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HomeMy WebLinkAbout2001-01-16 Ordinance 4674ORDINANCE NO. 4674 ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AUTHORIZING CLOSING OF THE BUDGET FOR FISCAL YEAR 1999-00 WHEREAS, pursuant to the provisions of Section 12 of Article III of the· Charter of the City of Palo Alto and as set forth in Section 2.28.070 of the Palo Alto Municipal Code/ the Council on June 19/ 1999 did adopt a budget for fiscal year 1999-00; and WHEREAS, fiscal year 1999-00 has ended and the financial results, although subject to post-audit adjustment, are now available and are herewith reported in summarized financial Exhibits "A" and "B" and "C" and "D" prepared by the Director, Administrative Services, which are attached hereto, and by reference made a part hereof; and WHEREAS, pursuant to Section 2.28.080 of the Palo Alto Municipal Code/ the City Manager did amend the budgetary accounts of the City of Palo Alto to reflect: (A) Additional appropriations authorized by ordinance of the City Counci1. (B) Amendments to employee compensation plans adopted by the City Council. (C) Transfers of appropriations from the contingent account as authorized by the City Manager. (D) Redistribution of appropriations between functional areas major activities, and objects within various departments as authorized by the City Manager. (E) Fiscal year 1999 00 appropriations which on July 1, 2000 were encumbered by properly executed, but uncompleted, purchase orders or contracts; and WHEREAS, fiscal year 1999-00 appropriations in certain departments and categories as shown on the attached Exhibit "A", while not encumbered by purchase order or contract, at year end are. nevertheless recommended for reappropriation in the fiscal year 2000-01 budget. NOW, THEREFORE, the Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. The fiscal year 1999-00 encumbered balances for the departments and categories shown on Exhibit "C" shall be carried forward and reappropriated to those departments and categories in the fiscal year 2000-01 budget. SECTION 2. The City Manager is further authorized and directed: (A) To close the fiscal year 1999-00 budget accounts in all funds and departments and, as required by the Charter of the City of Palo Alto, to make such interdepartmental transfers in the 1999 00 budget as adopted or amended by ordinance of the Council. (B) To close various completed Capital Improvement Projects as shown in Exhibit "B" and move the balances into the respective reserve funds indicated in Exhibit \\BII. (C) To establish reserves as shown in Exhibit \\DII and "E" for all Funds as necessary to provide for: (1) A reserve for encumbrances and reappropriations in the various funds, the purpose of which is to carry forward and continue in effect the unexpended balance of appropriations for: (a) Fiscal year 1999-00 departmental expenditures which were authorized to be carried forward pursuant to Section 1 above. (2) Reserves for Advances to Other Funds and for Stores Inventory in accordance with ordinance and policy guidelines. (3) A reserve for general contingencies of such amount that the City Council has approved. (4) Reserves for utilities plant replacement I rate stabilization l and other reserves in accordance with Charter and policy guidelines. (D) To fund the Budget Stabilization Reserve in accordance with the General Fund Reserves Policy adopted by the City Council. SECTION 3. The sum of Two Hundred Seventy Seven Thousand Nine Hundred Thirty Three Dollars ($277 /933) is hereby transferred from the Vehicle Maintenance Retained Earnings to the Vehicle Maintenance and Replacement Fund. This transfer will reduce the balance in the Vehicle Maintenance Retained Earnings to $7 /032 /874. SECTION 4. Upon completion of the independent audit, detailed financial statements reflecting the changes made by Sections 1, 2, and 3 of this ordinance, shall be published as part of the annual financial report of the City as required by Article III, Section 16, of the Charter of the City of Palo Alto and in accordance with generally accepted accounting principles. SECTION 5. As specified in Section 2.2S.0S0(a) of the Palo Alto Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 6. The Council of the City of Palo Alto hereby finds that the enactment of this ordinance is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. SECTION 7. As provided in Section 2.04.350 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: January 16, 2001 AYES: BEECHAM, BURCH, EAKINS, KLEINBERG, LYTLE, MOSSAR, OJAKIAN NOES: ABSTENTIONS: ABSENT: FAZZINO APPROVED: -£L ATTEST: ~~'~dc City Clerk APPROVED AS TO FORM: ~·tN.·~ Senior Asst. City Attorney $4,000 Exhibit A 1999-00 RE·APPROPRIATION REQUESTS ffiOJrOVlem<:nts to Avenue Depot, Golf Course, Pro-Shop, and Golf Course restaurant. and sound Wall improvements-($SO,OOO). employee orientation project. .. to complete projects. contract were not 1:l/l.I:l"UL~;U by June 30 because only one bid was received and it was over budget. was ~ delay in a consultant. Scope of work is currently being developed and cpnsultant list is completed. .. . To retain the new . There was II delay. obtaining a c·onsultant. Scope of employee orientation project. work is currently being developed and consultant list is completed. To retain a consultant for salary survey and negotiations data collection. Current proviaer surveys. contractor is being sought. Project was a.lso delayed to coi.ncide with the hiring of the new City Manager. - $1 $20,000 5,500 $18;500 $20,000 1999-00 RE·APPROPRIATION REQUESTS, ' processing plaiming applications and completing planning projects. Contract ."",eVIC'"." Stanford projects. Program expense the Commute Coordination Pilot Project: . Zoning ordinance work prog~m. Expenses , Group, which develops guidelines for n'eighborhoQdc0trlpatibility and replacement homes. " Printing lighting. Redundant MSC servIces needed to complete a large-scale , site redesign of the Utilities we!> page. years will require a greater level of fiscl;Il resources are 'available in one year. The department hopes to , . maximize the availability offunding from 99-00 and 01 to meet its goals. I an as Stanford projects continue in 00-01. Anticipating, this, temporary personnel were hired in 99-00 so that these funds could be used in 00-01. . was delayed b~cause staff was not until later in the fiscal year. ' ","UI;UU""U for in the quarter of 00-0 1. .i conducted Group is delayed and scheduled for July 2000. ear end savings are needed to support Ordinance Update' initiative; which will require sig~ificant expense related to duplication of materials. RFQ's were sent out prior to June ~O. 2000 but contractscould,not be executed before the end of the fiscal year. Department was unaware that fiber optics could utilized from an existing connection at t~e MSC until late in the fiscal year. scope year. resulted in changes to the contract development process, w,hich delayed the project. 2 , \. j I { j ! . j. .$28,400 . 1999-00 RE-APPROPRIATION REQUESTS purohases and outfitting services. Bikeway system impr()vements. (PLA· 19524) . 194(7) .. : vehicle replacement projects. Project was the. the· citywide Bicycle Master Plan, due in F~1I12000. priority than other assignments .. *** Note To General Fund Reappropriations: The Comprehensive Annual Financial Report shows $612,000 in General Fund reappropriations. The $138,000 difference from the $474,000 shown here is a capital project carry- forward for the Community Center that does not require Council action .. .. ~ ·3 Exhibit B City of Palo Alto' CAPITAL IMPROVEMENT PROGRAM PROJECTS ' . . PROJECT NUMBER General Fund '19519 19706 19802 . 1981.0 19811 19919 Water Fund 0005* Electric Fund 0007 .. 0012 9510 Gas Fund 9906 9909 Completed and Closed in 1999 .. 00 PROJECT TITLE MuUt-line Telephone System Replacement Facilities Walkway Improvement Sailing Platform Removal New Vehicles ' New Equipment Purchas~ Top Dre~sing Tractor Water Receiving Station . Vacuum Mud Disposal, Trailer . Gas Meter Prover ' Total $ Total $ Total $ '" Projects are closed. No expenditures were incurred. PROJECT BALANCE .5,873 '1,060 11,926 178 '1,431 22,461, 42,929 90,000 90,000 ... 280,000 16,537 400 296,937 188 6,517 6,705 ,. " , i , , , , , ! ~ . ,. I f ! ~ i ~ ,~ CAFR Reconciliation: EXHIBIT·C 1999-00 1999-00 1999-00 Adjusted CAFRBa~js . Budgetary Budget RevlExp Adjs , 10,057 10,770 20,851 22,867 5,775 5,861 7,600 8,293 . 7,522 9,096 10,500 12,408 8,979 517 7,078 9,98~ 9,944 1O,9~2 11,841 18,112 15,772 580 22,076 17,858 . 3,021 . 15,711 . 14,512 775 ·7,885 ,6,639 (49) . 19,106 17,666 1,063 12,864 8,827 . 2,810 '5,711 6,927 (1,100) 6,917 Current year encumbrance/reappropriations Prior'year encumbrance/reappropriations Current year stores emcumbr:ance adjustment Prior year stores emcumbrance adjustment CAFR Net 'imcome 1999-00 Encum+ Reapprop nla ' . nla nla nla nla nla nla .n/a nla 1,63 7 I~OOj 421 988 376 898 50 6,917 1999-00 . ,Budgetary RevlExp 10,770 22;867 5,861 8,293 9,0% 12,408 7,595 9,944' 11,841 17,989 21,882 15,708 '7,578 19,105 12,535' 5,877 6,917 12,288 (5,428) 88 (67) 6,628 1999-00 Budget Variance 713 2,017 86 693 1,575 1,909 123 ' 194 3 308 . ==-.:::.:...::....::c....:...:::...=.::.;::..;;;a.:;..:...:....:.:.====. , CAFR Fund Balance Less: Encumbrances Re'appropriations stment for Stores I EXHIBIT 0 Balance. " Net From 061301990 49,137 . (5,067)' (670) , 242 20,591, , 14,666 479 .1,691 7 o 5,966 242 6,628 (6,978) 58 '39' (562)' . (768) , 170 453 (7) o 'Balance', 06130100 55,765 (12,045) . '~(612) , 281 20,029 13,898 . 649 2,144 o o 6,388 281 ,~ . ENTERPRISE SUMMARIES ~ ~ '1998-99 ' 1999-00 1999-00, $ Variance , Act/Encl AdJu$ted Act/Encl .Favorable , ! . Reapprop Budget. Reapprop , (Upfavor.). ' ; I REVENUE Water sales 12,615 13;281 14,551 1,2'70 ' ; Other revenues 926 1,109 1,163 54 ' ' Reappropriation$ I Enc 3,193 1,021 . 1,021 0 TOTAL REVENUE 16,734 15,411 16,735 1,324 . EXPENSES', Purchases 4,114 5,712 5,711 1 , Other Expense,s 7,050 7,754 7;400 354 TOTAL OPERATING EXPENSE 11,164 13,466 13,,1'11 355 Capital Expenses 3,500' 3,869. 3,640 229 TOTAL EXPENSES 14,664 17,335 16,751 584 j TO/(FROM) RESERVES. 2,070 (1,924) (16) 1,908 I , 1998-99' . ,1999-00 Act/Enel $ Variance Act/Enel Adjusted Reapprop Favorable Reapprop Budget . Actual/Ene. {Unfavor.}' , R'EVENUE , ' Electric retail sales 66,409 56,364 56,769, 405 Electric wholesale ,sales 5,641 3,347 4,582 .1,235 Other revenues '12,292 14,335 10,844 ' (3;491) , " ' Reappropriations I Enc 5,931-6,546 ' 6.546 0 TOTAL REVENUE 90,273 80,592 78,741 (1.8:51 ) EXPENSES· Purchases 25,478 2~,390 -18,261 6,129 NCPA & TANC Debt Svc 10,940 11,391 11,026 365 . Other Expenses' 25,812 28,408 27,965 443 TOTAL OPERATING EXPENSE 62,230 64,189 57,252 6,937. Capital Expenses 10,'834 19,666 18,603 1,063 . TOTAL EXPENSES 73.064 83,855 75,855 8,000 TO/(FROM) RESERVES 17,209 (3,263) 2,886 6,149 . 1998·99 1999-00 Act/Ene/ $ Variance Act/Ene/ Adjusted Reapprop Favorable Rea~~ro~· Budget Actual/Ene •. {Unfavor.} REVENUE . Revenues 10,230 11,338 1·1,307 (31) Reappropriations / Ene 8,331 8,262 ·8,262 0 TOTAL REVENUE .18,561 19,600 19,569 (31) EXPENSES " Sewer Treatment Exp. . 4,275 4,778 4,390 388 Operating Expenses r 2,523 2,945 2,542 403 TOTAL OPERATING "EXPENSE 6,798 7,723 6,932 791 Capital Expenses 9,289 13,426 . 13,569 " (143) " Principal Payments 187 43 47 (4) TOTAL EXPENSES 16,274 21,192 20,548 ·644 TO/(FROM) RESERVES 2,287 (1,592) (979) 613 ~ ~ 1998,-99 1999-00 Act/Encl ' $ Variance ' ':(I Act/Enc! Adjusted, ' Reapprop Favorable Reagl2ro l2 Budget Actual/Enc. " fUnfavor.) REVENUE Operatrng Revenues 12,271' 13,213 12,650 ' .(563) Bond Proceeds 7,266 0 0 0 Reappropriations ! Enc 3,488 2,246 ' 2,246 '. 0 Bonded Reappr/Encum 0 6,883 6,883 TOTAL REVENUE 23,005 22,342 '21,779 (563) EXPENSES Operating E;xpenses 11,570 11,899 11,921 (22) TOTAL OPERATING EXPENSE 11,570 11,899 1'1,921 (22) '~ \ 9,650, Capital EXpenses 10,994 9,997 (347) Principal Payments 408 433 298 135 TOTAL EXPENSES 22,972 21,982 22,216 (234) TO!(FROM) RESERVES 33 360 (437) , (797) 1998-99 1999-00 Act/Eile! $ Variance Act/Ene! Adjusted ReapprQP Favorable ReaggroR Budget Actual/Enc. (Unfavor.} REVENUE Revenues 22,428 22,4.29 23,041 612 Reapproprlatlons ! Enc 2,356 ',2,263 2,263 0 TOTAL REVENUE 24,784 24,692 25,304 612 EXPENSES Payments to PASCO 7,169 7;530 6,957 573 Other Expenses 13,595 ' 15,988 14.754 ,1,234 TOTAL OPERATING EXPENSE 20,764 23,518 " ' 21,711 ' 1,807 Capital Expenses " 2,068 1,980 1,979 1 TOTAL EXPENSES 22,832 25,498 '23,690 1.807, TO/(FROM) RESERVES 1,952 (806) 1,614 2,419 .: >, """'ili..rf.!';>,'" , ,1_-, • J .' J • • 1998-99 ' 1999-00 Act/Ene/ $ Variance Act/Ene/ Adjusted Reapprop Favprable ReaRRrolr Budget ' Actual/Ene. (Unfavor.} REVENUE . Revenues 2,202 2,665 2,527 (138) Reappropriations rEne 2,664 275 275 0 Bonded Reappr/Eneum 0 1,327 1,327 0 Restricted Bond Proceeds 0 0 944 944 TOTAL REVENUE 4.866 4,267 5,073 806 EXPENSES Operating Expenses 2,011 2,060 2,088 (28) TOTAL OPERATING EXPENSE 2,011 2,060 2,088 (28) .~ , Capita! Expenses _ 2,984 1,998 2;148 (150) Principal Payments 300 300 200' 100 , TOTAL EXPENSES 5,295 4,358 4,436 (78) TO/(FROM) RESERVES (429) (91) 637' 728 { . i ' ! ! . , ~ IjUlJgetea Reserves % of Budget Rate stabilization (RSR): . G~neral RSR . Supply RSR Distribution RSR Total RSR Emergency plant replace Calaveras . Underground loan Conservation loan. Water Resources Board Shasta rewind loan Central. Valley Project Public bemefit . Maximum RSR % of Maximum . . )TERPRISE RESERVE SUMMAR' 9,506 . 8,683 2,847 9,537 728 3 2,198 . 748 420 1,367 5,612 68,013 68,012 613 613 634 634 590 590 64 . 64 908 908 Performance Highlights Supplemental to the Comprehensive Annual Financial Report • • • . . • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • .. • • • • • • • ....................• , ..•...•................•.....••...........................•........... 6it1 r;f;P alf! A-f tf! Performance Highlights SuppleDlenlallO Ihe CODlprehenslnve Allnual Rnanelal Repon EXECUTIVE SUMMARY Purpose: This report is a supplement to the Comprehensive Annual Financial Report (CAFR) for the year ended June 30, 2000. It is intended for readers who are less familiar with the technical aspects of municipal finance or who wish a brief sum:ni.ary of the CAFR. Visit the City's website for the complete CAFR in early 2001. The document is available at Palo Alto libraries and you may order a copy from the Administrative Services Department at 650-329-2692. Contents: This report consists of three major sections. The first discusses the City's program accomplishments and financial performance during the past year for its governmental funds with emphasis on the General and Capital Projects Funds. The second discusses the same for the City's proprietary funds with emphasis on enterprise funds. The third discusses the local and regional economic trends and the financial challenges facing the City. All financial data in this supplement are drawn from current and past Comprehensive Annual Financial Reports. Conclusions: Although the rate of job growth continues to slow in the technology sector across the region, the City of Palo Alto continues to benefit from the diversity and strength of its employer and retail base and consistently outpaces the performance of other local communities. The financial condition of the City is excellent, with positive economic prospects and more than adequate reserves to buffer economic downturns and unexpected events. However, the demand for services, especially capital investment, is higher than expected available resources. The City will need to carefully plan and prioritize its expenditures over the long-term. Also, City-owned electric and gas utilities continue to face challenges in the deregulated market, resulting in some rate increases for customers. Strong employment demand in the private sector, high housing costs and congested transportation systems have inhibited the City's ability to attract and retain employees. GOVERNMENTAL FUNDS PERFORMANCE Combined View: In 1999-00, combined governmental fund revenues and other financing sources totaled $127.5 mil- lion and expenditures and other financing uses totaled $119.5 million. The $8.0 million net of revenues over expendi- tures resulted in a combined fund balance for all governmental funds of $89.4 million at June 30, 2000. This year's addition to fund balance is $4.7 million higher than the prior year's addition of $3.3 million, primarily due to strong per- formance by the City's direct revenue sources, which rose 14.8 percent in 1999-00 from 1998-99 levels. General Fund rev- enue sources sensitive to the economy, such as sales, property, transient occupancy taxes and construction related sources account for this dramatic increase. Funds segregate financial resources for specific activi- ties or certain objectives. The City operates many funds and each one stands on its own with separate financial reports, even though it is also part of the whole. Think of the City as a parent corporation and its funds as subsidiary corporations . "Governmental" funds account for the services provided to the general citizenry as opposed to a specific group. These funds focus on current financial resources, empha- sizing budgetary control and available cash. This approach, called the modified accrual basis, is significantly different from private sector accounting. The City operates four types of governmental funds: General (basic services), Special Revenue (federal & state grants), Debt Service (borrowing), and Capital Improvement (construction). ............................................•......................................................•.................................• :,'1> P~RFORMANCE HIGHliGHTS . Flscal Year 1999-00 SPOTLIGHT ON THE GENERAL FUND GENERAL FUND REVENUES Sales Tax:Belaying concerns about the flat performance in the City's largest revenue source in the first two quar- ters of 1999, sales tax receipts unexpectedly surged in the 4th quarter of 1999 and the 1st quarter of 2000. This rally resulted in total sales tax revenue for 1999-00 exceeding. the budget by $2.0 million or 9.7 percent and prior year results by $2.6 million or 13.1 percent. The business seg- ments most responsible for this performance are new auto sales, office equipment, furniture & appliances, res- taurants and miscellaneous retail. Seeming to defy grav- ity, new auto and office equipment sales have increased in every quarter over the past 3 years. 110 100 90 80 70 60 GENERAL FUND: REVENUE & SOURCES ($m iIIions) 50 -F-=-...... -~ 95-96 96-97 97-98 98-99 99-00 . The predominant factor supporting growth of the sales tax is the consumer confidence that derives from wealth. Increases in home and stock values have provided con- . sumers with the comfort to spend freely on high-end automobiles, jewelry, computers, specialty stores and res- taurants. In addition, a robust business climate spurred by productivity gains promoted higher software and other office equipment sales. Property Tax: Assessed property valuation in Palo Alto, after increasing 8.3 percent in both 1997-98 and 1998-99, jumped another 9.4 percent in the past year to $10.5 bil- lion. High demand for office space also has fueled the high real estate prices in the City, which in turn increase property tax revenues. For example, the vacancy rate for commercial office space in September 2000 was a low 1.0 percent. The strong real estate market resulted in total property tax receipts for 1999-00 exceeding the budget by $700 thousand or 6.6 percent and prior year results by $1.2 million or 13.1 percent. Transient Occupancy Tax: Transient occupancy taxes (TOT) turned in a stellar performance in 1999-00, with revenue exceeding the budget by $700 thousand or 9.1 percent and prior year results by $1.7 million or 26.6 per- cent. A portion of the success came from the opening of the new Westin hotel in May 2000 and a full year of oper- ations at the expanded Cabana hotel. A more significant portion of the success came from the overall vibrant econ- omy that led to higher occupancy and room rates. Utility Users Tax: Total utility user tax revenue for 1999- 00 was slightly above the budget, but declined $178 thou- sand or 2.9 percent compared to prior year results. Prima- rily due to a fifteen-percent decrease in electric rates implemented on July I, 1999, the City utility billings seg- ment of utility users tax revenues was 9.3 percent below the prior year amount. The telephone usage segment grew by 11.4 percent above the 1998-99 level based on vigorous business activity and demand for Internet lines. Other Taxes and Fines: This category consists of docu- mentary transfer taxes, motor vehicle in-lieu taxes, and fines such as parking violations and library late fees. Total revenue for these combined sources exceeded the 1999-00 budget by $1.6 million or 20.9 percent and prior year results by $1.8 million or 25.4 percent. Following the upward trend in property tax receipts, the documentary transfer tax accounted for most of this performance, with a 42.0 percent increase above the prior year amount. Transfer tax revenue hasjumped from $1.9 million to $4.4 million or 131 percent over the past five years, this swift growth reflecting the overheated commercial and resi- dential real estate markets. The State of California collects the 8.25% sales tax and distributes the receipts to various state, county, municipal and speCial pur- pose organizations and the City of Palo Alto receives only $.12 of every $1.00 in sales tax collected within its jurisdiction? Service Fees and Permits: The City's second largest. source of revenue, exceeded the 1999-00 budget by $1.8 million or 16.8 percent and the prior year results by$3.6 million or 40.8 percent. Vigorous renovation activities in the City and a strong shift towards new construction have produced a dramatic increase in Planning Depart- ment and ArchitecturalReview Board fees and permits. Also, growth in community education classes,paramedic services and golf course fees have contributed signifi- cantly to this outstanding performance . .........•................•.•........................................................••...........••••••........••.............••••.•. ~ PERFORMANCE HIGHliGHTS ~ Fiscal Year 1999-00 GENERAL FUND ACCOMPLISHMENTS ·Expenditure Overview:For the second year in succession, General Fund departments spent nearly all of their bud- getary authority when encumbrances and reappropria- tions are considered. At the end of 1999-00, no department had savings in excess of 1.2 percent of bud- get, which is slightly less than last year's highest savings amount of 1.5 percent. This condition indicates that departments have little capacity for delivering additional services at current budget levels. The County 01 Santa Clara collects the property tax and distributes the receipts to various county, muniCipal, school district and special pur- pose organizations and the City of Palo Alto receives only $.1 Oof every $1.00 in property tax collected within its jurisdiction? Administration: The City Manager's Office overs~w a variety of important initiatives, including the approval of the renewal and sale of the cable television franchise, util- ities deregulation; development of a public safety build- ing; downtown construction and lighting projects, and the formation of the San Francisquito Creek Joint Powers Authority. Also, the Economic Resources Office created a business outreach program, completing a targeted retail strategy study and the Public Communication Office pro- vided media relations training and the launched an employee newsletter. "Fund balance" is the difference between assets and liabilities for gov- ernmental funds and is a key measure of financial health. Like most municipalities, Palo Alto subdivides fund balance into "reserved" and "unreserved/designated" portions. The reserves portion represents set-asides for existing obligations. The unreserved/designatelportion represents set-asides for future purposes and.is available for new expenditure appropriation. Think of the unreserved/designated portion as the savings account of the fund. The Administrative Services Department (ASD) devel- . oped a Long-Range Financial Plan that emphasizes financing alternatives for new infrastructure project~. The City Council approved staff positions for implementing an Infrastructure Management Plan that will expend $75 million over ten years. The Information Technology Divi- sion managed a very successful Y2K transition that included a citywide inventory, testing and remediation of hardware, software and embedded processors. Mission critical systems, such as those related to public safety and the City's utility operations, received particuJar attention. ASD also began implementation of the Information Tech- nology Strategic Plan. The Human Resources Department recruited an all time high 109 new employees, implemented an employee referral program; established a pilot vanpool program; and established an Intranet site providing benefits infor- mation, job postings, risk management issues, insurance and worker's compensation topics and related links. The City Attorney Office provided extensive support for the negotiations and implementation of the Palo Alto Medical Foundation -South of Forest Area project, the renewal and sale of the local cable franchise and the elec- tion procedures and guidelines for theproposed Storm Drainage fee increase. GENERAL FUND: EXPENITURES & USES ($millions) 110 100 90 80 70 60 50 +-==---~==--~-==~,-==~~==~ 95-96 96-97 97-98 98-99 99-00 The City Clerk's office continued to support the needs of the public, City Council and staff for meeting coordina- tion and records management. The Clerk administered an election in November 1999 for five Council Members and a special election in March 2000 for the historic pres- ervation ordinance. Inactive records were successfully moved to an off-sitefacility. Public Works: Public Works completed Page Mill Road and Foothill Expressway intersection improvements and a substantial portion of the downtown beautification project. Other accomplishments include annual street resurfacing, bicycle lane improvements, sidewalk replacements, implementation of the Palo Alto Sanitation Company contract and improvements at the Foothill Park and Baylands interpretive centers. ...................................................................................................................................... +) PERFORMANCE HIGHLIGHTS + Fiscal Year 1999·00 Planning: The Planning and Community Environment Department successfully installed a permit tracking sys- . tem, developed a work plan for updating the City's zon- ing ordinance, implemented a local shuttle service, improved communication with the public through the Internet and printed materials and developed/imple- mented a commute coordination program in partnership with downtown businesses and the Chamber of Com- merce. Grant funding was secured for traffic programs and a draft neighborhood traffic-calming program was developed. The Development Center handled high levels of activity including over 3,000 building permit applica- tions and 14,000 field inspections. Police: The Police Department began implementation of a multi-year strategic plan for addressing operational issues and secured grant funding for a comprehensive traffic safety program. Vacant positions were Significantly reduced after the development of a streamlined hiring process with the Human Resources Department. The Department addressed racial profiling issues by collect~ ing race and gender data for all traffic and pedestrian stops. Fire: The Fire Department worked with the Information Technology Division of ASD to accomplish a successful Y2K transition for critical systems and established the Standardized Emergency Management System (SEMS) with 75 percent of city staff trained to date. A new records management system was implemented and personnel were trained. The Palo Alto and the Mountain View Fire Departments jointly pur- chased an aerial ladder truck to be a reserve lad- der for both cities. Community Services: The Community Services Department launched a Family Resources web site and Ambassador's Program, created a Parks and Recreation Commission, and completed renova- tions for Rinconada Park and the golf course. The Department also conducted a feasibility study for new performing arts facilities in partnership with Stanford and assisted with gathering public input for the Library Master Plan. Events included the first annual San Francisco Chronicle Classic Five- Mile Run and the "X Marks the Spot" exhibit for school-age visitors atthe Junior Museum and Zoo . GENERAL FUND BALANCES· The strong performance by revenue sources responsive to the burgeoning Palo Alto economy yielded a General Fund net surplus of $6.6 million for 1999-00. This com- pares to a $2.8 million surplus in 1998-99 and a $5.1 mil- lion surplus in 1997-98. Total fund balance for the General Fund rose 13.5percent to $55.8 million at June 30, 2000. This amount represents 63.2 percent of direct 1999- 00 General Fund expenditures, providing a very gener- ous buffer against economic downturns or unexpected losses. All the reserved and unreserved/designated portions of fund are in balance for the General Fund, except for a $7.0 million increase in the Reserve for Encumbrances (expen- diture commitments carried over from one year to the next). Normally, the encumbrance reserve stays relatively level from year to year and the annual net surplus is added to the savings type reserves. PAMFISOFA Acquisition: The increase in the 1999-00 year-end encumbrances represents a special appropria- tion that committed $6.9 million of General Fund reserves to purchase real estate related to the Palo Alto Medical Foundation -South of Forest Area (PAMF /SOFA) project. Essentially, this direct appropriation expended the net surplus generated during 1999-00 that normally would have been set-aside as savings .. General Fund Reserves & Designations at June 30,2000 . $2, 793,000 . 1m Blldget Stabilization o 8nergencles o Other $13,898,000 III Encumbrance & Reapprop • Infrastructure Improvement, .........•.....................................................................•..........•.....•......................•••............ · ~ P~RFORMANCE HIGHLIGHTS +/ F1Sctli Year 1999-00 SPOTLIGHT ON THE CAPITAL IMPROVEMENT FUND Expenditures during 1999-00 for the Capital Improvement Program (CIP) Fund were $12.6 million, which is $3.1 mil- lion or 20.0 percent less than upgraded to avoid Y2K pr0blems. The City's systems entered the new millennium without any.failures. Community GIS: This project provides for the acquisition of important geographic information system (GIS) appli- cations that map City infrastructure, such as buildings, the prior year. When out- standing obligations are added to expenditures, the CIP fund used only 66.5 per- cent of its budget in 1999-00. This result was due prima- rily to design and hiring delays related to the start of the ten-year, $75 million Infrastructure Management Plan (IMP), which expended $5.2 million of its $7.4 mil- lion budget in its first year. General Fund: Revenues & SOurces for the Year Ended June 30, 2000 streets, utility lines, storm drains and parks. GIS allows the City to plan improvements and deliver public safety services more effectively. Tramient Occupancy Utility Other Users Tax TaJlleS& STREET & SIDEWALKS Service IMPROVEMENT Transfers of resources into the CIP Fund from other funds increased $3.8 million Sales Tax Tax 21% 8";(, Property Tax 10";(, 12% or 41.1 percent in 1999-00 when compared to the prior year. A significant portion of this change is a $1.7 million increase in the annual transfer from the General Fund for the IMP. Another is a $1.8 million increase in the annual transfer from the Special Revenue Fund for Street Improvements from a county pavement management grant. Internal transfers of resources "out" and "in" between City funds occur to accomplish specific purposes. An example is a Special Revenue Fund transfer to the Capital Improvement Fund to construct streets and side- walks. Another is an Enterprise Fund transfer to the General Fund to pro- vide a return on investment to the entire community from the ratepayers. Only $43,000 in CIP projects was completed or closed out in 1999-00, compared to $2.0 million in 1998-99. This change is the result of the delays mentioned above and an aggressive effort last year to close out non-critical and unused CIP funding to prepare for the Infrastructure Management Plan. Following are highlights of CIP fund work conducted during 1999-00: TECHNOLOGY Of the $955 thousand appropriated for technology projects, $591 thousand was expended by year-end. Y2K Upgrades: Many systems, such as emergencyser- vices, payroll and financial management were replaced or Fees & Nearly all of the $4.7 million budgeted Permits for street and sidewalk repairs were 12% expended by year-end. Revenues 12";(, Rental i Sidewalk Repairs: This project Income replaced sidewalks in Districl22, 10";(, which is bound by Middlefield, Louis, Embarcadero and Oregon and also in District 17, which is bound by Oregon, Loma Verde, Alma and Waverley. School Commute Safety: This two-year project began the improvement of signals, striping and intersection design to create safer bicycle and pedestrian travel along eight school commute routes in north Palo Alto. PUBLIC PARKS Only $371 thousand of the $1.9 million budgeted for parks and open space projects was expended by year-end. Trail Restoration: This project restored trails, fences, pic- nic areas and campgrounds in Foothills Park, the Bay- lands and the Arastradero Nature Preserve. . Irrigation and Backflow: This project improved irriga- tion controls and backflow prevention mechanisms. Admin Depts 16% General Fund: Expenditures & Uses for the Yea r Ended June 30, 2000 Transfers Out. Planning 7% School Site 7% Fire 15% Police 18% Public Works 9% .. -...•••••..........•.•.•..........• ~ .... ~ ••..........••.•........................••............. , •................................... :,~ P~RFORMANCE HIGHLIGHTS . Flscal Year 1999~OO CUv 0/ palo .Alto GENERAL FUND RESULTS Last Five Fiscal Years ($0008) 0/0 Chg 1995-96 1996-97 1997-98 1998-99 1999-00 1996-00 Revenues & Other Sources Property taxes $ 7,854 $ 7,735 $ 8,903 ~ 9,521 $ 10,770 37% Sales taxes 17,895 18,277 20,011 20,225 22,867 28% Utility users tax 5,098 5,509 5,780 6,039 5,861 15% Transient occupancy tax 4,279 5,107 5,846 6,551 8,293 94% Other taxes, fines & penalties 5,092 5,299 6,694 7,255 9,096 79% Service fees and permits 8,380 9,087 . 8,984 8,810 12,408 48% Rental income 9,644 9,667 10,074 10,155 9,944 3% Other revenues 8,824 9,554 .11,781 11,413 12,358 40% Transfers in from other funds 12,619 12,759 13,610 14,246 12,837 2% Total Sources of Funds $ 79,685 $ 82,994 $ 91,683 $ 94,215 $ 104,434 31% Expenditures & Other Uses Administrati ve Departments $ 11,133 $ 11,689 $ 12,987 $ 15,066 $ 15,772 42% Community Services 13,019 13,972 15,050 16,820 17,858 37% Public Safety -Fire 11,739 12,292 13,100 13,949 14,512 24% Planning & Community Environment 3,901 4,320 4,832 5,674 6,639 70% Public Safety Police 14,066 . 14,804 16,093 16,705 17,666 26% Public Works 6,614 7,339 8,172 9,202 8,827 33% School Site Operations 5,992 6,086 6,298 6,520 6,927 16% Transfers out to other funds 5,540 7,577 7,822' 7,046 9,605 73% Total Uses of Funds $ 72,004 $ 78,079 $ 84,354 $ 90,982 $ 97,806 36% Net Surplus (Deficit) $ 7,681 $ 4,915 $ 7,329 $ 3,233 $ 6,628 n.a. Beginning Fund Balance 25,979 33,660 38,575 45,904 49,137 n.a. Ending Fund Balance $ 33,660 $ 38,575 $ 45,904 $ 49,137 $ 55,765 66% Reserved for: (1) Encumbrances $ 5,141 $ 3,706 $ 5,036 $ 5,067 $ 12,045 n.a. Notes 751 703 689 479 649 n.a. Inventory 1,648 2;086 1,953 1,691 2,144 n.a. Reserved Fund Balance $ 7,540 $ 6,495 $ 7,678 $ 7,237 $ 14,838 97% U nreservedlDesignated for: Unrealized gai!l on investments $ -$ $ 450 $ 7 $ n.a. (1) Reapporopriations 670 612 n.a. Budget stabilization 20,427 17,900 19,050 20,591 20,029 n.a. Emergencies 5,300 5,600 5,875 5,966 6,388 n.a. Infrastructure 8,152 12,588 14,666 13,898 n.a. Streets/sidewalks/school site projects 393 428 263 n.a. UnreservedlDesignated Fund Balance $ 26,120 $ 32,080 $ 38,226 $ 41,900 $ 40,927 57% (1) In 1995-96 through 1997-98, reappropriations was included in the encumbrance reserve. SOURCE: City of Palo Alto Comprehensive Annual Financial Reports. BASIS: Modified Accrual. .....................................................••........••....••.....••..............•••....•..•.....•.•........•••............ Gty 0/ lJa& Alto 6 t? PERFORMANCE HIGHLIGHTS . Fiscal Year 1999-00 PROPRIETARY FUNDS PERFORMANCE The City of Palo Alto operates seven enterprise funds and four internal service funds. Since the internal service funds allocate all their costs to othedunds through user charges, it is not meaningful to combine internal service fund financial data with that of enterprise funds. While each enterprise fund stands on its own and has no responsibility to subsidize any other, it is useful to com- bine financial data for all enterprise funds to evaluate the total impact of enterprise operations on the financial health of the City. Proprietary funds account for businesslike operations that inlend to recover their full cost through charges to customers and users. These funds focus on financial position, emphasizing net income and retained earnings. Proprietary funds use the same accounting principles as pri- vate businesses called the full accrual basis. The City operates two types of proprietary funds: Enterprise (sales to external customers) and Internal Service (charges to City customers). SPOTLIGHT ON ENTERPRISE FUNDS COMBINED ENTEPRISE VIEW Enterprise Results: Enterprise funds provided $153.5 million or 54.6 percent of the City's revenues for 1999-00. Compared to the prior year, combined enterprise reve- nues decreased $10.5 million or 6.4 percent while expen- ditures decreased only $1.4 million or 1.1 percent. This resulted in a 1999-00 net income of $20.5 million for com- bined enterprise funds that is $9.1 million or 44.4 percent less than the prior year's performance. This change is due primarily to the lower electric rates and increased prices from natural gas suppliers that redu<;ed 1999-00 net income significantly for the Electric and Gas Funds, respectively, from 1998-99 amoUnts. Net income for other el1terprise funds for this year showed minor variation from the prior year. Enterprise Fund Equity: Combined retained earnings at June 30, 2000 rose to $359.9 million, a 6.0 percent increase from the June 30,1999 amount. In comparison, 1998-99 net income of $29.6 million increased retained earnings 8.7 percent last year. Palo Alto has reserved portions of retained earnings for all enterprise funds to. supplement regular budgets when unusual events, such as unseason- able weather conditions, affect revenues or expenses neg- atively. . The City Council annually sets minimum and maximum guidelines for these "rate stabilization reserves" and all enterprise funds exceeded their budgeted reserve targets, except for the Storm Drainage Fund. Combined rate sta- bilization reserves of $71.6 million represent 46.6 percent of 1999-00 revenues, providing generous protection from unexpected operating fluctuations. Enterprise Bond Issuance: During 1998-99, the City issued $17.7 million in Utility Revenue Bonds to refi- nance two existing bond issues totaling $10.3 million and to finance rehabilitation of two incinerators for the Waste- water Treatment Fund. The n~w bonds were allocated between the Wastewater Treatment (64.6 percent), Storm Drainage (25.2 percent), and Wastewater Collection (10.2 percent) funds. At June 30,2000, the unexpended balance of this issue was $1.8 mil.li,on. A bond trustee holds the funds and makes disbursements as the project progresses towards completion. Corrtlinecl Enterprise R..nds: Fetainecl Earnings ByType at Jl.I1e 30, 2000 $73,870, lXXJ Iill.J7reserW3d Retained Earnings II Rate 9abilization Reserve o O3IalAJl'ss Reserve $28,867,CXXJ ". Oxmittrents, Rea,wrop & Ebnd Proceed> Reserves o Other ReseIVeS ••.................•..••.••.....•••..........................................................................•.•..•....•....•......... :~ PERFORMANCE HIGHLIGHTS . Fiscal Year 1999-00 ENTERPRISE HIGHLIGHTS & ACCOMPLISHMENTS Electric Fund: Rates were lowered in 1999-00 because Electric Fund reserves significantly exceeded the maxi- mum guideline set by the City Council. This resulted in $9.7 million less in sales to residential, commercial and City departmental customers this year than last year. Also, other operating revenues decreased $2.2 million compared to the prior year due to construction delays related to the Fiber Optic program that affected revenue received from a joint trenching agreement with PacBell. Budget savings of $5.9 million in the cost of electricity from suppliers offset the revenue reductions somewhat to produce a 1999~00 net income of $14.5 million, which is $6.1 million or 29.5 perCent less than 1998-99 net income of $20.5 million. The fund ended the year with retained earnings of $204.7 million. In 1999-00, the Electric Fund completed: • Construction of the substructure for Underground District 37; • Construction of the Sandhill Road electric mainline construction and apartment electric distribution sys- tem; • The first phase of the Stanford Business Park electric . reconstruction; • The East Meadow Circle electric reconstruction; • Approximately 500 Work Orders for new electric con- nections and 73 requests for fiber optic connections. "Fund equity" is the term used to describe the difference between assets and liabilities for~propiietary funds and is divided into two components: "retained earnings" (derived from operations) and "contributed capital" (derived from grants). The retained earnings component is further subdi- vided into "unreserved" and "reserved" portions. "Unreserved retained earnings" represents the net of long-term assets and liabilities and is unavailable as a source of funds. "Reserved retained earnings" represents the net of current assets and liabilities and acts like the savings account for the fund, with set-asides for particular purposes. Reserves are available for expenditure appropriation. Also, the Electric Fund Public Benefits Pr.ogram expended its budget and operated the following electric efficiency programs successfully: • • • • • Low energy appliance rebates and home efficiency loans; Commercial efficiency rebates; Investments in renewable energy systems; Electric vehicles for the City fleet; Low income rate discounts. 200 180 160 140 120 100 COMBINED ENTERPRISE FUNDS: REVENUES & SOURCES ($millions) 95-96 96-97 97-98 98-99 99-00 Gas Fund: Also because of high reserves, the Gas Fund decreased rates near the end ofthe prior fiscal year. This r.esulted in a $1.6 million or 8.7 percent reduction in reve- nues during 1999-00. Wholesale gas supply prices began an upward movement toward the end of this fiscal year and gas purchases were $1.3 million higher than the prior year. Combined with other reductions in revenue and increases in operating expenses, results went from a net ~come of $1.7 million in 1998-99 to a net loss of $2.4 mil- lion in 1999-00, an adverse change of $4.1 million. After deducting the year-end loss, the ending rate stabili- zation reserves were $11.2 million or 65.5 percent of reve-. nues, still a comfortable buffer against unexpected events. However, natural gas supply prices have skyrock- eted to such record heights since the end of the fiscal year that significant increases to gas rates to customers are expected . .....•••......•.....•••.....••••.....••••......•••.......•••...••••••....••......•...•......•••.•....•......... , ...........•.......•.. '~ PERFORMANCE HIGHLIGHTS ~ Fiscal Year 1999,·00 The fund ended the year with retained earnings of $47.2 , million. In 1999-00, the Gas Fund completed: • Construction of 30,000 linear feet of ABS gas mains; • Design of an additibnal 30,000 linear feet of ABS gas mains; 200 180 160 140 120 COMBINED ENTERPRISE FUNDS: EXPENSES & USES ($millions) 1 00 *-=--.--='------.--='------,----='------,---==---~,' 95-96 96-97 97-98 98-99 99-00 • The location and design of compressed natural gas station at the City's Multi-Service Center to provide 24 hours per day x 7 day per week x 365 days per year fuel service for City natural gas powered vehi- cles; • Anew maintenance agreement for gas distribution at the Stanford Shopping Center. Water Fund: Net income for 1999-00 increased less than 1.0 percent compared to 1998-99 and the $2.3 million result represents a 6.6 percent increase to retained earn- ings. The fund ended the year with retained earnings of $37.7 million. In 1999-00, the Water Fund completed: • Workshops on landscape water efficiency for resi- dential customers; • Approvals for twenty-two new or renovated com- mercial/industriallandscape projects covering a combined 395,261 square feet (907 acres), the largest site being the new Palo Alto Medical Foundation campus cov:ering 277 acres; • Construction of 15,840 feet of water main replace- ments; • Contracting repairs to the City water reservoirs, cur- rently under construction; • The Water Wells, Regional Storage, and Distribution System Study; • Design and construction of water system improve- ments for the Stanford Corridor Project~, including a new maintenance agreement for water distribution. Wastewater Collection Fund: Net income increased $0.8 million or 23.9 percent from $3.1 million in 1998-99 to $3.9 million in 1999-00. The fund ended the year with retained earnings of $39.1 million. In FY 1999-2000, the Wastewater Collection Fund completed: • • • • The 42-inch Amarillo Avenue Embarcadero Way Relief Sewer Project; Award of one rehabilitation & augmentation project, currently under construction; Design of four rehabilitation & augmentation projects; A new maintenance agreement for wastewater col- lection at the Stanford Shopping Center. Wastewater Treatment Fund: For the second year in succession, net income was essentially break-even, with $0.4 million on $12.1 million in revenues. The fund ended the year with retained earnings of $9.5 million. In FY 1999-2000, the Wastewater Treatment Fund completed the rehabilitation and testing of incinerator #1. This project, financed by last year's bond issuance will COMBINED ENTERPRISE FUNDS: NET INCOME ($millions) 95"96 96-97 97-98 98-99 99-00 improve the reliability and the performance of the two incinerators at the Regional Water Quality Control Plant. The rehabilitated incinerator is equipped with state-of- the-art emission control devices and will destroy the solid pollutants in the incoming sewage in two steps. The products of this rehabilitated incineration process are a non-hazardous ash and a very clean exhaust. Work has begun on incinerator #2 with estimated completion in March 2001. .~ PERFORMANCE HIGHLIGHTS +/ Fiscal Year 1999~OO Refuse Fund: Net income decreased $0.4 million or 19.6 percent from $1.8 million in 1998-99 to $1.4 million in 1999-00 primarily due to higher expenses for operations and maintenance. The fund ended the year with retained earnings of $17.0 million. In 1999-00, the City completed the first full year of refuse service under the new agreement with Palo Alto Sanitation Company (PASCO) after its acquisition by Waste Management Inc. Total payments under the new con- tract were $6.8 million in 1999-00. Combined Enterprise Funds; Retained Earnings by Fund at June 30, 2000 " ..• ---~~-.. -~.-.-.---.-.. -.~~.-.----, . !ill Wafer II Electric I . 0 Gas £!ll Waste Water Trea1ment ! 1m Waste water Collection • Refuse Collection I ._.~L,....~.I]S~~=,?!~~~c======~=~~=~~====_.J_ Storm Drainage Fund: Net income increased $367 thousand from $44 thousand in 1998-99 to $411 thousand in 1999-00, primarily due to a $458 thousand transfer from the General Fund. The fund ended the year with retained earnings of $3.8 million. Phase 2 of the Storm Drain System Rehabilitation capital improvement project was completed. In the fall of 2000, the City unsuccess- fully sought ratepayer approval of a less than $5.00 per month rate increase to fund the balance of the rehabilita- tion project. The City currently is exploring other options for financing this important capital improvement work. SPOTLIGHT ON INTERNAL SERVICE FUNDS • The Vehicle Maintenance & Replacement Fund purchased eight police patrol vehicles, two large street sweepers and fifteen light duty trucks and vans; • The Computer Replacement Fund purchased $1.1 million in computer equipment; • The Printing & Mailing Fund billed City Departments for $0.8 million in services . ......•.....•....•.................•.••..•.•..............................................•.....•..•.•.....•.............•........•... t;;, PERFORMANCE U.GHlIGHrs Fiscal Year 1999-00 (itylPaIoAo etrEAPRISE FU\ID RESULTS YeureniledJune3O, 2000 ($(XX)s) Water Electric Gas WWC wwr Refuse Stonn TOTAL Revenues & 'Iramfers In Sales -CllSlDrrers $ 13,923 $ 55,344 $ 16,076 $ 9,208 $ -$ 18,137 $ 1,885 $ 114,573 Sales -city deputrrents 630 1,427 366 145 4,444-769 114 7,895 Sales -Wrlesale 4,582 4,582 O:ter operating revenues 616 5,238 664 989 7lJJJ 3,302 18,419 N,)~revereuc; 545 4,920 7(1) 804 311 769 8,058 Q:Jerating transfers in 684 lro 64-458 ' 1,366 Total Source; of FUnds $ 15,714 $ 72,195 $ 17,815 $' 11,306 $ 1.2,3(4 $ 23,041 $ 2,458 $ 154,893 EqJensts & 'Iramfers on Purchase of utilities $ 5,712 $ 18,261 $ 11,519 $ 4,300 $ 1,145 $ 6,957 $ $ 47,984 Adninistration & general 1,001 4,199 1,900 407 888 1,158 464-10,677 Q:xnltioos, rmintenance &otrer 2,864-12,564-2,741 1,309 7,886 12,794 1J70 41,128 IqJreciatioo &an:nrtizatioo 823 4,266 1,132 1,048 1,821 187 363 9,640 N:Jn..operating eXJ.m"e8 35 11,035 6 88 214 396 235 12,00} Q:Jerating transfers out 2,341 7,415 2,878 153 21 110 15 12,933 ThtaI Uies of FUnds $ l3,376 $ 51,740 $ 20,236 $ 7~$ 11,975 $ 21,602 $ 2,00 $ l34,371 Net IrxonE (Im;) $ 2,338 $ 14,455 $ (2,421) $ 3,911 $ 3f) $ 1,439 $ 411 $ 20,522 Beginning Retaired Earnings 35,340 100,246 49,633 35,233 9,542 15,557 3,805 339,356 Ending Retained Famings $ ~,G18 $ 204,701 $ 47,212 $ 39,144 $ 9,931 $ 16.996 $ 4,216 $ 359,878 Rfserved RftainedF.arnings: Rate stabilizatioo $ 9,506 $ 31,382 $ 11,187 $ 8,683 $ 2,847 $ 9,537 $ 728 $ 73,870 FJrergeocy plant,replacerrmt 879 2,W8 748 420 1,367 5,612 Qliaveras 68,013 68,013 Reappropriatioos & G:mritrrents 1,624 10,299 1,254 7,459 2,450 2,181 850 26,117 Restricted J3mj Proceeds 1,815 935 2,750', Ux:Ierground loan 613 613 O:nservation loan 634 634 Refuse Water Resources Boord 500 500 Shasta~loan 64-64- CentrnJ. Valley Project 008 -008 Public renefit program 2,322 2,322 Reserved Rftained Famings $ 12,009 $ 115,799 $ 13,823 $ 16,562 $ 8,479 $ ~ $ 2,513 $ 181,493 Ulreserved Retained F.antiJ¥: Ulreserved RetainedF.antiJ¥ $ 15,«1) $ 88,902 $ 33,389 $ 22,582 $ 1,452 $ 4,688 $ 1,703 $ 178,385 SOURCE: City of Palo Alto Comprehensive Annual Financial Report . BASIS: Full Accrual. •....•.••.•.•..•..•.•.•..••••.•....•....................•........ , .....................•......•..•....•..•.•........•...•.............. 11 GtV 0/ ({tEo .Aho ~ PERFORMANCE HIGHLIGHTS +/ Fiscal Year 1999-00 -all;> P~RFORMANCE HIGHLIGHTS .. Fzscal Year 1999-00 TRENDS & CHALLENGES STATE AND REGIONAL ECONOMIC TRENDS California is in its sixth year of economic expansion and its rate of job growth continues to exceed the nation as a whole. According to The State of the State's Labor Mar- kets report of June 1999 from the State Employment Development Department, the expansion is likely to con- tinue for the next three to five years at a slower rate of growth. The Bay Area recorded the third highest rate of annual job growth for all California regions at 12.4 per- cent over the past five years. However, the region was affected more by the Asian financial crisis than other regions because of its dependence on electronic and elec: trical component exports. High housing costs have made hiring of all types of workers difficult. 60 50 40 30 20 10 o GENERAL FUND: FUND BALANCES ($m i llions) 95-96 96-97 97-98 98-99 99-00 Over the next twenty years, Projections 2000 from the Association of Bay Area Governments forecasts the diffusion of Silicon Valley-type businesses beyond the South Bay to all parts of the region. The region will lead in the expected transformation to the "New Economy", characterized by alternative work arrangements, employee mobility, high technology skills and a shift towards services. The region will continue to experience population increases with the resultant pressure on trans- portation systems, housing costs and: ,the environment. LOCAL ECONOMIC TRENDS Palo Alto is an important retail center whose downtown area and Stanford Shopping Center record per capita sales at nearly three times the state and national aver- ages. During the past year, residential real,!'!state sale prices continued to soar in both Palo Alto a,nd the region, with recent newspaper articles indicating that Bay Area home prices may be the highest in the nation. For exam- ple, the median price for sixty-four June 2000 sales of sin- gle family homes in Palo Alto was an extremely high $1,081,250, an increase of 48.0 percent over the $730,000 median of fifty-eight sales in the prior June. Also, office space rates in downtown Palo Alto are significantly higher than in other Santa Clara County cities and are comparable to those of downtown San Francisco. Palo Alto is home to a diverse base of many large, medium and small firms. Industries represented by employers having over 1,000 employees include higher education, satellite communications, medical research and outpatient services, electronics, pharmaceuticals, corporate law and government. During the past year, the number of jobs in Palo Alto totaled approximately 107,000, including those at Stanford University. At 1.0 percent, Palo Alto has the lowest unemployment rate in Santa Clara County. Palo Alto household income is 180 percent, 140 percent and 124 percent of the state, regional and county figures respectively. GENERAL FUND AND CAPITAL CHALLENGES There are signals that sales tax growth could moderate~ Uncertainty in the stock market, the surge in oil prices, disappointing corporate earnings, the sagging Eurodollar and the effeCts of interest rate increases may well curb consumer confidence. Combined with an emerging slow- down in auto sales, the City should remain prudent in projecting future sales tax revenues. There is, also, evidence that real property turnover is heading lower in Silicon Valley. Record high prices for homes as well as commercial space has limited the pool of potential buyers and renters. While it is expected that. demographic pressures and the attractiveness of Palo Alto will continue to keep property tax rev~ues firm, the cooling of the economy and the cyclical nature of the housing industry may moderate the increases in property tax receipts experienced over the pas~ two years. Transfer taxes, documentary taxes and planning fees will follow this segment of the economy. ••....•...........................••••..•.•.................•............•••••.•.........................•.••.•....................... :' PERFORMANCE HIGHliGHTS Fiscal Year 1999"00 Anecdotal and visual evidence supports the conclusion that hotels are prospering in Palo Alto. High d«;mand has allowed hotel owners to sustain price increases and to fund improvements that lead to higher rates. Hotels and motels from the north to the south end of El Camino Real have undergone significant renovations and expansions in the past two years plus construction of one new hotel. The Transient Occupancy Tax on lodging is anticipated to grow further in 2000-01. Departments have expended nearly 100 percent of their budgets in the past two years and some are seeking additional resources to maintain existing services. The City's ten-year plan for replacing and upgrading existing infrastructure is currently set at $75 million, however, this amount was cut back from $95 million. This amount does not include pro- posed new projects, such as a public safety building, library improvements and traffic calming construction. The defeat of a rate increase for the Storm Drainage enterprise fund may require the General Fund to subsidize storm drain rehabilitation over the course of many years. Another significant future financial demand will be setting aside suffi- cient funding for post-retirement employee health benefits. The City should manage carefully its finances and priori- tize operational services and capital spending. ENTERPRISE FUND CHALLENGES COMBINED ENTERPRISE FUNDS: The City continues to face the challenges of the dereg- ulated marketplace for the electric and natural gas industries. One example is the recent rise of natural gas supply prices to unprecedented levels that has resulted in rate increases to Palo Alto customers, The City 'currently is evaluating its rate setting methodol- ogies, accounting practices and outside sales oppor- tunities to more effectively compete in this market. Near the end of the fiscal year, natural gas prices increased dramatically to all-time highs requiring a significant increase in the rates charged to Palo Alto customers. TOTAL RETAINED EARNINGS ($miflions) MfORKFORCECHALLENGES 400 350 300 250 200 -!,---~---'-''''---r- 95-96 96-97 97-98 98-99 99-00 Strong demand from the private sector, skyrocketing housing costs and overburdened transportation systems have adversely affected the ability of Bay Area local governments to attract and retain high-quality employees and these fac- tors are especially acute in the, Palo Alto environment. There has been particular difficulty with vacancies in public safety, information technology and service positions and the City has made employee recruitment and retention a top priority. Management understands that the City is unable to compete directly with private sector on cash compensa- tion 'and stock option benefits and, therefore, is exploring alternative methods for increasing employee satisfaction. The City of Palo Alto greatly appreciates the work of these and all the individuals who have assisted in the assemblage of this document. Author Stan Arend Contributors Joyce Aung Trudy Eikenberry Larry Hartmann Amy Javelosa-Rio Myrna McCaleb Graphics Cherie McFadden Steve Montano Charles Perl David Ramberg Rosemary Ralston Joe Saccio ............••.•.... ~ ...............•.........•...........•........ ~ ................•............•••••........•.... ~ ................. .