my house. He had moved to the street right outside my kitchen, virtually into my yard. He lived in a Recreational Vehicle (RV). You know I talked to him, he was a low wage worker and he can't afford to live in any other way. If if our elected officials don't take common sense steps like this to help out low wage workers they're going to take their own steps and possibly in ways that we don’t like. Thank you. Chair DuBois: Jesse Cool followed by Michael Ekwall. Jesse Cool: I'm actually Jesse Cool. That's ok. I've been a Palo Alto resident and have owned restaurants in Palo Alto and Menlo Park for 40 years. This is… sorry? This is one of the hardest challenges I think I've ever had in my career. Nothing compared to economic or businesses, business challenges. I am for the increased minimum wage, but I’m asking that you please consider an exemption for tipped employees. We are not going to be here TRANSCRIPT Page 31 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 much longer if you don't. We can't hire people, we can't find them. We're already all pay, already paying dishwashers from $13.00 to $14.00 an hour. I'm not sure if you all know but by law we cannot give any of the tips to the kitchen staff. None of your money goes to any of them. It all goes to the front of the house, tipped people. Half of our staff are tipped employees with men… and they make minimum wage from $18.00 to $24.00 and $40.00 an hour. In order for us to pay higher wages we are forced to raise prices on the food that you buy in our restaurants. When we pray, when we raise prices you tip more. It all goes to the servers and we can't pay our kitchen staff any more. My labor costs have gone within the last six months from 36 percent to 44 percent. In general in the restaurant business if we can make five to ten cents on a dollar we're doing really well. I'm down to about two percent. So if I have to pay everyone minimum wage and then on top of that the I keep raising prices and they're making more I will not be able to pay the kitchen staff and I'll be honest with you, I’ll be gone. I don't care how opulent this community is or how many people are in the restaurant, I’ll be gone. Most restaurant owners agree with an increased minimum wage. What we are asking you in Palo Alto, my community, is to please put a freeze no matter how hard it is for you we’ll keep the books. We've done it in the past with anything we have mandated to us. Put a freeze on the current minimum wage for only tipped employees. They'll automatically make more as we are forced to increase our cost to you because you tip on percentage. Thank you for your time and I'm really asking that my community take care of this. Thank you. Chair DuBois: Ok, Michael Ekwall followed by Peter Katz. Michael Ekwall: Good evening. I'll try to stick to my script tonight although I've heard a couple of things that I don't think are quite accurate. However, from our perspective as a local restaurant that's been open for 19 years in Palo Alto we're not opposed to the concept of raising the minimum wage, but to do so without acknowledging the tipped income and provide an exemption for these tipped employees only helps our top wage earners in tip settings and leaves the untipped staff which are generally our kitchen workers unaffected by your efforts. So the reality is that over 40 states including New York have a tiered minimum wage system. The federal government as well has a tiered minimum wage system. And regarding tips and gratuities as has been pointed out earlier the Department of Labor specifically states that it's against federal law for back of the house employees to participate in tip pools. So the reality here in Palo Alto is that none of our kitchen employees are paid minimum wage, but just with this past January’s minimum wage increase in our business it cost us this year $40,000 in additional payroll. Unfortunately, not one of those dollars went to our TRANSCRIPT Page 32 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 minimum wage, I'm sorry, to our kitchen staff. They all went to our minimum wage tipped employees. So what we're asking is the Council help create an ordinance that will help our lowest wage earners and also provide hospitality and our tipped employees with an exemption. Not a sub minimum wage exemption, but keeping us at the State minimum wage. So I heard earlier something about California Labor Code 351 that might allegedly prohibit the Council from an exemption to the State wage. Now legal experts that we've talked with have a contrary opinion and said that that only applies to the State mandated minimum wage. So what we're asking is let us pay our tipped employees that State mandated minimum wage. Also I noticed in tonight’s meeting notes on page four that there was a confidential memo from the City Attorney's office regarding this issue so we'd be interested in knowing why that issue is confidential. We're asking that our tipped employees be exempted from the law, but those employees still be compensated at the State's minimum wage. It's wrapped up. I thank you for your time. Chair DuBois: Thanks, Michael. Alright, Peter Katz followed by Dan Gordon. Peter Katz: Thank you. My name is Peter. I own a restaurant here in Palo Alto. I own seven other restaurants around the Bay Area. Everybody raise your hand if you don't believe in paying people living wage? Ok. We all believe and in fact we believe that what people are making in the Bay Area at the lower end is not enough. And I know a lot of restaurant owners and frankly I know very few if any that don't support raising the minimum wage to a living wage. We certainly do. The issue as others have said is more about the impact of that minimum wage on most of the workers in our restaurant. The folks that are going to gain from it are the folks that actually are really unconcerned with their daily paychecks because they're being paid $30.00 or $40.00 dollars an hour in tips. That wouldn't be a problem either if it didn't impact our ability to pay the rest of the folks that work in the restaurants. More than half our staff are making well above minimum wage right now and the more that we end up having to pay because of an increased minimum wage to folks that are already making $30.00 or $40.00 dollars an hour the less we're going to be able to afford to pay these other folks that are working in what we call the back of house. So the losers in all this are going to be the folks that probably most need it and also frankly the restaurant owners. And why should you be concerned about that? Well there are frank… candidly right now the restaurants and you probably haven't seen it yet, but you going to see it pretty quickly across the country and even here in the Bay Area and even here in Palo Alto are starting to suffer pretty serious economically. And we're going to see restaurants going out of business. We've already seen it across the country TRANSCRIPT Page 33 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 we've already seen restaurant chains shutting down, three in the last two weeks. You know very large restaurant chains. We’re kind of mom and pop, but the same thing is happening to us. I agree with what the previous speaker said about the State minimum wage being a floor for tipped employees that I believe in the gates what Mr. George pointed out about any legal ramifications. And candidly I've got as I said eight restaurants here in the Bay Area. We've stopped growing. We're not looking to open any more because of these economic issues and that should be a concern as well. And the last question before I close it up is I’ll ask the folks in support of no exceptions at all even though 48 other states have exceptions and it's to the City Manager it's managed properly in those 48 other states. I'd ask why not? What, why not take that money that's going to folks that are making $30.00/$40.00 an hour and pay it to the poor, you know, folks that are on the grill that are making today $15.00, $16.00, $17.00 an hour, but we could pay them more. We could pay them $18.00 or $25.00 an hour. Chair DuBois: Thank you. Dan Gordon followed by Meghan Fraley. Dan Gordon: Hi, I’m Dan Gordon. I’m the co-founder Gordon Biersch, now Dan Gordon’s around the corner. It’s great to be back in Palo Alto. It's kind of funny, 28 years ago I was sitting in the City Council Chamber wondering whether we’re going to get approved to have a building permit to open the place up and now I'm full circle. Mr. Keene: It didn’t take you 28 years to get the permit, did it? Mr. Gordon: No, it didn’t. It did take us, actually the permitting process went pretty quick. It was only like six months total and we were up and running so not, that wasn’t bad at all. Yeah, it was a very efficient City. I'm pleading for the exemption. Clearly no one can live on $15.00 an hour as if that's their only income. The reality is that servers that are tipped employees get anywhere from $20.00 to $40.00 dollars an hour in tips working in Palo Alto. They don't need the help. You've heard that from everybody. It's unanimous. Those are not underserved underpaid individuals. We've got to have that. We're the only one of seven states in the country that doesn't have a subminimum wage level. We're not even talking about subminimum wage for hourly employees. For the tip employees you go in a, you look check the stats and I brought some studies. If you want to keep these, they are economic studies about subminimum. It's crazy that we're even in a state that does it, let alone a City that's going to be putting forward a 36 percent increase in hourly pay for tipped employees. Thirty-six percent increase in labor costs for anybody in the world in business is going to take them under and that's what's going to TRANSCRIPT Page 34 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 happen down the street. By 2019 first thing there's going to threat to all businesses that want to consider opening up in Palo Alto. I, as an investor in this operation, would have seriously reconsidered opening up had I known that it was going to go from $11.00 to $15.00 in such a short time frame. Everybody in the restaurant industry is going to think the same way. You’re going to find that decimation there. Then there's going to be panic attacks on how to figure out how to accommodate this rapid increase. So when you're talking about someone like Jesse who's got you know 40 percent labor costs and half of those are hourly and you look at the inflationary aspect of a 36 percent increase and you're working on a two to three percent margin to begin with that means every, the majority of the restaurants in the industry are going to go to a rapid loss. And you’re going to see decimation of all the restaurants you like except for some power players, you know. I'm going to be honest we we’re pretty profitable over there. Rob does a great job at his place and we're very, very high volume oriented, but the majority of restaurants in this town are not that way. There are a lot of mom pop institutions and you can't discriminate against them. The ones that are winning, well, and then the majority that are barely eeking by. So you've got to really consider this. There is a legal precedent you can do this. It's just we're one of the few states that is bad at business environment and doesn't look to the outside of this region and this State to find out what's going to work. Ok, thanks. Chair DuBois: Thank you. So Jon Kiya. I’m sorry, Meghan and then Jon Kiya. Meghan Fraley: Hi, my name is Megan Fraley I'm with the Raise the Wage Coalition. We've been you've seen us many times I think at this point. I also an the Clinical Director of a Community Center for Health and Wellness which works with people and improving mental health here in Palo Alto. So our as part of the Raise the Wage Coalition though there's a few of us in this room, there's also thousands of people that we're here to speak on behalf of minimum wage workers who are working and also Peninsula Young Democrats, really as you can see even with all of these wonderful restaurant owners that are here this is about as popular and clear of an issue as it can get. Even Hillary and Bernie duked it out about $15.00 and we're not even talking about the heart of Silicon Valley. So in that sense it's very politically popular; that said what it really comes down to is what's moral and fair and people deserve to be able to live, right? As someone in the mental health field I see the very real consequences of not being able to work 40 hour weeks and instead 60-80 hour weeks and what that does to the children and what that does to the families and it's very it's very real. So I would ask that you join Palo Alto, sorry, yeah. Join the heart of Palo Alto and Mountain TRANSCRIPT Page 35 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 View and Sunnyvale and passing the a clean path to $15.00 by 2018. And join us, I’m a Mountain View resident as well. So please join us in leading the way. I think you know Sunnyvale and Mountain View moved, but right now after the Cities Association sent forth the recommendation, actually I have the letter here so I can share any of that from you. And you can share because you were there. It was beautiful, oh my God. But after the Cities Association sent out the recommendation for all of us to move in concert what was really clear was how important it was I think from everyone who really thought through that that it was a clean ordinance to make it easily replicable, much more easy to enforce because we already have people working on wage theft issues, easier for businesses who work in more than one city. So please pass a clean path to $15.00 by 2018. Thank you guys for being leaders on this issue and other cities are watching for the lead. So thanks. Chair DuBois: Thank you. So Jon Kiya followed by Ruth Silver Taube. Jon Kiya: Hi, Jon Kiya, a longtime resident; I’m on the Board of the Chamber of Commerce and I'm here to speak on behalf of the Chamber and its members and the business community, you know, local business community in general. So we don't want to stand in the way of the path to $15.00. That movement is already underway regionally we and we believe that's the it's the right thing. We are concerned about a couple of sectors that this impacts and one of course is the restaurant sector and tipped workers. And I can't say anything better than it's already been said by many of the restaurant owners, but we are concerned about the disparity between the front and the back of the house, the rise in prices in order to compensate some very low margin business, and I would also say that following the lead of a Sunnyvale or a Mountain View I don't think that we necessarily as a city have to go down that path. We're in, we're a vastly different city than Sunnyvale or Mountain View. You know I could I guess I would make the analogy that running a restaurant in Sunnyvale or Mountain View is not as challenging as it is running in Palo Alto. You've got a high cost of real estate. You've got fierce competition. You've got a real big challenge in hiring workers and so I don't think that we necessarily have to look at our neighboring cities and pattern our policies after those cities. We’re I think we’ll all agree that Palo Alto is a very different city. The others sector that we are concerned about is the a, it's the nonprofit sector. Because nonprofits many nonprofits get the bulk of their revenues for through government contracts: local, state, and federal or grants and they're multi- year grants they base those revenues off budgets, fixed budgets and to change those budgets would put a lot of pressure on these nonprofits. And one thing we don't want to do is drive nonprofits like Acterra, like Abilities TRANSCRIPT Page 36 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 United, like the Junior Museum, like Avenidas out of out of this area. I think we’ll agree that we're better community when we have those nonprofits operating here. Thank you very much. Chair DuBois: Thank you. Ruth Taube followed by Rob Fischer. Ruth Silver Taube: Hello, my name is Ruth Silver Taube. I'm the Supervising Attorney at the Workers' Rights Clinic at the Alexander Law Center at Santa Clara University Law School. And I see a lot of clients from Palo Alto that come to our clinic, low income clients that often because of the money that they're making which is so low have to either end up living in their cars being homeless or living in very crowded circumstances. And raising the minimum wage will make a huge difference. Many of these workers work many, many jobs. Really aren't… it impacts their health and it makes a huge difference. And I I'm speaking here in favor of a clean measure and I'm also an employment attorney. I teach employment law at Santa Clara University Law School. And I disagree vehemently with the interpretation of Labor Code 351 that was proffered by the speaker from the restaurant. In fact, the Labor Commission itself says that California law requires that employees receive the minimum wage plus any tips left for them by patrons of the employer's business. I do not agree that there is any exemption in because it's local rather than state. As a matter of fact the state is the floor. The local cannot, can maybe be better, but it can't go lower than that. And I am confident that that's a losing argument. The other thing about the learner's wage is that it's only for 160 hours and then it has to go up. So I don't think it's going to buy anybody very much. Finally, I don't believe that non-profits should be exempt. We're talking about a very low amount of money. The last speaker spoke about how challenging it is for the restaurants in Palo Alto which may very well be true, but conversely it is very, very, very challenging for people who live in Palo Alto and even more challenging than Mountain View and Sunnyvale because the costs are even higher here. And there's been studies. There was a University of California (UC) Berkeley study and it shows that the minimum wage has a very positive impact. Raising the minimum wage in the past has made a difference. People have more buying power and they're able to live near where they work. Thank you. Chair DuBois: Thank you. Rob Fischer followed by Forest Peterson. Rob Fischer: Hi, good evening. I’m Rob Fischer, local restaurateur. A couple things, one is I think what we all want is fairness for all of our employees. And that's what we're asking you to give us, the ability to be fair to everybody. Not, we're not looking to not do the minimum wage of $15.00 TRANSCRIPT Page 37 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 an hour, we're not looking to go below the floor of the State, but what we want to do is we want to take that money and give it to the people who work harder than anybody else in our restaurants. The people in our kitchens are by far the hardest workers we have. And there are dishwashers if anyone in here has washed dishes before I don't think you could disagree with me. They are the, that is the hardest job in any of our restaurants. Our cooks work extremely hard. The fact that we don't have the ability to pool our tips and share with those people the laws are pretty clear that if you're not touching that table, what I mean by that is if you're not going to that table and talking to the guest you cannot share in that gratuity. So it's really important for us to be able to pay our people in the back of the house more money. And we want them to have as good of a life as the people in the front of our restaurants do and that's what we're asking for and nothing more. Ok, thank you very much. Chair DuBois: Forest Peterson followed by Poncho Guevara. Forest Peterson: Thank you for giving me the opportunity to speak and I'd like to speak in favor of the $15.00 an hour wage. So first what I'd like to do is thank Gordon for his beer because that's what as a grad student at Stanford that's what keeps us going. And I haven't been to a single event where the difference between a good event and a bad event wasn't over that beer. So that brings me to grad students. A lot of my neighbors in Escondido Village we have to work in the community. Sometimes we threaten our advisors that I'm going to go work in the community for $10.00 an hour if I don't get funding. That's a big difference trying to support your family, your wife, your kids; some of it's the women supporting their husband and their kids while they're finishing their graduate degrees. So raising the wage I don't think is something I need to speak on that much. It sounds like everybody agrees that that's important. So what I can speak professionally is as a construction engineer. In the construction industry we have laws that are incredibly complex on wages. And I understand the importance of varying the wages for different types of workers and trying to equalize it and the problems that the law creates, but if you jump into the prevailing wage law you can create an entire business just in prevailing wage administration. And so I wouldn't recommend anybody to go down that road as a solution is a more complex law. Thank you. Chair DuBois: Poncho Guevara followed by Maria Noel Fernandez. Poncho Guevara: Hi, again my name is Poncho Guevara. I’m the Executive Director of Sacred Heart Community Service in San Jose and it’s a pleasure to actually be here. And actually I just want to congratulate you for having TRANSCRIPT Page 38 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 this dialogue and making sure that we're really lifting up this this conversation about what's happening with families in our community. Last year alone Sacred Heart served over like I said about over 62,000 men, women, and children that came through our doors last year out of our base of operations up in San Jose, but we serve folks that live and work throughout the Valley including over 300 folks that are working in Palo Alto according to information that we have. And one of the one of the gals was named, a woman by the name of Griselda who actually works at a restaurant up here takes two busses, takes over two hours in terms of commute time every day, time that she's not able to spend with her kids and she is doing everything that she can to try to make sure that she can actually provide for her family. She can't work full time because of all of her commute time and being able to be with her kids. And the hours that she's worked both front of the house and back of the house are what sustains her and she needs a strong working environment. And just being able to calculate what's happening and making sure that we're able to do everything we can to lift up everyone and trying to go through the process where sometimes she hasn't gotten paid everything that she was or not by necessarily in any of the employers in this room, but having to go to a clinic like Ruth’s and be able to say, you know I I'm not sure if I'm paid correctly and I didn't get this or that kind of thing. Most of these are complaint driven you know processes to actually audit for enforcement becomes very, very difficult to be able to make sure that everything is able to be operated efficiently and so creating a system that's fair, flat, and effective that doesn't have lots of exemptions is really important for the day to day reality of families like Griselda’s. So we ask for a clean $15.00 by 2018. It does create a standard for our area and is representative of the values that I think we'd like to share. Because let me say what we've been able to do even lifting it $11.00 an hour has made a huge difference in the lives of so many families like Griselda’s. We ask you to move forward with this in an effective and efficient way for the entire valley. Thank you. Chair DuBois: Thank you. Your last speaker is Maria Noel Fernandez. Maria Noel Fernandez: Good evening, Maria Noel Fernandez with Working Partnerships USA and Silicon Valley Rising. I don't want to be repetitive so I’ll try to be pretty short. The reality is that many of us in this room have been a part of this movement for many, many years. And since we started this work we were up against really this fear that is in the community and that's really being generated in part lot of times by the commerces etcetera and what we've found in passing the first step which was to get to $10.00 in San Jose we were told that restaurants were going to close that, you know, the sky was going to fall and the reality is that it didn't. And so I think it's TRANSCRIPT Page 39 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 really important for us to really look at some of the studies that have been done. Ruth lifted up a really important study that I'm fearful that we haven't talked enough about which is the University of California (UC) Berkeley report that was done. UC Berkeley really is seen as the gold standard in terms of studying this issue locally and nationally and from the report they were able to find really the benefit that it would bring to the local economy, but also address some of the fears that our business leaders are bringing to us. And what if found is that it would likely increase costs from about 0.3 percent to 2.9 percent and that could be something that would be able to be absorbed. I want to also just lift up this idea around tip minimum wage. The reality is that Code Section 351 is real and that it will potentially put Palo Alto at a real legal risk if that's ignored. I really do appreciate all the work that's already been done on this issue. I think we're all working to really figure out how we can make this work and how we can make Silicon Valley a place for all of us that businesses can thrive that communities and workers can thrive in and this is a key step in making that possible. And just really lastly I just want to lift up that I appreciate the concern for nonprofits. I am a nonprofit. I work for a nonprofit and the reality is is that the movement has been driven by nonprofits. And so I want to just make sure that people know that nonprofits are part of this movement and are a part of making $15.00 real. Thank you. Chair DuBois: Thank you. Thank you to all of our speakers. Now I’ll turn to Council Members. Council Member Kniss: Could we start with asking Cara if she would go through the 351, talk about other states, set the legal stage for us. Chair DuBois: Sure. That’s a good idea. Yeah. Did you hear that [inaudible] Ms. Silver: So certainly. So as the foundation I think that the most complex question here is the tip credit and most of the speakers addressed that question. So the statutory framework for the tip credit is Labor Code 351 which says that essentially it prohibits employees from taking tips from the workers to credit against their base pay. And there are cases that have interpreted that section as also prohibiting the State from providing for a tip credit or a tip exception. Now since there aren’t any cities that have actually provided this tip exception or tip credit there are no cases that talk about whether this State provision is applicable to cities. However, you know there are certainly commentators out there and lots of legal opinions out there that believe in they’re, you know, the best judgment that this provision would apply to cities as well. It is currently an open issue and we provided you a confidential memo on our assessment of at that issue. TRANSCRIPT Page 40 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Chair DuBois: Ok, thank you. Greg? Vice Mayor Scharff: Thanks. So first of all I'd like to thank everyone for coming out today. This is a small town in many ways and I'm actually really glad that the restaurants came out that and I, and all the people that have been working so hard to have $15.00 by 2018. I appreciate you all coming out. I know how hard you’ve worked on this and I've seen you over and over again at many things like the Cities Association meetings and all of that. And I think the first thing I'm struck by is I think there almost seems universal agreement by all the speakers in the room that $15.00 is the way to go. I don't think that's really a question. I think everyone's thought about that. I actually also wanted to say that I appreciated the nonprofits that got up and spoke because I have had some concerns about an exemption for nonprofits. I have been concerned that for what the person from the Chamber of Commerce said, but I haven't seen the nonprofits. I’ve seen the nonprofits do the opposite. They've come up here and asked to be part of $15.00 by 2018 and that counts for a lot. So the most troubling thing of all for me obviously is that the restaurant tip issue. I think that's actually a really difficult issue, but we have a State law and the State law is if it's not clear we would then become the test case. And I am an attorney and no attorney I think who is any good would tell their client frankly to be the test case for the State. And I think if Palo Alto did that we would be the test case. And I want to say that because I appreciate what you've all said and frankly I actually have actually gone through some of the books with my friends who own restaurants in Palo Alto and I do think that there is an issue. And I recognize it is a true issue, but I actually think as I think it was the person from Fleming said this is really an issue to address to your State legislators. I really feel that we in the City here have our hands tied on this issue. And you know we could you know make a bold statement in favor of the restaurant industry. We could do that I suppose and take on litigation. I don't think that's the right thing to do. I also think there's an enforcement issue that we need to be cognizant about. That if we have separate rules it becomes much, much harder to enforce things. The other thing is as you know I'm part of the Cities Association, the Vice President of it. And I got to say that I think what we really want to do here is we want to take a regional approach. And if everyone has the same rules you all compete on a level playing field as restaurants and as everyone else. And that seems to make sense to me. And I got to say I think that's probably one of the strongest arguments why we should have a clean simple to enforce rule that everyone understands. So that's where I'm coming from. And I did sign the letter from the Cities Association so I'm sure that's not a huge surprise to people where I’m coming from on this. And when we talk about what we want to do today what I'd like us to do is to make sure we get in sync with our TRANSCRIPT Page 41 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 neighboring cities so that by 2020 frankly all the cities in Santa Clara County are on the same page. And that was the thrust and the reason I said 2020 I saw some confusion is that other people… No, it's a good question. Is cities of Mountain View and Sunnyvale are going to be ahead of a lot of other cities. A lot of people are at $10.00 right now. We're at $11.00 and so by 20 the Cities Association suggested $15.00 by January 1st of 2019. And the notion was at that point that Mountain View and Sunnyvale will go back and suspend the CPI increase and that the new CPI increase on $15.00 will actually be, you know, January 1, 2020. And that's why I said in 2020 everybody hopefully will have the same wage we just all have to catch up and get together. At least that was the vision of the Cities Association so that there's no difference everyone's at the same rate. If you open a restaurant in Mountain View or open in Palo Alto or you open any business you know where you are. And so that's the Cities Association vision of where we get to. I think there's obviously some details here, you know, Palo Alto is currently $11.00. A lot of cities are at $10.00. So the Cities Association said you know three steps you know $12.00, $13.00, $15.00 and $15.00 on January 1, 2019. How we actually get to that $15.00 we can talk about my view. You know, I mean there's different reasons I've heard from some restaurant owners that you know a little more time on some of these things is very helpful, but within that framework I think we need to all be the same, you know, by January 1, 2019 that we’re at $15.00 and then we all deal with the CPI increase to all come into alignment. So that's what I was thinking on that. I did want to say the other thing in the back of my head is a little bit is I ate at restaurants all over California and I haven't found the Oakland restaurant scene I am pretty sure Oakland's at $15.00 aren’t they? They're close, right? Woman: They’re between, they’re around $12.50 or $13.00. Vice Mayor Scharff: So they’re at $12.50. Ok. So what I've noticed is Oakland seems to be going to a different system where you don't tip. They seem to be going to a system of you know a surcharge. And I noticed that Tamarind frankly, I don’t know if anyone here represents Tamarind, now has like a three percent mandate charge. Man: Do they? I didn’t realize that. Vice Mayor Scharff: And I'm guessing that that is the work around. And when I was a Beverly Hills they didn't, they had the same thing. They had a large this is I don't remember I think it was like 15 percent or whatever. This is the surcharge due to the minimum wage. I think that's what they wrote on the menu. Because I think Beverly Hills is way up there. It may TRANSCRIPT Page 42 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 even be at $15.00 currently. So I know that you guys will adapt and I feel bad saying that. Man in audience: I know that this is probably out of order, but can I say that we did that in our restaurant in Cupertino? For three months and we had to change under duress from all of our [inaudible]. It is exactly where we all need to get, but there is no way as an individual restaurant we can do that in this environment. We tried it. We got Yelp reviews. All of our Yelp reviews prior to [inaudible] the restaurant said excellent and we go to the point where after three months we had to change it and apologize to our customers who called us greedy even though all of that money was going to higher wages. Vice Mayor Scharff: So fair enough, I think and I think that's what argues for a regional approach because if every city and every restaurant has the same rules then you won't have that problem. Chair DuBois: Let’s keep some order here. That’s ok. We’ve been a little lax tonight, but let’s maintain some order. Greg? Vice Mayor Scharff: So yeah, San Mateo, but San Mateo as a county is moving as a whole in the same direction. And I think you know we obviously can't, can't make a perfect world without, you know, we can't enforce everything. So what I want to see us do and I think it's really is I want to make sure that we do $15.00 by at least January 1, 2019. I want to make sure that we have some step increases so in 17 we start again. I would suggest probably that we move since the Cities Association is actually suggesting $12.00, we’re a dollar had already. I would probably suggest that we move to $13.00 on January 1, 2017. I realize and then I actually wouldn't have another increase to January 1, 2019 of $15.00 which gets us up. I mean there's some people are going to say that the $13.00 is too quick. Yes it's quick, it goes up, but it goes up the way the other cities went up. They were at $10.00, we’re at $11.00. I don't think we need to have another interim increase. I think you then have time to adapt by January 1, 2019 and then at that point we have a CPI increase start on January 1, 2020. And I also think that we should have actually that's in the Cities Association letter. I think I handed it out to my colleagues. And then I do think we should change the index frankly to be the Bay Area CPI as opposed to the National CPI. I think the… now the Cities Association also had some off ramps which I think we should. It said first of all that we cap the CPI at five percent in any one year. I think we should do that and I think we should have some off ramps that could be possibly triggered it would be at City Council discretion. That's only during the ramp up phase. I don't think TRANSCRIPT Page 43 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 we actually, I don't think Palo Alto needs that frankly. They, they basically had some off ramps that if there was a recession during this ramp up phase then that would basically be between 2017 and 2019. I don't think that's necessary in this. And then I don't think we should have any exceptions at all other than what's in the State law in terms of the learner's exception. I think that makes it easier to enforce. So I would make that as a Motion. So that's something… MOTION: Vice Mayor Scharff moved, seconded by Council Member Berman to recommend the City Council direct Staff to prepare Ordinance amendments to increase the minimum wage to $13 on 1/1/2017 and $15 on 1/1/2019 with a CPI increase starting 1/1/2020 indexed to the Bay Area. Council Member Kniss: I’d like a little discussion first. I realize Cities Association spent a lot of time on it. So it is wonderful to see everybody turn out tonight, but Jesse Cool’s comments certainly affected me. Many of you I know from the restaurants that you run. But the question will be and Jim you might have a better handle on this than some, we’re not just discussing restaurants tonight. We're discussing a minimum wage for every company that we are that is in our jurisdiction. As I understand, correct? Mr. Keene: Correct. Council Member Kniss: So it's not… this is the restaurant business may be a small part of this larger, larger hole. And as far as the minimum wage for everything outside of the restaurants I don't know, no problem with that. But I am, I'm puzzled. I want to go back to a couple of things that Cara said. Did you say 48 other states have different rules regarding tipped employees? Did I understand that? Ms. Silver: So I didn't, I didn't say that, but it is true that this is a very unique law that the 351 and there it's very common for other cities to have tip credit exceptions because they don't have a state, exactly other states, because they do not have the protection that California law has. Council Member Kniss: So therefore it means there's something behind this that I probably don't know about, but… Mr. Keene: Could I interrupt just for a second, do you mind? Just on this, this real quickly. Council Member Kniss: Sure. TRANSCRIPT Page 44 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Mr. Keene: Well, I mean want to state the obvious. This is the United States of America. I mean we're divided into states where the dominant power in this country is allocated to states and so there's tremendous variety in the states. I'm sure if we came back to the Council with a list of laws that only California has that does not, did not exist in other states it would be a long, long list. I mean California it really is. So the challenge really is that I mean we have complaints all the time about things you'd like to do as a City Council that you’re precluded by and preempted by the State. And so it ultimately does require State legislative changes so many things. Council Member Kniss: And so what really surprised me about this though it was that how many other states have seen this as an issue, especially in New York as I understand states with, states known for their restaurants and so forth, Florida. I hear what we're saying about the State law, we’re hesitant to go up against it. I, Greg I hear you on the regionalism. I like the regionalism idea, but I think that we are perhaps without meaning to really singling restaurants out and really singling out those who are in the front versus the back and that that really troubles me. What I'm hearing you say Cara is we, we would be a test case if we were to do it otherwise? Ms. Silver: Yes that's correct. The other cities that have tried this, larger cities Sacramento and Los Angeles there were a lot of organized labor groups that fought that particular exception and we would expect the same thing here. Council Member Kniss: Alright, that gives me the answer that I was looking for. Council Member Berman: Politics, Liz. Council Member Kniss: Yeah I just heard that. So for those of you who are here in the restaurant business I can’t tell you how sympathetic I am. As a I once worked in the back and I once worked in the front to get through college. So I remember this very well. And it's tough. The back room certainly does do the work. I wish there were something we could do for you. I don't think we're quite at that test case yet, but I would hope that some of you would work with the State and I can hear how tough that is. I heard the message and what Cara was saying in order to alter this. You know several of you I know your restaurants. Your food is terrific. It would be an enormous loss if they were to close. That said, the path clear clearly is the one we have to follow as long as we're complying with the State law 351. And that’s regrettable. TRANSCRIPT Page 45 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Council Member Berman: Yeah, so I mean just kind of along those lines I'm not here and thank you. I mean Greg and Liz have spoke very eloquently about the situation, about the context, and I'm not here to raise the minimum wage for the front of house staff for a lot of the restaurants in this room. That's not why I coauthored a colleague's memo to raise a minimum wage in Palo Alto. But I am here to raise the minimum wage in Palo Alto because wages across the region and across the State haven't kept up with the cost of living. And we heard about that with a speaker who said that her son is living 8 people to a two bedroom apartment and that's happening all that's happening in Palo Alto. And that's happening all across the region and that's why you see this effort to raise the minimum wage. And but I'm also not here to make a decision that clearly puts the City at a disadvantage in a legal dispute. And we don't know what the result will be because no city has done it. And that kind of tells me the answer I need. That there are 17 cities across the State that have not that have adopted minimum wages higher than the State minimum wage and have not carved out a tipped worker exemption. And I'm sure the restaurant associations in those communities have lobbied just as hard and as eloquently as you guys have here. But we wouldn't be doing our duty as stewards of this City and of this City’s resources if we walked ourselves into a lawsuit that the odds were heavily stacked against us. And so you know I think a lot of people have mentioned you know that different states have different rules and I think we've kind of keyed in on that you know where this this debate needs to occur, but we as a City I'm not willing to make a decision that's going to guarantee us a lawsuit tomorrow and probably [inaudible] hundreds of thousands of dollars of legal fees down the road and lots of staff time. And so I and I do think you know Mr. Gordon mentioned you know Menlo Park. And I do have concerns about San Mateo County. I was heartened to see the City of San Mateo pass a minimum wage ordinance for I think it’s $15.00 by 2019 and my hope is that the other San Mateo County cities follow suit. The Cities Association of Santa Clara County almost unanimously passed, it wasn’t an ordinance, but you know guidance to their cities. I think Gilroy was the only one to say no? Vice Mayor Scharff: I don't remember who said no. They may have abstained. Council Member Berman: Yeah, you know, and so I think you're going to see this happen in every city in Santa Clara County very soon. I mean that they will move to $15.00 by 2019. My hope is that San Mateo County cities follow suit. Tough to tell, but I'm always happy to see San Mateo do it. And I think that you know we when we raised the minimum wage to $11.00 an hour by January 1, 2016, said that you know we had a goal of getting to TRANSCRIPT Page 46 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 $15.00 an hour by 2018. We did not set a schedule to do that. There's right now there are two different schedules there's the Mountain View/Sunnyvale schedule which is $13.00 an hour by January 1, 2017, and $15.00 an hour by January 1, 2018. Both of those cities are that's their half. The Cities Association is a little different and Palo Alto kind of finds itself in the middle because we started earlier than the Cities Association, but we started later than Mountain View and Sunnyvale. And so I would second Greg’s Motion with an amendment which is $13.00 an hour by 2000, by January 1, 2017, and then $15.00 an hour by July 1, 2018, so a year and a half later. Which at that point we’ll actually be for a while there we’ll be behind all the cities in Santa Clara County for six months. And then there won’t be another increase for another 18 months after that until January 1st of [inaudible]. Vice Mayor Scharff: I would accept that. INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND THE SECONDER to change the timeline to state “$13 on 1/1/2017 and $15 on 7/1/2018.” Chair DuBois: So if I could make a few comments, so I also co-authored the memo on minimum wage. I have given a lot of thought and again I also appreciate hearing from the business community. And the thing I really struggle with is this issue of regional alignment and which I think having a level playing field I mean consistency on the Peninsula makes a lot of sense. I’m also very sensitive to having something simple and keeping it enforceable. And I know that some restaurants have tried the service charge and again, maybe if it's a consistent playing field trying it again will have better results. The other thought I gave thought to which is in the State law it was, you know, should we lag businesses less than 25 employees for a year, which is what the State law does. It's something to consider. I mean I think you know ultimately I come down on keeping it simple, but I guess I'm a little confused about, you know, we did increase our minimum wage in Palo Alto already. Why would we not stick to the schedule that the Cities Association put out? Why would we go in advance of that? You know I think we need to look at the year on year increases and what that does to business and jumping that up a lot in any one year I would rather smooth it out and kind of match the proposed schedule which again seems like it would keep us in line with the most cities in the area. So if anybody wants to explain why you would go to a totally different schedule then this schedule? TRANSCRIPT Page 47 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Vice Mayor Scharff: So what I thought is that we should end up where they are. And that's the [inaudible] we get there with Marc. And then we also get there with what I initially proposed. Chair DuBois: And we would also get there [inaudible]. Vice Mayor Scharff: And we also get there with their schedule. So the reason is, is because the Cities Association came up there when most cities were at $10.00 and we’re at $11.00. So I wanted us to basically continue along the same path we had, which would really bring us to $13.00 and that I thought the $13.00 to $15.00 that's why I proposed having it later. Marc wanted to bring it six months in and I think I can speak for Marc, but the reason I accepted that is I know that there was some promises by doing it by 2018 which brings it into the 2018 concept and it's six months earlier I said to myself is that really hardship, that extra six months? It might be you know it's, but then there's no other change for 18 months. I you know I think you could make arguments on the details of that and I… Chair DuBois: My concern is we're talking about $13.00 this coming January, right? Versus $12.00. You know, so again I guess I'm not really picturing what you guys are proposing. What was Marc’s proposal? Council Member Berman: It was yeah, so mine was $13.00 by this January, January 1st. And then just to give a little context what I want is the City we've already passed, when we passed our ordinance to raise the wage we said our goal as a City is to get to $15.00 by 2018. So we unanimously approved that a year ago. Sunnyvale and then it was looking at what Sunnyvale and Mountain View have done because we're all at the same place right now. We're all $11.00. Sunnyvale I think actually just got to $11.00 an hour three months ago. So on July 1, 2016, they went up to $11.00 and then on six months later on January 1, 2017, they're going to go up to $13.00. So I mean at least our increase isn’t that dramatic. We've been at $11.00 since January 1st. It's to go to $13.00 by January 1, 2017, then wait a year and a half and go to $15.00 by July 1st 2018, which meets with our goal of getting to $15.00 by 2018. And is slower actually then Mountain View and Sunnyvale. Mountain View and Sunnyvale go up to $15.00 by January 1, 2018. So we're giving our business community a year and a half instead of a year to implement that additional increase. Vice Mayor Scharff: And I guess I was thinking that frankly $12.00 you know I realize the restaurants have issues, but you know if you are working you know going from $11.00 to you know to $12.00 while it's helpful, $13.00 is TRANSCRIPT Page 48 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 much more in line with the promise of what we're trying to achieve. And that's why I suggested $13.00. Chair DuBois: And then the details and the CP alignment [inaudible] that we wouldn’t figure that out. Vice Mayor Scharff: Well I think the CP alignment is you don’t have any CPI until 2020. And that aligns everybody. And so… Mr. Keene: And that would be indexed in the Bay Area. Vice Mayor Scharff: And that would be indexed to the Bay Area. Council Member Berman: And so we would actually just correct what you were saying earlier we’d actually be all aligned at January 1, 2019, because we'd all be at just $15.00. And Mountain View, Sunnyvale, Palo Alto no increase and all the other cities are just getting to that point at that point. So we'd all be at the same place January 1, 2019. Chair DuBois: And so we’re penalizing our businesses versus other cities other than Mountain View and Sunnyvale. Council Member Berman: Well, no. I mean we set our goal already a year ago so I don't view it as penalizing businesses. I view it is as getting more… finally raising the wage for workers that hasn't been raised for too long and catching up to where you know we really should've started that process a lot earlier. And that's part of the problem is that you know wages have been so low for so long while the cost of living has increased so dramatically and so there is this big gap to catch up. And I'm cognizant of that, but you know this is a goal that we set a year ago already and it’s moving along … Chair DuBois: I mean I think that we've said that everybody seems to be pretty in favor of $15.00. I’m just concerned about the tips. Council Member Kniss: And I have that same concern. It just is a little troubling to suddenly change the methodology when we're sitting here tonight. Council Member Berman: We don't have a methodology, so we’re not changing it. TRANSCRIPT Page 49 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Council Member Kniss: Well, yeah we are. We’re putting, we’re paying more earlier. So… Council Member Berman: We haven't set a schedule yet. Council Member Kniss: Well, we're discussing setting a schedule right now. So that’s… Council Member Berman: Yes, absolutely. So we’re not changing anything though. Council Member Kniss: Well I think which we're changing the understanding that was inherent. Council Member Berman: I disagree, but I won’t fight it. Vice Mayor Scharff: If both of you want the Cities Association schedule I'm not going to stand in the way of that. Council Member Kniss: I’d like the Cities Association schedule. Vice Mayor Scharff: Since I signed a letter suggesting we do that I’m going to stand [inaudible]. Council Member Kniss: I just, I know that you ground that out and it came to us and that I know. You know it’s the thing that we have in front of us, it’s what you had said you would do. So that’s where I’d be, right where the three of you all were as cities very recently. I’m sympathetic Marc, but this is where we were. It’s… Council Member Berman: It’s a great way to remind me that the Cities Association was the recommendation that every city follow that path? My recollection is Mountain View and Sunnyvale signed on to that also. Vice Mayor Scharff: They did. I mean I think the recommendation …. Council Member Berman: And then I’ll follow along with that. Vice Mayor Scharff: Well, right. I mean, but everyone [inaudible]. So this path Marc, you are correct, I mean this path was set forward to get everyone with regional consistency by January 1, 2019. Yeah and that’s, TRANSCRIPT Page 50 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 and that’s why I started this by saying you know I think that reasonable people could disagree in terms of how we do that. You know and whether or not we go to $12.00… Council Member Kniss: And unreasonable people could. Vice Mayor Scharff: Right, but I mean whether or not we go to $12.00 or we go to $13.00 I think that makes a big difference in people's lives. And so I would prefer that we do $13.00 frankly, but you know I would much rather we have a recommendation rather than split 2-2 the Council and so I'd much rather this be more of a you know let's get together and have something rather than fight over it. And so that's why I'm ok with following the Cities Association thing. Even though my heart actually is with Marc and that's why I made the choice. Council Member Kniss: Well, my heart might be with Marc, but I think when you're when you have come to us with something like this well discussed, well agreed on that was what made sense to me. It's not I'm very sympathetic with those who are working at minimum wage. At the same time businesses are, businesses have to adjust to that as well. So if you're a large business and you're adding that on that $1.00/$2.00 that has a fair amount of impact, but we're concentrating an awful lot on restaurants tonight when I think we're really talking a whole lot about across the board. And I have no idea how many employees we’re talking about, what we're probably talking about a huge number of employees. Chair DuBois: Well, when we talked about this previously I think we said that there actually I don't think, know if we ever had numbers, but in terms of numbers of employees working at minimum wage in Palo Alto you know it was hard to tell. Council Member Kniss: It's very hard to tell, right? Vice Mayor Scharff: So what I did notice that every time I see a sign it's about minimum wage in Palo Alto. I mean every time [inaudible]. Council Member Kniss: What I see all over Palo Alto are help wanted signs. Chair DuBois: Alright so do we have a Motion? TRANSCRIPT Page 51 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Council Member Berman: There's currently a Motion and a second, but the maker of the Motion I think is going different directions, so if we need a Substitute Motion? Vice Mayor Scharff: Well I guess it would be ok if I ask some of the restaurant people just to basically weigh in? So I don't mind who wants to speak to it, but not too many people. The question really on the table is if we do the Cities Association schedule or if we go faster to $13.00. Does it make a big difference to you? I mean is it a huge problem? Jesse Cool: It’s just going to serve the tipped employees. It’s not going to serve our kitchens. The people you’re trying to take care of, the low income people who are living in houses like that one we talked about aren’t going to get touched because we’re going to have to get at all the servers. We aren’t going to have enough to give it to them. Woman: On the question of timing can you repeat the question? The question is the timing. Vice Mayor Scharff: Right. The question is purely on the timing. I guess I just you know everyone spoke to having a tipped exemption or whatever. So I want to get some sense, you know, we're talking about timing of basically what, a year? Mr. Keene: Do you want the exact recommendation from the Cities Association? Is that what the alternative is versus your $13.00 dollars? Vice Mayor Scharff: That’s correct. Mr. Keene: Ok. So just so we're clear the Cities Association says that we would basically we would be the position of increasing on January 1, 2017, the minimum wage to $12.00, $13.50 a year later on January 2018, and $15.00 on January 1, 2019. The alternate proposal that was put forward was increasing not to $12.00 dollars, but the $13.00 dollars on January 1, 2017, and there was some disagreement about whether or not the jump to $15.00 would take place in July of 2018 or in January 1, 2019. That's the difference. Laura: Hi, Laura. Sorry for being late tonight, I was working. I agree with what Jesse said and I think the longer we [inaudible] now add to that then I think the longer we can postpone it. I think the easier it is for us to adapt because I think it’s going to have such a great impact. So you can also ask TRANSCRIPT Page 52 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 yourself many places are just going to raise their prices and the cost of living here is already so expensive that when that happens all we’re going to do for the most part, especially at the established restaurants we’re already operationally efficient or as operationally efficient as we can be. So all we're going to be doing is passing that along so when your $5.00 beer is $8.00 do you want to postpone that? It’s only going to make the cost of living more expensive so anything you can do to postpone it we appreciate it. Vice Mayor Scharff: Alright, I’ll withdraw my Motion then and just make the Cities Association Motion without the off ramps though, because the off ramps were only in between. Council Member Kniss: Ok, I'll second that. MOTION WITHDRAWN BY THE MAKER MOTION: Vice Mayor Scharff moved, seconded by Council Member Kniss to recommend the City Council approve the Cities Association recommended minimum wage increase without the off-ramp triggers and direct Staff to prepare related Ordinance amendments to increase the minimum wage to $15 in three steps: $12 on 1/1/2017, $13.50 on 1/1/2018, $15 on 1/1/19, and a CPI increase after 2019 indexed to the Bay Area with five percent cap and no exemptions. Chair DuBois: Any more discussion? Council Member Berman: Give me a second to think. I’m deciding about how much I really want to say. Yeah. I’ll save it for the Council. Chair DuBois: Ok and then I guess because of the nature of this issue does this go as an Action Item to Council… Mr. Keene: Well, because it sounds like Council Member Berman’s not going to vote for this so it will go as an Action Item to the Council not as Consent. If it goes as Consent the public is still able to speak at the Council meeting when the Consent Item comes up at the Council. Essentially unless it’s pulled would be [inaudible] to the Committee. Chair DuBois: Last time we approved it unanimously, but we said we were going to take it to Council. TRANSCRIPT Page 53 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Council Member Berman: Yeah I mean and so because I don't want to be seen as… I support raising the minimum wage, but I do think though this needs to be brought up as an Action Item obviously. Vice Mayor Scharff: So we’ll put it on Action anyway. Council Member Berman: And I'll vote and I’ll support it in the sense that I’m supporting raising the minimum wage, but I have a different, something different in mind in terms of the schedule for it. Chair DuBois: Ok, so all those in favor? MOTION PASSED: 4-0 Council Member Kniss: And as a postscript, it's the regionalism that I … Council Member Berman: Liz, let's talk afterwards because I've said… I mean we can get into this for the next 15 minutes, but there are two huge cities in the region that are moving at a different pace that signed onto this letter that are not moving at this letter’s schedule so let's not use regionalism as the reason why we're doing what we're doing. Because we're not going along, there is no regional schedule until January 1, 2018. Mr. Keene: Ok, so just so we're clear and Mr. Chairman then the Committee’s recommend, recommended the Cities Association recommendation apply to us without the off ramp triggers by a 4-0 vote, but specifically requested we put this on the Action Agenda for the Council when it comes up so that the public will be able to speak and the Council as a whole will re-discuss this again when it comes up. Ms. Silver: And just as further clarification so we’ll bring forward an amended Ordinance for a first reading to the fully Council. Vice Mayor Scharff: Right. That was part of the Motion just so we’re clear that it was what you asked for which was a record of the full Council to direct Staff to prepare the Ordinance and amendments. That was included. Chair DuBois: I’d suggest we take a five minute break, if we can keep it short so we can get at it. The Committee took a break from 8:21 P.M. to 8:29 P.M. TRANSCRIPT Page 54 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 3. Discussion and Status Update Concerning City Initiatives on Fiber-to- the-Premises and Wireless Network Issues, Including Work Related to Potential Google Fiber and AT&T GigaPower Deployments and Co-Build Opportunities in Palo Alto; and Finding That Such Discussion and Update are not a Project Requiring California Environmental Quality Act (CEQA) Review. Jonathan Reichental, Director of Information Technology: Hi, Jonathan Reichental, Chief Information Officer for the City of Palo Alto; great to be here, thank you Chair DuBois and Committee members for the opportunity to present today. We're going to spend a little while giving you an update on the Council Motion items from late last year. We're also going to be talking about some recent news regarding Google Fiber. I do want to recognize that we did have members actually we had three members of the Community Advisory Committee (CAC) here for fiber this evening, two of which didn't weren’t able to stay I see, but Christine is here. It’s still one of the more exciting meetings. So I wanted to thank you Christine for coming and continued thanks for the tremendous support and advice we’re getting from that community group. I did want to tell you that through natural sort of people leaving (interrupted) Council Member Kniss: Excuse me a sec. Can you remind us who is on the community group right now? Mr. Reichental: I will try to do that and my colleagues here will help me. So we've Christine Moe right here. We have Bob Harrington, we've Andrew Kau. He was here tonight, but left. We have Donald Lee. We have Andy Poggio and we Richard Brand. Originally we had 10 and through people moving and different circumstances we have six. So under the guidance of the City Manager we went out to the community again to ask for additional participation. We got some applicants now to join the group and we’re evaluating those people for a City Manager recommendation on more folks joining this group. James Keene, City Manager: Yeah, one of the key criteria which will become clear as we dive deeper into the discussion is Committee members must be able to keep a straight face when the priorities change before their very eyes. Council Member Berman: Poker players. Council Member Kniss: That’s a tall order. TRANSCRIPT Page 55 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Mr. Reichental: I’m advised that we have to let you know there we had a last minute item that is At Places Memo. We invited Google Fiber to be here this evening with us. They couldn’t make it so they wrote a little note. You probably haven’t had opportunity to read it, but I will I will tell you this when Jim Fleming does his update this evening on Google Fiber he will almost verbatim share with you what they have in their memo. So tonight we have the three items, an update on the Council mission items, a little update on AT&T GigaPower, which is AT&T’s gigabot, gigabit offering that they’re bringing to communities, and course the Google Fiber update which is we have some substantive news on that which we'll share with you. Council Member Kniss: Why does this sound like a continued movie? Mr. Reichental: Yeah. Well, it's like that. It's like a story unfolding for sure. Todd Henderson is here. He's the Project Manager for our fiber and wireless work from my team he’s the project manager and we have Jim Fleming [inaudible] part of the core team. We also have [inaudible] actually he's being patient here from the legal office to answer any questions that might be relevant to the work we're doing. So I’ll hand you over to Todd to start the presentation. Todd Henderson, Senior Technologist: Thank you, Jon and thank you, Committee members. So our the first thing we're going to go over is the Motion items and the status of the items. And this is our work plan from the City Council Motions from September 28, 2015, and November 30, 2015. We’ve been working on these Council Motions we are over approximately 85 percent complete and we believe the majority of the work will be completed by the end of September. So I'll start with the first point reviewing the [inaudible] plan built estimates in the Fiber Master Plan with the CAC and documenting any discrepancies. We did complete this last February. We facilitated several interactive sessions with members of the CAC and the City's consultant Columbia Telecommunications Corporation or CTC to review the Fiber to the Premises Master Plan Report. The work again was completed in February with the CAC acknowledging their agreement with the report. Upon the agreement there were no further discrepancies noted. So again that task has been completed. The next point is updating the citywide wireless network scenarios with a 20 year forecasts. We worked with CTC on this. They updated the financial models for Scenario 2 Phase A which was providing a hundred megabit blanketed public Wi-Fi to core businesses and residential areas. Scenario 2 Phase B which was providing one gigabit blanketed public Wi-Fi to core City businesses and residential areas. And that's what this was completed in November of last year. The results from the updated models did not change significantly from the original seven year TRANSCRIPT Page 56 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 forecasts because new technologies are constantly emerging and the lifecycle of Wi-Fi technologies is between five to seven years on the average. The next point is developing a cost estimate and fiber back hall information to expand wireless access in unserved City facilities and retail areas and develop a Request for Proposal (RFP) for this. This task is still in progress. The cost estimates and draft RFPs are close to completion. We expect them to be finalized in September of this year, next month. This may result in actually drafting two separate RFPs, one for the extension of the City Wi-Fi to the unserved City facilities, public areas, parks, and the other for evaluation of expanding Wi-Fi access in the retail areas. Next point is issuing an RFP for dedicated wireless communications for Public Safety and Utilities. This task is also in progress. The draft RFPs have been completed and are currently being reviewed internally by Public Safety, Utilities and the Information Technology (IT) Department. The RFPs have been designed to meet the business needs of Public Safety and Utilities in Scenario 3, Scenario 3 being deploying a point to multipoint network for secure City enterprise access. And Scenario 4 which was deploying a citywide mobile data network for Public Safety. After review the RFPs are expected to be issued next month in September. Next item is developing a dig once ordinance. This is also in progress. The CTC draft report was received in May of 2016. It evaluates existing dig once models from other municipalities and provides recommendations for the City to consider. The City Attorney's office along with cross departmental staff is currently reviewing the recommendations contained in the report to identify the best course of action for the City. Staff is currently targeting fall or winter of 2016 to return to Council with this item. Next is the co-build discussion with third parties. The city has met with representatives from both AT&T and Google Fiber to discuss co- build opportunities. When I'm finished with this Jim will provide more information on both of those points for AT&T and Google. Next item is developing and issuing a Request for Information (RFI) to explore municipally owned and the public/private partnerships, partnership models for fiber to the premises. This was completed. Staff distributed the RFI to 59 companies directly and fiber optics related organizations. CTC then reviewed all the responses and identified eight. Well, they identified, they reviewed the eight responses that we received and provided us a draft report outlining the vendors that best meet the requirements that we outlined. Although none of the responses appeared to completely aligned with City goals CTC recommends interviewing some of the potential vendors as a next step in the process. They will also participate in the interviews with a spur of the contract amendment. Next up is the Fiber and Wireless Telecommunications Program Manager position. Staff reviewed over 100 submissions for this opening. The interviews have been completed and we've narrowed it down to two final candidates for this opening. Since it was expected that 50 percent of the new hires time would have been spent TRANSCRIPT Page 57 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 on Google staff is recommending at this time postponing the hiring of this person. So we're interested in hearing the committee's thoughts on this. And finally executing the amendments on the CTC fiber and wireless contracts; those were completed in January and of course that allows us to continue to do the work that I just described to you. So that overall is the update. I’ll pass it over to Jim Fleming now and he’ll talk about Google Fiber and AT&T specifically. Mr. Reichental: If you would Jim, just one moment; I just want to ask the City Manager if we wanted to take any comments on this section or should we finish with AT&T and Google first? What’s your recommendation? Mr. Keene: Well which… I will defer to the Chair. Chair DuBois: I think I’d like to finish. Council Member Kniss: Yeah, kind of anxious to hear the rest of it. Council Member Berman: Cliffhangers. Jim Fleming, Management Analyst: Good evening, I'm Jim Fleming. I'm a Management Analyst with Utilities. As Jonathan and Todd mentioned AT&T has begun their network upgrade for their GigaPower services. Essentially it’s a gigabit service that they'll be launching throughout their operating territory. What we know at this point is that they have received approval for approximately two cabinets to be deployed in Palo Alto in 2016. Those cabinets will cover roughly 300 to 400 homes. An entire deployment of GigaPower throughout the City would be roughly 54 cabinets and AT&T (interrupted) Council Member Kniss: Help, what’s a cabinet? The green box? Mr. Keene: [Inaudible] box. Council Member Kniss: Got it. Vice Mayor Scharff: So since she asked that question so when you say they’ve deployed two cabinets or they’ve got approval. Have they actually deployed them? Because last time I checked into this it was a fight over beige boxes versus green boxes and so therefore we’re delayed by a year or something. So what’s the status of that? TRANSCRIPT Page 58 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Mr. Keene: Yeah. Let's just jump in to the color wars. Mr. Fleming: It's been approved by the Planning Department. The resolution was is initially they told us that because of some graffiti type paint that was on the cabinet the only color that could be deployed was beige. And since then they figured out a way to make the cabinets green. Mr. Keene: Well that’s it yeah, it's a different shade of green than our standard green which is a darker kind of more forest green or whatever and so they’ve got a paler green. And they happen to have I thought a couple of the, couple of those available. And that's why they'd run, they’d put two out, right? Mr. Reichental: They haven't installed them yet, but they will. They’re able to move forward now, yes. Mr. Keene: But they don't necessarily have all of the other ones ready in the pale green, is that correct or am I mistaken? Mr. Fleming: I believe that's correct, but Jonathan you’ve had discussions with him so maybe want to address that? Mr. Reichental: Yes. They if they move forward with another 25/26 cabinets next year in 2017 they expect to be able to do them in light green as well. Vice Mayor Scharff: So this is now a non-issue? The color wars, were done with the color wars, right? Mr. Keene: … somebody says light green looks different than our darker green. Vice Mayor Scharff: But we approved it? Mr. Keene: So well here’s what we’re doing, we’re putting two out there now, you know what I mean? So they’ll be out there for a while. Mr. Fleming: So to continue again for AT&T to cover the entire City would be 54 cabinets and they'll be evaluating their deployment in Palo Alto over the next few years, but those cabinets as I said cover 300 to 400 homes. In terms of any kind of Co-build discussions with AT&T staff has met with AT&T representatives to discuss that opportunity as they deploy their gigabit TRANSCRIPT Page 59 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 internet service. Follow up discussions have occurred and as of today we're still waiting for a response from AT&T leadership regarding any kind of co- build opportunity. Council Member Kniss: You said that it was progressing until the delay was announced and that was just this week, right? Mr. Fleming: That’s Google. Council Member Kniss: Ok, so did I get too far down the page? Ok, got it. Ok. Mr. Fleming: So I’ll move along to Google at this point, provide an update. In mid-July a Google representative informed staff that they are going to be delaying their network deployment plans in the Bay Area for up to six months or more. That affects all five Silicon Valley cities under consideration. That would be Palo Alto, Santa Clara, Sunnyvale, Mountain View, and San Jose. We were informed that they are going to be exploring more innovative ways to deploy. We also had co-build discussions with them since roughly September of last year. Those discussions were progressing, but at this point that is delayed also. What I'm going to do now is provide some additional information about what appears to be Google's next steps. When they're when they came in and told us that they were going to delay that affects the San Jose area as I said and also the Portland area. Google is seeking less costly and innovative deployment alternatives. It will be exploring wireless technology for providing high speed broadband service. Recently Google took two significant steps toward exploring wireless technology. The first was in June. Google Fiber's parent company Alphabet acquired fixed wireless gigabit service provider Web Pass. Web Pass is headquartered in San Francisco. It currently serves mostly high rise buildings in San Francisco, Oakland, Emeryville, and Berkeley in addition to offering similar services in San Diego, Miami, Chicago, and Boston. The second step that they've taken recently, recently Google filed with the Federal Communications Commission (FCC) to explore new technology to bring internet users homes without having to use traditional fiber to the premise construction methods. Google plans to conduct an experimental trial of new wireless technology in up to 24 sites around the United States (U.S.). The list of potential cities for the initial testing in the Bay Area includes Palo Alto, Mountain View, San Bruno, San Jose, and San Francisco. The FCC filing doesn't reveal exactly how Google's technology would work, but a critical factor about a fiber to the point, a fiber to the premise build is that running fiber optic cable to individual houses is extremely expensive. If you can run fiber to the network and then use a different technology to TRANSCRIPT Page 60 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 distribute that connection to a few hundred individual homes the build is potentially less expensive. This is what Internet service providers such as Comcast and AT&T already are doing with fiber to the neighborhood network architecture which runs fiber to a junction box or node, a cabinet if you want to call it that also, and that uses existing coaxial or copper cables for the last couple hundred yards. Google's network would likely be similar, but a key difference is that they would use a wireless connection for the final link to the premise. If it works it will be less expensive and much easier to hook up a customer. Google is currently fully operational in Kansas City, Missouri, Kansas City, Kansas, Austin and Provo and construction is in various stages in Atlanta, Nashville, Charlotte, Raleigh, Durham, San Antonio, and Salt Lake City. Additionally Google has announced a plan to use existing fiber in San Francisco and Irvine to provide services to apartment and condos, apartments and condos. And last February they announced an agreement in Huntsville, Alabama to license dark fiber to similar services to deliver similar services over a network being built by the municipal utility of Huntsville. Google has been it's important to point out that Google has been fighting with their competitors such as AT&T and Comcast over access to utility poles for hanging fiber cables. Installing cable underground and on utility poles is expensive and can be disruptive to communities and in some areas impractical due to the high cost. By using wireless gigabit speed internet delivery Google could potentially make an end run around the incumbents while lowering infrastructure cost. Besides the co-build idea the City has presented Google with other options for discussion purposes. These options vary and could include the City or Google building, owning, and/or leasing the fiber to the neighborhood network to achieve the mutual goal of providing faster broadband delivery to the community. Google is open to discussing these innovative proposals. And that's the end of my report. Council Member Kniss: Could I just ask something of Jim because Jim and I did a field trip together. Chair DuBois: Sure. We do have one member of the public. So do you want to answer your question first? Council Member Kniss: Yeah, just let me because when we were there, 2013? Mr. Fleming: Yes. TRANSCRIPT Page 61 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Council Member Kniss: This was all just in the inception. So you’re saying in that length of time those Google neighborhoods, Googlehoods whatever they were called have gone into place, they're up, and they are functioning? Mr. Fleming: Yes and Kansas City, Austin, and Provo. Council Member Kniss: Yeah, well we were in Kansas City. Mr. Fleming: Right. Council Member Kniss: Yeah, yeah. Ok, so it can happen. Mr. Fleming: Yes, I think the question mark there was the cost involved in actually doing that. So I think that’s why there (interrupted) Chair DuBois: So they have three running in Provo. Did they buy? Mr. Fleming: Yeah, Provo is kind of a one off and what I mean by that is they bought a failed municipal fiber to the premise network in Provo. They bought it for $1.00. Mr. Keene: So Mr. Chair I was once you could let the public speak, but I was going to do like a 90 second recap of what the staff said in a little simpler vernacular that tries to connect why we were coming here to you in the midst of all of these changes. Chair DuBois: You want, just want to do that? Mr. Keene: Well, I’ll do it now. So if we could just go back again to the Council’s original Motions and everything. One of the kind of big issues was we'd had this consult out there estimating what it would cost to build a network. There was some real concern about whether those numbers were accurate. So some of the first tasks that we did were actually getting that all validated and then all along we were on the sort of dual track of saying ok let's go out there and go to the marketplace and see who would want to build something, but then well let's also work with Google. And we also interjected in our cases code build idea of having some way to kind of string fiber along with say Google or who would ever maybe come along in such a way that we would have some redundancy and a backup for whatever reasons in the future if, you know, Google or whoever it was ever went away. And we were progressing on all of those fronts really well. TRANSCRIPT Page 62 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Surprisingly as Jonathan was saying Google was very receptive to the co- build ideas. That being said it's not a simple matter to work through those and so you know we were part of the five Bay Area city packet. And as we were continuing to pursue what I would call the Palo Alto premium of going further and more involved than most other folks I was a little bit concerned that the Council would be saying hey, what's going on? We're hearing about all these other jurisdictions. They’re going to kind of get ready to do some stuff. So we put this on the Policy and Services (P&S) Agenda to say well let's go to P&S and give an update. And when we first put this on we didn't have this issue about the Google migration as sort of a wireless concept. We actually didn't even have this idea of Google saying well we're going to wait for six months and figure out what's going on. So we were wanting to be kind of let you know why we were a little bit lagging, but poised and in many ways of course it's kind of worked out to our advantage since things have been sort of stalled and now they're moving in some different directions. So that that's really where we are; we always saw some potential, I did at least not necessarily everybody, complications with the fact that we were simultaneously pursuing Google with some shifting directions or interest from the CAC and some of some of our staff, ourselves disagreements about what's the best way to do it with this idea of putting an RFI out there and asking some other companies to come in. So without getting into too much at some point Jonathan probably should give you an update about what those, what the lay of the land looks like on those other alternatives a little bit since in one sense Google’s gone into hibernation, but I think we're going to be in a kind of waiting period to sort of figure out you know where we go from here with them given how they’re repositioning where they are in the Marketplace. And I would lastly say I very much support even though I think we got in a position where we had very we had two candidates who we were extremely interested in and thought would be I think really capable hires for the job. We don't think we have the job that we were going out to get them for right now. So we’ve got to figure out how do deal with that, but that’s why we, we’re not going to proceed at this moment with bringing them on. That’s it. Thanks. Chair DuBois: Alright, so if we could hear from Robert Smith who has been patiently waiting; is he here or did he leave? I guess he left. Wow, so we don't have anything to the public. So should we start our discussion? Council Member Kniss: So the thing that just went off in my head is I remember being discussing this years and years ago when I was in England giving a talk and someone said oh, in America you wire everything. Here we’re going to go wireless. Are we talking real wireless at this point? TRANSCRIPT Page 63 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Mr. Reichental: So specific… Council Member Kniss: Not to get you on the spot, but all of a sudden I’m hearing a whole different mechanism for delivering. Mr. Reichental: Yes. I mean in summary whatever solution happens with Google it would seem like it’s going to be a mix. It isn't wireless throughout. There has to be some fiber to take to go from the neighborhoods back to the, back to the source. The wireless though helps with the expensive piece which is from the street to the house and that may be possible. Technology has sufficiently progressed where that could be reliable and a strong signal and a fast signal. Some of the, they use the word innovation because it is the spectrum that they're playing with and the way that they're going to play with it is cutting edge. And I don't think people would accept a mediocre wireless service. They would, Google Fiber would fail. So the anticipation is whatever they come back with the experience for the end user would be like it was wired. In an ideal world it would be great if it could all be wireless, but I don't think we see existing technologies being able to do that. Council Member Kniss: It's taking my breath away. They were saying this after years and years and years of this discussion I'm not even sure where we are at this point. I remember Joe and I had that discussion in Kansas City and thinking do we ever get fast service to the home? Chair DuBois: If you guys don’t mind I’ll go ahead and ask some questions. So there is a question of timing I think we got an update from Jim in June that said it was going to be Q4. Is there any way we can accelerate that process especially given this delay. Mr. Reichental: So it’s your… when you talk about the potential partners in the marketplace you responded? Chair DuBois: Right. Mr. Reichental: So we're actually positioned really well. We have eight. Chair DuBois: So when do you think that would come to Council though? Mr. Reichental: We were just talking about that over coffee. Just it'll be well before the end of the year, but it will be before the end of the year. We're TRANSCRIPT Page 64 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 just going through the paperwork and we have to alert you know folks we're not going, you know, we're not talking to and things like that. But we think we can get to the Council before the end of the year. Chair DuBois: Ok. And then when you get to the end I'm curious how much flexibility we have since the situation changed. Hopefully there are five maybe it was general, but you know we could tweak a little bit. But and so I guess we still have these approval documents with Google. Are those going to come to Council? So those are all on hold. So we’re not at risk of approving something and then waiting for a year like, you know, it seems like if we are going to approve something we should have a timeline from Google or expiration date or something. Mr. Keene: Could we speak to whether it makes sense for us to do that or to what degree it is that Google sort of also would be saying well there is there is no need from our point and we're not willing to proceed with it from our point of view given their change of direction. Because those are two different things whether we sort of say there were there ready to do it and we want to do it and we say why do it? Chair DuBois: Or we try to force the timing and say well, we’ll sign it, but then you’ve got to start in six months or whatever. Mr. Reichental: So it the agreed the specific requirements for the Google physical build which would be fiber to the home are no longer relevant. So they will, they will not come. The, there was, there is going to be a dig once ordinance which would have which was queued up around the same time. That will come to Council [inaudible]. Mr. Keene: [Inaudible]. Mr. Reichental: Yes. That’s not specific. And then the co-build agreement which would have come shortly after these other agreements specific to Google will also is on hold now. It doesn’t, it’s not it remember these are all about a physical build to the house. And… Vice Mayor Scharff: Right. That’s no longer relevant. Mr. Reichental: It’s no longer relevant. TRANSCRIPT Page 65 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Chair DuBois: So my understanding of the wireless approaches are still fiber to the streets and your again it’s that connection to the home that's going wireless so now at this point you know again kind of along the lines of the co-build and thinking about the City's dark fiber network is there an opportunity to use this delay to expand our fiber backbone residentially down the streets? And then you know Google has said in The Wall Street Journal yesterday that they use wireless, but they're also open to leasing lines from cities. So we could be in a good position to potentially get some revenue and participate and so we have some time that we could use I think productively. And that's where … Council Member Kniss: Are you suggesting adding some more? Chair DuBois: Yes. So these wireless connections need to run a connective fiber and if we extend our dark fiber into the neighborhoods then Google could connect to it. Council Member Kniss: Music to my ears. I never thought I’d hear anybody say that again. Chair DuBois: I mean the wireless piece is probably the riskiest piece of technology changing rapidly. Mr. Reichental: So could I just give a quick response back because I think there’s a complete consensus on that and from staff. We opened up the conversation with Google on topic this morning. We're meeting with the community advisory group on Thursday to explore a multitude of options where for example, this is just examples, the City could, Google could build that back wall and the City could pay and lease usage to Google. We could do the reverse where we build it and they become lessee over it. So there are a number of scenarios that we now open up to us because that last mile potentially is off the table. Chair DuBois: Right and so, so getting to this position and no offense to staff, but you know we were in the position last fall, but saying you know we didn't we didn't have staff expertise in designing networks we could use more manpower, person power. You guys have gone out and done search. You’ve looked at a lot of great candidates. It seems like we have an opportunity, you know, why not move ahead with this position? Have them look at expanding our dark fiber business potentially in this residential way and be involved with this design and lease, potential lease to Google and get ahead, and get ahead of the ball instead of always trying to play catch up, I TRANSCRIPT Page 66 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 guess. Again, you guys have done a lot of work to have these candidates. It seems a shame and because they are consultants can we or a consultant can we structure you know a three month contract, six month contract where you know we're not committed for the full two years. Mr. Reichental: That’s correct it was going to be, it would be in a contract that would allow us the flexibility. The I guess that what we've been evaluating is we had to find the talent of somebody who would sort of manage the work with AT&T, with Google, with the city's work a very experienced telecom product program manager. And I'm not sure that we went for sort of a telecom strategist or architect. We I think in our perusal we they may not be the same roles. A person who knows…Vice Mayor Scharff: Could you just clarify? So what Tom’s suggesting and I had the same thought was if we decided let's go build the fiber network out to the streets to where Google and then Google would lease it and then they would deal with the wireless part and we started building that the person you're hiring is not the right person for that because they're not an architect to determine where that would go. They're basically would manage a project when Google was the architect and would do it. Just that that's really what you’re saying. Mr. Reichental: I think it's a good summary. If we were… Mr. Keene: Can I just interject just for a second? So in the with same, the same role relationship we would expect would be the situation if we were to default to the RFI and just suppose we had some other vendor in that mix would could be an alternative to Google. Our thinking would have been the same thing. They would have, part of their role would have been to bring in the network design plan. That we would… Chair DuBois: And so again I thought this consultant position would also help with that. So if we're going to move forward with these RFI I mean if you, if you hired one of these two people that you found they’re not the right skill set to help with that either? Mr. Reichental: Well part of the consideration is the timing. Some of these things will take time to ramp up and the question is do we bring on a person now with much less work. We're just trying to be prudent about the costs and expenses. Chair DuBois: So again it seems to me that again Google is being a little vague. They're saying at least six months and it could be a lot more. They TRANSCRIPT Page 67 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 have a lot of cities and you know who knows when they're going to get to us? Using this time maybe to again get ahead and accelerate that RFI process and have discussions seems useful to me. And if it's a consultant that you know if a couple months from now we realize [inaudible] maybe we could stop, but it seems a shame to be doing that search. Vice Mayor Scharff: Tom could you explain what you mean? I’m not sure I understand why you think it would be useful. I'm just not tracking (interrupted) Chair DuBois: Well so right now I feel like we have these RFIs, eight companies… Vice Mayor Scharff: Requests for information, yeah. Chair DuBois: Eight companies that have expressed interest. We could potentially help Google if we were to help ourselves if we were to bill out this network and so if we had this consultant come in then maybe perhaps we could accelerate evaluation of the RFIs, participate in negotiation with Google as a potential lessor, and just kind of move things forward rather than wait. So I'm going to turn over time. Council Member Kniss: What are we looking at though for [inaudible]. Oh, sorry. Chair DuBois: I actually, actually want to throw out one more thing. Vice Mayor Scharff: And then I actually wanted to talk. Chair DuBois: The other thought I had with the consultant was looking at our dark fiber business itself and can we expand it, are we managing it correctly? And so I just thought there might be enough work there to justify getting the person in early. And just real quick let me see if there was any comment… And so CTC is evaluating these RFIs, but the Staff Report said that their contracts expired in June or have they? Mr. Henderson: They are being extended and it’s with Purchasing now. Chair DuBois: Ok. And I think you answered the question, but that the original dig once ordinance I think we, I think it was worded to potentially even be a string once ordinance for aerial. Would that impact Google? I TRANSCRIPT Page 68 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 mean we’re going to have it done it ahead of time and I think since the contracts aren’t going forward would it imply? Mr. Fleming: If I understand your question you're asking about dig once and separate from that would be string once. The more common term for it now is one touch make ready. Chair DuBois: Ok, I thought that was essentially what Council asked for was the one touch make ready kind of ordinance. I wondering about the ones in motion, like would AT&T not have to follow that ordinance since they’re already in progress? Mr. Fleming: One touch make ready is fraught with a lot of complications and I'll give you an example. The City of Louisville passed a one touch make ready ordinance a couple of months ago and AT&T immediately sued the city. Google supported the one touch make ready ordinance, but now it's bogged down in court. Vice Mayor Scharff: The Ordinance is? Mr. Fleming: Yes. So I see dig once/one touch as two different things. Chair DuBois: So so under the dig once ordinance and looking to you or to Terence, but again my hope was that that ordinance would apply to obviously these projects power GigaPower and Google. I’m just wondering if the timing's lining up or not. Mr. Fleming: Yeah, you know just to back up here. When you’re talking about dig once you’re talking about the right of way. And to some extent our existing ordinance requires coordination with the other utilities. And by utilities I mean Comcast and AT&T and others that are out there. So and I don’t want to step on what Terrence may have to say, but to some extent our ordinance already requires that. It could be enhanced in some ways and that's the process that we're through right now. Going to the one touch make ready Palo Alto is unique in a lot of ways when it comes to utility polls in that there's you know 6,000 utility poles, 5,400 of those poles are jointly owned with AT&T. So no matter who comes in here and builds if it’s Google or anybody else you have to go through what's called a pole in ten process where if a new builder wants to hang wire on that pole they have to deal with this City, the utility, and with AT&T. That's a difficult process. It happens every day, but not to the extent that you would see with a city wide buildout where you know conceivably Google could be touching 300 poles a TRANSCRIPT Page 69 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 week and some of those poles would require a minimal amount of make ready. Some will require a lot of make ready and some will have to be replaced out right because they just don't accommodate a new attacher so you have to put a new pole in. Mr. Keene: You mean AT&T wouldn’t be zipping those [inaudible]. Mr. Fleming: Yeah well that’s, I’ll let you say that. We’ve had meetings with AT&T and Google and all that and it’s a difficult process to go through. And it's a very disruptive process too. So I don't know if I’m really answering your question. Chair DuBois: I think what I’m reading between the lines is on the dig once ordinance whenever it came into effect it would apply to everybody from that point forward, like nobody be. Pacific Gas and Power wouldn’t be grandfathered in if they started before the ordinance was in place. Is that correct? Mr. Fleming: That's a legal matter. I don't feel comfortable really answering. Council Member Kniss: This is just an update tonight though, right? Not just, but I mean this is… Mr. Fleming: Yeah, I'm not trying to pass the buck. Terence Howzell, Principal Attorney: I think that [inaudible] you know ideal [inaudible]. We understand that that was the direction that the Council wanted and we would strive to satisfy that goal, but I think we have to take in consideration the types of projects that we're talking about. We understand that's the goal and there would be complications, but we would strive toward satisfying that goal of having it apply prospectively. We’re not necessarily looking toward the grandfathering that you were speaking to, but it would be prospective. Vice Mayor Scharff: Good. Does AT&T even dig? I mean I thought they basically stung pole, strung it along their poles, right? I guess they dig some [inaudible], I always thought they strung on poles and made these these boxes and then… Mr. Reichental: There won't be any digging for the GigaPower. TRANSCRIPT Page 70 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Vice Mayor Scharff: That’s right actually. So I didn't think they would be digging [inaudible]. Mr. Reichental: They’re already out there fibering things. Vice Mayor Scharff: Right, that’s what I thought. Chair DuBois: Unless they have to expand that fiber… Council Member Kniss: But didn’t Chattanooga do all theirs that way as well? I’m almost sure they did. Mr. Reichental: Underground? Council Member Kniss: No, no. They didn't [inaudible] yeah, yeah. Mr. Fleming: Yeah, it varies I mean every city more mature cities like Palo Alto you know most of the utilities are still aerial. I mean obviously there's a lot been a lot of undergrounding done over the years. You go out into the San Ramon Valley area the less, but you know a lot of new build has happened in the last 30-40 years. Most of the utilities are underground, but you know Palo Alto the breakdown on aerial to underground is roughly 60, 70/30, 60/40, but only 15 percent of the residential areas have been undergrounded. And you asked about does AT&T do any digging. When an underground district is done the utility has to get the cooperation of whoever else is in that going to be in that trench. That would be AT&T and Comcast typically and in some circumstances others. Vice Mayor Scharff: So I guess I wanted to step back a little bit [inaudible] the bigger picture. So my I’ve always wanted us to pull this off and get gigabit power, fiber to the premises. I've always thought we should. In fact I talked about it in my Mayor speech in 2013. You know we've been going down this path. I've always in the back of my head had this concern that we would spend all this money and do it and then technology would leap frog us. And I've always been sort of reassured that fiber is a good investment. That there's not going to be much better technology then fiber that's going to come through with the exception of possible wireless advances, which just may make it cheaper. The fiber will still work really well so it's not a lost investment. It's just other people could come and do it a lot cheaper. So for the first time I've actually nervous that if we built this out and I guess that's really my question. If Council said to you all right look, Google seems to be flaking a little bit on us. Six months, it's probably a year, it's two year. TRANSCRIPT Page 71 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Go see if you can negotiate that we just start the this is where I think Tom is going. Let's go build that fiber out right now. Chair DuBois: Not to the homes. Vice Mayor Scharff: Not to the homes, but to through the streets and then with the notion that the wireless nodes would come in. Let's see if we can come up with Google agreeing that they would lease it and the leasing cost basically would cover over a period of time we have a really low borrowing rate we can also, you know, we have a really low borrowing rate. We have what is it, $24 or $25 million in the Utility Fund. Let's go see if we could do that. If Google agreed to lease it upfront for an X number of years and it made financial sense there would be no reason not to do that. And that from what I understood was your, was what you've opened the discussion with Google on doing that, right? Then you mentioned some other scenarios here which I didn't quite follow the rest of which was we build, they build it and we lease it or I was unclear on that one. Mr. Reichental: I'll come back with more specifics on that. Vice Mayor Scharff: But anyway under that scenario I would say let's go immediately because it makes sense. Let's start doing it, right? Because we have the stuff in place. The other scenario is we start building it out like that with the hope that then Google or someone else leases it from us. That's a much riskier strategy, right? Because here we're building, no one may lease it from us unless or do you think someone might? I mean do you think that, I mean do you think that's a risky strategy or do you think that's not a risky strategy? Mr. Reichental: Well I would want to get the commitments prior to it. Vice Mayor Scharff: That’s what I'm saying. Mr. Reichental: Yeah. Vice Mayor Scharff: You wouldn’t do it without the commitments? Mr. Reichental: I don’t think so. TRANSCRIPT Page 72 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Vice Mayor Scharff: Ok. So how do we move forward then? I mean is the next step going to see if we can get the commitments if we were to build to you know down the street? Mr. Reichental: Well I wanted to answer a couple of things. I do just want to clarify a couple of interesting things that are related to what you said. During the last few months one of the surprises to a lot of us is that in Huntsville the community there were building planning to build fiber to support smart grid and Google said hey, could we lease it from you and roll out fiber that way, roll out the high speed internet that way. And they came to a very unique arrangement. By the way, Yiaway Yeh, who we all know well was involved in that. And we all wanted to know about that and the CAC rightly said well why don't we talk about that too? So we formally proposed that to Google and they declined it for Palo Alto on two bases. One is that they are doing the work in this area regionally. They're not doing it city by city. So the design has to be for the all five cities. The second reason is they loved the co-build idea and were really committed to that. Course now we don't need that. However now opening the conversation this morning and knowing that Google is very open to creative ideas we're going to go back to that, talk about that. In regard to other opportunities I think among the eight respondents we’re hopeful that one or two or three would be open to you know what you're actually saying is that some mix of us building it, a company committing to be the marketing/leasing piece of it. I think all those things need to be on the table for those respondents. Vice Mayor Scharff: That's the RFIs? Mr. Reichental: That is the RFI, yes. Vice Mayor Scharff: So the next steps, alright, is to finish the RFIs and continue talking with Google on those issues. Mr. Reichental: Those will both of those things you said it will progress are progressing. Mr. Keene: Can I? And I don’t know, maybe we could get more concrete even about that timeframes in just a little bit, but I may be drawing an unfair contrast between what you were talking about Greg and what Tom was talking about before so I apologize if… Chair DuBois: I think it’s the same. TRANSCRIPT Page 73 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Mr. Keene: You are talking? Ok, because I mean what I was a little concerned about the difference was was that under the Google model or under the RFI model and even this staffing telecom person we were looking at as I understood it is you know we were going to get all of the master encroachment agreement, a dig one ordinance, the kind of make ready rules or whatever it was, but the network design itself was going to be done by the provider of the whether it's Google or one of these firms. So and that includes where, how and where you run the fiber before it even gets to the premises. So, so that's still the track we, it’s the approach that I see that we're on. So we are in a sense of having to wait till Google's a little bit ready. We could be negotiating or trying to say hey, guys you ready to try to figure out could we work something in model or we get a look at the RFIs and we start saying hey do we have a really viable alternative here how do we do that? That's different than saying and this is where I may be misunderstanding you Tom, of saying gosh everything's in limbo right now. Why don't we just figure out how we design a network that is, doesn't go to the premises, but just starts deploying fiber around the City in advance of potentially having these other pieces. Chair DuBois: So I did say that I was thinking again and maybe does he have the right, but out of those resumes you've got is there somebody that can basically answer the question that Greg asked, which is how do we get a commitment. If you have an architect who does a design, convinces Google that we're serious or one of the other five respondents can we move it forward like what could we do and would that extra person help move that forward? Mr. Reichental: So I would be a little reserved on us committing to any type of build before there’s… Chair DuBois: Not a build, but a design and negotiation, right? Mr. Reichental: Just having a like an architectural plan, I see as opposed to building it. I think I get you. So we should consider that. Mr. Keene: That would be done in conjunction with another party. So we would have to be able say select or feel like you're saying hey, we've got a good candidate here in this RFI pool with the non-Google option. How do we start to talk about how we make a deal for to design the network and get going? That's what I heard you say. TRANSCRIPT Page 74 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Chair DuBois: Yeah and I thought, I thought that candidates we were interviewing would have so that would be able to help us. Vice Mayor Scharff: What I heard is they don’t. I mean that’s what I heard. Mr. Reichental: I'm not sure that we envisioned that. We thought if let's say Google had been open to the Huntsville model where we build it and they lease it we would have had this person hire an engineering firm, a specialized engineering firm to design a network. It seems to me it's very specific specialized work that firms typically do not… Vice Mayor Scharff: So we could still hire a firm if we want? Mr. Reichental: That's how [inaudible – numerous people talking]. Council Member Kniss: Let me just jump in for a minute. I'm hearing regional though and if we were to design something on our own I have no idea this is the first I’ve realized that something to do with the region is what would stall what is here. It took us a very long time to put those 42 miles of fiber in before. It was a long time and a long discussion and so forth. It's turned out to be a good decision, but at some point you've got to move in some direction. And I think I hear it's not maybe getting somebody to look at the architecture, but that's about it. Mr. Reichental: Well the regional point is more related to Google's ambitions to do a large area around a city at a time. If, if we so that's the Google path. If we have an independent path that we're pursuing to design our own we don't have a regional consideration. Just to clarify. Council Member Kniss: We don’t, but would Google be concerned that there was an original consideration to that? Mr. Reichental: Historically or previous to my previous conversation that is one of their major reservations. The question now is with all bets off would they reconsider? Would they, are they open to it now? Council Member Kniss: You mean are we at ground zero again? Mr. Keene: Well we don’t know, but I do think that I thought I heard you say this is far as an opening. One of one of our tasks as follow up from this is to be as aggressive as we can with Google in this new environment to have this TRANSCRIPT Page 75 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 conversation saying if you're moving to a wireless from street to the premise model, a home model. How is it that we could strike some deal? Then it starts to look at how we would design the network. Do we the fiber in? Maybe we would actually like you said fund the fund that insulation, own it ourselves somehow, and ultimately lease it so we actually get better than the… Vice Mayor Scharff: That would be the best of all the worlds. Council Member Kniss: That would be the best. Vice Mayor Scharff: I mean the best of all worlds we build it. We you know we lease it, we lease it on our payback of 20 years or whatever it is, they take it for 20 years and then everyone paid, they paid for the whole thing basically over time. Council Member Kniss: That’s, that would be the best. Vice Mayor Scharff: And what if [inaudible] these other companies same kind of financial arrangement? Chair DuBois: So I think that's a really good question and I think, I think that may be a… it's a great way to go if we get the same financial arrangement as long as we then don't preclude Google coming if Google is going to provide better service and it depends on the quality of service that you would get from this. Mr. Reichental: So we would make a requirement for the network to be open to everybody. We wouldn’t want to restrict it to a single vendor. Vice Mayor Scharff: Correct. So that would be great. Chair DuBois: We wouldn’t do a franchise maybe to one vendor at a time, just to so they can cover their nut? Vice Mayor Scharff: He just said the opposite. Chair DuBois: I know. I mean there's you can make it open, you could have like a franchise kind of thing where people bid and there’s one winner for a period of time and then it renews. TRANSCRIPT Page 76 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Mr. Reichental: [Inaudible] that’s not true. Vice Mayor Scharff: You could, but I mean what you really want is it to be open to everyone. The question is would people be willing to do it if it was open to everyone? Because clearly we’d all be better off if it was open to everyone. And I would have huge concerns about precluding, I never want to get in a situation where we limit Palo Altans to not having the options that other people have because we signed a deal with somebody for 20 years and they can't then use it. I would have huge problems with it. Council Member Kniss: So this is one of my favorite topics, but it's also 9:30 P.M. So is there some recommendation that you want us to discuss tonight in more depth or is this a here’s where we are and kind of we’re stalled again. Vice Mayor Scharff: I'd like you to come back after you answer the question what's Google willing to do? And obviously continue to move forward with RFI. Mr. Keene: We had that. We even have a little work we’re planning to do just on just our existing fiber backbone and spending some money, right, to kind of upgrade some [inaudible]. Little bit in the lines of getting our house in shape and up to date that we will be able to proceed with. Council Member Kniss: Were you actually saying something about San Francisco and they wired or not wired or something? Mr. Reichental: So interestingly Google sort of going multiple directions on how to provide service now. One of the things they’re doing is they announced this acquisition of a company that provides wireless broadband to apartment blocks in San Francisco. So by acquisition they get that sort of San Francisco gets that service from Google. So it's called Web Pass and it’s in a few other cities. It’s just a relatively small footprint, but they buy the technology and that's the most interesting piece. Council Member Kniss: That’s fascinating. Mr. Keene: Could I make I suggestion, there's a lot of moving pieces Google, the RFI. If there's a sense that we need to come back to the committee then I’d just work with the Chair on the schedule of you know if it's you know if it's four weeks from now or six weeks or eight weeks, whatever. I mean based on when we've got some viable… TRANSCRIPT Page 77 of 77 Policy and Services Committee Special Meeting Transcript 8/16/16 Vice Mayor Scharff: Yeah, but it's nine weeks that’s too long. Chair DuBois: Appreciate the update though. [Inaudible] where things are. It’s definitely interesting times. Vice Mayor Scharff: It certainly is. Council Member Kniss: Especially since you had a conversation this morning. Mr. Reichental: This is real time. Council Member Kniss: It's like it never stops, does it? Chair DuBois: I mean there was a little hint in the financial press that is Google going to pull back, right? So who knows. Mr. Reichental: Thank you very much, thank you. Mr. Keene: You did say something about calling us out in particular I thought though the PFCC [inaudible] wireless idea. Mr. Reichental: Yeah, just to restate the so they’re going to Google is going to engage in an innovation map around this, these wireless options. And they will use several communities to do that experimentation of which Palo Alto is listed as one of the experimental communities. Council Member Berman: Sounds awesome, guys. Chair DuBois: Okay. Meeting adjourned. NO ACTION TAKEN Future Meetings and Agendas None. ADJOURNMENT: The meeting was adjourned at 9:26 P.M.