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Home My WebLink About2002-01-22 Ordinance 4734ORDINANCE NO. 4734 ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AUTHORIZING CLOSING OF THE BUDGET FOR FISCAL YEAR 2000-01 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, 2000 did adopt a budget for fiscal year 2000-01; and WHEREAS, fiscal year 2000-01 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" and "E" and "F" 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 Council. (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 2000-01 appropriations which on July 1, 2001 were encumbered by properly executed, but uncompleted, purchase orders or contractsi and WHEREAS, Fiscal year 2000-01 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 2001-02 budget. 'NOW, THEREFORE, the Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. The fiscal year 2000-01 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 2001-02 budget. SECTION 2. The City Manager is further authorized and directed: (A) To close the fiscal year 2000-01 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 2000- 01 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 "B". (C) To establish reserves as shown in Exhibits "D" and "E" and "F" 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 2000-01 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, rate stabilization, 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 One Hundred Nineteen Thousand Seven Hundred Five Dollars ($119,705) is hereby transferred from the Printing and Mailing Retained Earnings to the Printing and Mailing Fund. This transfer will reduce the balance in the Printing and Mailing Retained Earnings to $159,000. SECTION 4. The sum of Two Hundred Eighty Thousand Three Hundred Fifty Two Dollars ($280,352) is hereby transferred from the General Fund Budget Stabilization Reserve to the Storm Drainage Rate Stabilization Reserve. This transfer will reduce the balance in the General Fund Budget Stabilization Reserve to $24,490,000. SECTION 5. Upon completion of the independent audit, detailed financial statements reflecting the changes made by Sections I, 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 6. As specified in Section 2.28.080(a) of the Palo Alto Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 7. 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 8. As provided in Section 2.04.350 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: January 22, 2002 AYES: Beecham, Burch, Freeman, Kishimoto, Kleinberg, Lytle, Morton, Mossar, Ojakian NOES: ABSTENTIONS: ABSENT: ATTEST: !k-n/M.A S&.~ City Clerk. APPROVED AS TO FORM: ~vJ>·~ Se6ior Asst. City Attorney APPROVED: City Manager Director Services $54,000 $50,000 Exhibit A () 2000-01 REAPPROPRIATION REQUESTS Fund a comprehensive review of the City's fee and rate structure Developn;tent Impact Fee Study -Phase II Art Center -Main Library Building Feasibility Study Mitchell Park Library Community Center Site Feasibility Study Total Recommended This project has been delayed due to staff shortages. This project could not be performed in 2000-01 because it is a follow-up to the preliminary Development Impact Fee Study, which will be completed in early 2001-02. These dollars were scheduled to be encumbered through a contract in 2000-01 with the Art Center Foundation. However, Purchasing determined that in order to contract with a non-profit organization we must first secure Council approval. A CMR cannot be developed until July 2001. This requires the funds to be These dollars were scheduled to be encumbered through a contract in 2000-01 with the Friends of the Library. However, Purchasing determined that in order to contract with a non-profit organization we must first secure Council approval. A CMR cannot be developed until July 2001. This requires the funds to be reappropriated. The $50,000 of State grants funding exists in the Library budget and has been designated by Council for the Mitchell Park project. 1 $20,000 $60,000 $50,000 $50,000 $46,494 Comprehensive Compensation Benchmarking Study of positions in SEIU and Management School Commute Safety Study, Phase II Development Review -Mayfield Computer Traffic Model Traffic Safety Campaign To pay for relocation costs associated with move of City Manager who recently purchased a home and to cover other relocation expenses that have yet to be turned in. was just recently completed and billing invoice is not expected to be received in July 2001. Second phase of the Citywide School Commute Safety Study will focus on the schools in south Palo Alto: Gunn, JLS, Ohlone, Hoover, Palo Alto, Juana Briones, EI Carmelo and Barron Park, and prospectively Terman Middle School. It will complete the work begun in the frrst phase, which focused on the schools .located north of Oregon Expressway. This project furthers the City Council's Priority on Traffic Calming and Alternative Transportation. It is anticipated that this study will result in recommendations within the following areas: physical improvements and/or traffic calming on the public streets, traffic safety education and transportation demand management programs, community awareness programs, enforcement policies, and other initiatives that would increase safety of students commuting to school. Analysis of a potential community center at the Mayfield'site will continue into FY 2001-02. Reappropriation of funds for this project is critical to providing City Council and the community with information related to the impact of a community center at this site. This project furthers the City Council's priority on Joint Master Planning of City School facilities and services. Progress on this project has been greatly impaired due to staff changes. The Traffic Safety Campaign has been greatly enhanced by donated services, including marketing/advertising, graphic design and advertising space. Reappropriation of the unexpended funds will enable the campaign to continue into next fiscal year and will allow staff to reinforce the campaign's safety themes through the beginning of the school year and into fall. 2 $33,000 $35,072 $47,000 $3,084,827 $101,500 Zoning Ordinance Update Technology grant for County wide radio interoperability and GIS projects OTS grants for traffic safety devices Funding to clear brush that is encroaching onto the roadway on Page Mill Road. Commercial Advantage Program Rebate Accelerated Energy Efficiency Program San Francisquito Creek Levee Restoration Project and Stabilization and Revegetation Study The 2-year Zoning Ordinance Update work plan was not presented for approval by City Council until November 2000. Since that time staff has been assigned to support the project, 2 contract planners have been selected, and research has begun per the work plan. This is part of a multi-year state CLBEP technology grant. Video camera order was delayed in Purchasing. These are multi-year grants, $100,000 for technology and $10,000 for CHP. This is a multi-year state grant. The departnient attempted to order the equipment, but experienced difficulties in finding and selecting vendors. An RFP for this project was sent out in March 2001. At that time no contractors bid on the project. This project is in response to Traffic and Fire Safety issues. Customer and City electric efficiency projects were initiated on an emergency basis during the second quarter of 2001. Program design parameters, construction timetables, and inspection deadlines will not allow completion in FY 2000-01. The two projects are under the direction of the San Francisquito Creek Joint Powers Authority. They are activities of regional benefit, and Palo Alto's continued participation is critical to their success. The implementation schedule has slipped beyond the original due dates as a result of the complexities of coordination amongst multiple JP A member agencies. It is anticipated that the work will be completed in FY 2001-02. 3 $420,000 . $450,000 $278,409 () Purchase and install utility bodies and interiors for 24 City-owned trucks and vans. Equipment Management has normal vehicle replacement workload for the last several years. This has caused a backlog of projects. The chassis for these replacement vehicles have already been purchased and they all must be outfitted with utility bodies. Funding for desktop replacement Rebuild the fueling facility at Foothills Park (PW 19205) Americans with Disabilities Act Compliance (PW 19309) Arts Center Plumbing Replacement Project (PW 10007) The bid responses have not been accepted/approved to date. Information Technology is evaluating new cutting-edge technology that differs from the City standard. Hardware demo items were required for on- site evaluation. As a result of the evaluation it appears that the vendor bidder. project was delayed pending completion of other prerequisite Equipment Management has had a higher than normal workload for the last several years. This has caused a backlog of projects. The existing fueling facility at Foothills Park is out of compliance with local environmental regulations and has been shut down. Since this fueling facility supports Fire Station Eight and Foothills Park operations,it is critical that the facility be rebuilt as soon as This project provides funding to make City facilities, programs, and services accessible to persons with disabilities in order to comply with federal laws and regulations. Due to workload scheduling, no ADA improvements were scheduled for the last two years. Now that infrastructure staffing is now on board, two restroom renovation projects are scheduled for . in FY 2001-02. The sink and plumbing need to be upgraded to accommodate the environmental and safety requirements related to the use, cleanup, and disposal of art materials at the center. This project is currently in the design phase and will be completed this calendar year. *** Note to General Fund Reappropriations: The Comprehensive Annual Financial Report shows $749,000 in General Fund reappropriations. The $148,000 difference from the $601,000 shown here is a capital project carryforward for the Community Center that does not require Council action. 4 Exhibit B CAPITAL IMPROVEMENT PROGRAM PROJECTS Completed and Closed in 2000-01 ''';, . p~()JE61'i"lJM~~~.:, i· .• ;~ij~~;§~'I":'I"iTt;~:;·:.f .... ····· ' .. • PROJECT ·BAL.ANC~· General Fund 10011 10013 10016 19012' 19602 19605 19620 19701 19710 19809 19902 19908 19912 19917 Electric Fund 8945 * • 0001 ** Refuse Fund Financial Applications Users Access Impr. Year 2000 Contingency Diesel Exhaust Removal Payroll Personnel System Civic Center Chiller Replacement Foothill Park Water Management Civic Center LAN Upgrade Library Lighting Improvements Revenue Collection Software Work Station Operating System and Email Parks Facility Lighting . Diesel Exhaust Removal System Oracle Database Enterprise Office Automation Suite Total $ 20,604 4,101 25,723 2,759 492 36,617 9,825 5,071 59,969 4,900 37,821 45,658 2,001 29,350 284,891 Automatic Mapping 13,765 41/2 kV Conversion of Maybell 1 and 2 800,000 Total $ 813,765 0107 Landfill Phase II B Closure 446,089 Storm Drainage Fund' 9508 * Arastradero Creek Erosion Repairs 0014 Instrumentation Van * Projects are closed. No expenditures were incurred. ** Project was cancelled. No expenditures were incurred. Total $ 446,089 110,508 5,210 Total $ 115,718 Exhibit C GENERAL FUND SUMMARY ($OOOs) Property Taxes Sales Taxes Utility Users Tax Transient Occupancy Tax Other taxes, fines & penalties Service fees and pennits Charges to Other Funds Rental Income Other Revenues Add: Operating Transfers In Prior Year Encum & Reapprop E~eridlltJ.resD~~~t\}······ . Administrative Departments Community Services Fire Planning Police Public Works Non-Departmental School Site Operations To~IExpenditPres Add: Operating Trans Out .' . TotalUse of FundS Net S1lrpJu8l(Def\cit) CAFR Reconciliation: 2000-01 2000-01 2000-01 Adjusted CAFR Basis Allocated Budget Rev/Exp Charges $11,335 24,200 6,163 9,400 8,272 11,191 9,568 10,355 12,871 14,042 12,288 $21,468 23,386 16,944 8,210 20,013 13,168 7,317 7,193 \ .. 117,6~ .' $12,110 $0 25,786 6,895 9,359 8,887 12,743 818 7,590 10,270 15,793 14,157 12,288 $18,557 $617 18,469 2,526 15,973 864 6,652 301 18,306 1,163 9,522 2,683 7,186 (600) 7,301 lOl~ 7;SM~···. 10,221 .·· •• 112;187 ..... · Current year encumbrance/reappropriations Prior year encumbrance/reappropriations Current year stores adjustment Prior year stores adjustment CAFR Net imcome 2000-01 Encum+ Reapprop nla nla nla nla nla nla nla nla nla nla nla $1.862 1,067 107 1,148 450 621 126 ';0.?,381 (5,381). 2000·01 Budgetary Rev/Exp $12,110 25,786 6,895 9,359 8,887 12,743 8,408 10,270 15,793 14,157 12,288 2000-01 Variance $775 1,586 732 (41) 615 1,553 (1,160) (85) 2,922 116 ; ~~,696 ~:.Li~or4 $21,036 22,062 16,944 8,101 19,919 12,826 6,712 7,301 114,901 10,221 11$14 5,381 (12,288) 52 (88) 4,631 $432 1,324 o 109 94 342 605 (108) ;-',' ·,i ,: 2,798 (353) Exhibit D GENERAL FUND RESERVE SUMMARY ($OOOs) FISCAL YEAR 2000-01 Q~~liii~~gY<)9!:t10~'~96,~JJi~t,I~ij~~1,. ····:;~il~1~:;;;ifil CAFR Fund Balance Less: Encumbrances Reappropriations Adjustment for Stores Operations ~~ij'sJ!!~l¥'t~"'~~·\~i~i6~i'C:.i:> i;\ ......... '. ~'lp~~ii~mQ'~ij~~i01~~~~I~1~''':' .';iii'>: ... ",~ Budget Stabilization Reserve Reserve For Infrastructure Improvements Notes Receivable Reserve Stores Inventory Reserve Unrealized Investment Gain/Loss Reserve Reserve For Streets & Sidewalks Reserve For Emergencies Adjustment for Stores Operations 'B'tJcf'.ta'··.·,·}FiiiiCl\Balance . . ... 9 .. > ..• ~,.< .... ,'.;, .. : .••..•. ; Adjustment for Stores Inventory Encumbrance Ad"ustment for Stores 0 erations Total Adjustments Balance Net From Balance @ 06/30101 @ 06/30/00 0 erations $55,765 (12,045) (612) 281 "4:f38!f" ;. , ;.: ........... . $20,029 13,898 649 2,144 o o 6,388 281 43,389 $4,631 $60,396 7,129 (4,916) (137) (749) (229) 52 11394{Y .. "fi .•• ,;.'.· •. ·:·.,.:.5 ..... 4.· .. ~7. 8 .. 3.' . .. ":":',1'.; .. . $4,462 $24,490 4,890 18,788 491 1,140 82 2,226 1,309 1,309 o 0 389 6,777 (229) 52 11,394(:;',::54,783 . 136 84 52 REVENUE Water sales Other revenues Reappropriations I Enc EXPENSES Purchases Other Expenses TOTAL OPERATING EXPENSES Capital Expenses REVENUE Electric retail sales Electric wholesale sales Other revenues Reappropriations I Enc EXPENSES Purchases NCPA & TANC Debt Svc Other Expenses TOTAL OPERATING EXPENSES Capital Expenses Exhibit E WATER FUND ($000) 1999-00 ActlEncl 14,551 1,163 1,021 5,711 7,402 13,113 3,640 2000-01 Adjusted 14,883 1,201 1,625 5,970 8,340 14,310 7,033 ELECTRIC FUND ($000) 1999-00 2000-01 ActlEncl Adjusted 56,769 55,381 4,582 3,620 10,844 23,256 6,546 11,271 18,261 27,967 11,026 11,564 27,928 45,702 57,215 85,233 18,603 23,157 ActlEncl Reapprop ActuallEnc 15,441 1,726 1,625 5,969 9,051 15,020 6,228 ActlEncl Reapprop ActuallEnc 53,093 4,064 94,052 11,271 57,763 9,999 44,612 112,374 20,030 $ Variance Favorable 558 525 1 (711) (710) 805 $ Variance Favoral:)le (2,288) 444 70,796 (29,796) 1,565 1,090 (27,141) 3,127 REVENUE Gas retail sales Gas wholesale sales Other revenues Reappropriations I Enc EXPENSES Purchases Other Expenses TOTAL OPERATING EXPENSES Capital Expenses GAS FUND ($000) 1999-00 ActlEncl 16,443 1,372 993 11,595 8,542 20,137 3,904 2000.01 Adjusted 21,547 7,306 1,254 20,772 14,590 35,362 4,026 ActIEncl Reapprop ActuallEnc 9,264 13,255 7,808 1,254 20,627 14,249 34,876 6,142 WASTE WATER COLLECTION FUND ($000) 1999-00 2000-01 ActlEncl ActlEncl Adjusted Reapprop ActuallEnc REVENUE Revenues 11,307 11,196 11,420 Reappropriatlons I Enc 8,262 7,460 7,460 EXPENSES Sewer Treatment Exp. 4,390 5,020 4,974 Operating Expenses 2,340 3,220 6,570 TOTAL OPERATING EXPENSES 6,730 8,240 11,544 Capital Expenses 13,569 12,594 9,230 Principal Payments 47 $ Variance Favorable (12,283) 13,255 502 145 341 486 (2,116) $ Variance Favorable 224 46 (3,350) (3,304) 3,364 2 REVENUE Revenues Reappropriations I Enc EXPENSES Payments to PASCO Other Expenses TOTAL OPERATING EXPENSES Capital Expenses REFUSE FUND (SOOO) 1999-00 ActlEnc/ 23,041 2,263 6,957 14,754 21,711 1,979 2000-01 Adjusted 23,638 2,182 7,699 16,364 24,063 3,576 ActlEnc:1 Reapprop ActuallEnc 23,630 2,182 7,699 13,581 21,280 2,967 WASTEWATER TREATMENT FUND (SOOO) 1999:-00 2000-01 ActlEnc/ ActlEnc/ Adjusted Reapprop ActuallEnc REVENUE Operating Revenues 12,650 14,051 14,735 Restricted Bond Proceeds 1,815 1,815 Reappropriations I Enc 2,246 2,451 2,451 Bonded Reappro/Encum 6,883 3,710 3,710 EXPENSES Operating Expenses 11,570 12,571 13,278 TOTAL OPERATING EXPENSES 11,570 12,571 13,278 Capital Expenses 9,997 5,037 6,307 Principal Payments 298 262 262 $ Variance Favorable (8) 2,783 2,783 609 $ Variance Favorable 684 (707) (707) (1,270) 3 STORM DRAINAGE FUND (SOOO) REVENUE Revenues Reappropriations I Enc Bonded Reappro/Encum Restricted Bond Proceeds EXPENSES . Operating Expenses TOTAL OPERATING EXPENSES Capital Expenses Principal Payments 1999-00 Act/Encl 2,527 275 1,327 944 1,954 1,954 2,148 200 2000-01 Adjusted 3,078 423 426 935 2,560 2,560 1,998 250 Act/Encl Reapprop ActuallEnc 3,197 423 426 935 2,326 2,326 2,834 215 $ Variance Favorable 119 234 234 (836) 35 4 Rate Stabilization General 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 benefit program RSR Maximum RSR % of Maximum Exhibit F $7,025 $6,759 $5,623 $11,102 $334 $30,843 56,645 510 57,155 8,326 1,805 10,131 7,025 64,971 2,315 6,759 5,623 11,102 334 98,129 904 2,252 783 450 . 1,455 5,844 64,780 64,780 623 623 34 34 590 590 64 64 704 704 2,182 2,182 8,988 22,853 7,886 5,368 4,064 3,725 N/A 78% 284% 29% 126% 138% 298% N/A 186% r City of Palo Alto Performance Highlights Fiscal Year Elided June 30, 2001 • Award for Outstanding Achieventent in, , Pop,ular Annual Financial Reporting PRESENTED TO CITY OF PALO ALTO, CALIFORNIA For the fiscal year ending June 30, 2000 I t i • I " Exhibit G Performance Highlights SuppleDlenl10 Ihe COll.prehensive Annual Financial Repon EXECUTIVE SUMMARY Purpose: This report is a supplement to the Comprehensive Annual Financial Report (CAFR) for the year ended June 30,2001. It is intended for readers who are less familiar with the technical aspects of municipal finance or who wish a brief summary of the CAFR. Visit the City's website for the complete CAFR iri early 2002. 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: Last fiscal year the nation was in the midst of the longest economic expansion in history. This fiscal year the economic climate has sharply reversed itself, with drops in corporate profits, a sagging stock market, significant lay- offs, curtailed consumer spending, and a standstill in venture capital funding. Although Palo Alto's financial perfor- mance was solid in 2000-01, the changing economy poses challenges for sources of revenue vital to the financial health of the City. Palo Alto continues to carefully monitor economically sensitive revenue sources, such as sales and hotel occupancy taxes, to prepare for the fiscal challenges that lie ahead. With the diversity and strength of its revenue base and adequate reserves to buffer economic downturns and unexpected events, Palo Alto is well positioned to withstand current and future economic conditions. GOVERNMENTAL FUNDS PERFORMANCE Combined View: In 2000-01, combined Governmental Fund revenue and other financing sources totaled $141.6 mil- lion and expenditures and other financing uses totaled $131.0 million. The $10.6 million net of revenues over expendi- tures res~lted in a combined fund balance for all Governmental Funds of $99.9 million at June 30, 2001. The General Fund ended the year with a $4.6 million addition to fund balance, compared to $6.6 million in the prior year. The June 30,2001 fund balance of $60.4 million for the General Fund alone represents 59.2 percent of direct 2000-01 General Fund expenditures, providing a generous buffer against unexpected financial events. 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 City as a 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 budgetal)' control and available cash. This approach, called the modified accrual basis, is signWicantly different from private sector accounting. The City operates four types of governmental funds: General (basic services), Special Revenue (legally restricted grants and revenues), Debt Service (borrowing), and Capital Projects, ...•....••.....•...............••.....••...•.......•....•••...••.....••.....••.....•...........•.....•..................••..........•• II) PERFORMIICE HIGHLIGHTS 20()()mOI SPOTliGHT ON THE GENERAL FUND GENERAL FUND REVENUES Sales Tax: While there were some signs of the economic slowdown early in fiscal year 2000-01, it was not evi- denced by Palo Alto's strong holiday sales. The City's quarterly sales tax receipts reached their highest level ever during the holiday season, grossing over the $7.0 million mark, representing a growth of 7 percent over a year ago. Real impacts of the dot-com closures and job cuts didn't materialize until the third and fourth quarters of the fiscal year. General Fund: Revenue & Sources ($millions) 96-97 97-98 98-99 99-00 00-01 Following a positive holiday season, sales tax revenues declined by 4.5'percent between January and March 2001, and declined another 12 percent between April and June 2001, as compared to the same periods a year ago. Total sales tax revenues of $25.8 million in 2000-01 still exceeded the budget by $1.6 million, an increase of 6.5 percent. This is $2.9 million or 12.8 percent over 1999-00 levels, representing the highest level of sales tax revenue Palo Alto has ever received in a given year. However, the nation slipped into economic downturn by the end of the fiscal year. During this most interesting period, the sec- tors that led the impressive performance earlier in the fis- cal year, new auto sales, business-to-business services, office equipment, and luxury items, were the sectors that led the largest and fastest declines in the later part of the year. Property Tax: Assessed property valuation in Palo Alto, after increasing 8 percent in 1998-99 and 9 percent in 1999-00, jumped another 10 percent in 2000-01 to $11.6 billion. The high demand for office space during the eco- nomic expansion, and the limited supply of available housing have fueled the high real estate prices in Palo Alto, which in turn increase property tax revenues. The vacancy rate for commercial office space in September 2000 was a low of 1 percent. The vacancy rate for residen- tial rentals was close to zero percent in late 2000. The strong real estate market and activities have resulted in total property tax receipts of $12.1 million for 2000-01 exceeding the budget by $.8 million and exceeding prior year results by $1.3 million or 12.4 percent. In the coming year, the economic downturn is expected to curb growth in assessed property values impacting property tax reve- nues, particularly in the commercial market. Transient Occupancy Tax: Transient Occupancy Tax (TOT) receipts have been one of the important revenue sources for the City. In 2000-01, the City received over $9.3 million in TOT revenues or 9.1 percent of total Gen- eral Fund direct revenues. These revenues have risen dramatically during the economic expansion, growing by 12 percent in 1998-99 and by 27 percent in 1999-00. A por- tion of the success came from the opening of the new Westin hotel in mid 2000. Another important portion of the success came from the overall vibrant economy that led to higher occupancy and room rates . . Despite its enviable location as a major education, tech- nology and tourist center, the City and its TOT were not immune from the economic slowdown in the last quarter of 2000-01. The City's occupancy rates slipped from around 82 percent in the fourth quarter of 1999-00 to 67 percent in the fourth quarter of 2000-01. Revenues showed a decline of over 11 percent for the fourth quar- ter, or about $.3 million. Given the strong first half and the weak second half of 2000-01, total revenues for the year still had an respectable 12.9 percent growth over that of 1999-00. The State of California collects the 8 percent sales tax and distrib- utes the receipts to various state, county, municipal and special purpose organizations and the City of Palo Alto receives only 12 cents of every dollar in sales tax collected within its jurisdiction. Utility Users Tax: During 2000-01, Utility Users Tax (UUT) revenue rose by $1.0 million or nearly 18 percent over 1999-00 receipts of $5.9 million. This increase reflects a growth of $.6 million in utility tax and $.4 million in telephone tax. The higher utility revenue was derived from several substantial midyear gas rate increases in 2000-01. These increases were necessary because of .....•••.....•••..•••........••.•..................•.....•.•......•.••••••••..........••.......•.••.......•.•.•.........•••........... 2 ?) PERFORMANCE HIGHLIGHTS sharply rising commodity costs for gas and electricity. To blunt the impact on ratepayers, the City instituted a UUT rebate program along with an intensive conservation pro- gram. 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 10 cents of every dollar in property tax collected within its! jurisdiction. The robust growth in telephone revenues is believed to result from a rise in mobile telephone usage. Growth in this area has been steady and revenues have been strong for most of 2000-01. However, there was evidence of soft- ening during the latter part of the year. For the year as a whole, telephone tax receipts grew by 13.3 percent over a year ago. 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 2000-01 budget by about $.6 million, or 7.4 percent. Compared .to a year ago, this sector had a 2.3 percent or about $.2 mil- lion decline. The decline was attributed mainly to weak- ening documentary transfer tax receipts, which is an early barometer of the economy !illd the real estate mar- kets. During strong economy conditions, documentary trans- fer tax leads in signaling busy real estate activities. It responds more quickly and directly than property tax to changes in the economy since it is based on the volume, mix, and the value of property transactions. Transfer tax was a strong performer in 1999-00 but receipts in 2000-01 were $.6 million lower than a year before. This was a con- sequence of sluggish commercial transactions and weak- ening home sales. Motor vehicle in-lieu or registration tax had gain of $.3 million or 7.6 percent over a year ago. This reflected the strong auto sales during the first part of the year but weakened significantly during the latter part of the year. This revenue has risen as a consequence of the wealth effect, of new autos replacing other modes of transporta- tion, and as a result of population growth. The decline in auto sales due to the economic downturn foreshadows the leveling of revenues to come. Service Fees and Permits: This category includes plan- ning, building permit, golf course fees, paramedic ser- vices, and class registration fees. Overall, this sector had a gain of $1.4 million or 12.7 percent over budget. Given the variety of fees, some are more sensitive to economic changes than others. Golf course green fee revenues, for example, rose a mere 1.3 percent in 2000-01 over a year ago. Players are slowly returning back to the course after major underground renovations to ,fairways and some greens. In the current year, the activity is higher and revenues are expected to exceed the 2000-01 totals. Building and plan checking fee revenues were very strong, as building activity remained high in the area. Plan checking revenues ended the year at $2.0 million with building and new construction permits just under $2.0 million. The current economy slow down should have some affect on these revenue sources. GENERAL FUND ACCOIV.IPLISHMEiVTS Expenditure Overview: For the third year in succession, General Fund departments spent nearly all of their bud- getary authority when encumbrances and reappropria- tions are considered. In total, 2000-01 departmental expenditures were within 2.2 percent of budget. This con- dition indicates that departments have little capacity for delivering additional services at current budgetary levels. 130 110 90 70 50 General Fund: Expenditures & Uses ($millions) 96-97 97-98 98-99 99-00 00-01 Administration: A primary focus of the City Manager's Office was joint master planning of facilities and services with the Palo Alto Unified School District. The impetus comes from the scarcity of land in Palo Alto coupled with ...............................•..............••.......••....•................•....•••.•..•••••.......................•...•........... A.l{o 3 • 1)) PERFORMANCE HIGHLIGHTS Fiscal Year zo�o��e Fiscal 2010-01 increasing school enrollment and service needs in all parts of the community. An agreement was reached between the City, the School District, Stanford Univer- sity, and the Jewish Community Center (JCC) enabling the District to reclaim the Terman site, while providing an alternative venue for the JCC, the site's long-time les- sor, at Stanford's Mayfield site. In addition, the City and the School District developed an agreement for jointly funding the expansion of the City shuttle system and ini- tiated efforts on a proposal for joint library services. The City Manager's Office also facilitated the development of a Sustainability Policy and continued to coordinate development activity in the Downtown and the South of Forest Avenue areas of the City. The Economic Resources Office continued its business outreach efforts contacting over 50 busi- nesses, began implementa- tion of a targeted retail strategy, and assisted in the establishment of a Redevel- opment Agency for Edge - wood Plaza. The Public Communications Office improved its citizen com- plaint procedures, con- ducted a series of community dialogues, and launched a quarterly news- letter to residents. General Fund Reserves & Designations at June 30, 2001 The Administrative Services Department issued the first in a series of improvement bonds for two new parking structures in the Downtown. It also conducted research to serve as a basis for potential development impact fees for parks, community facilities and libraries. The Accounting Division completed major steps towards the implementation of a fundamental revision to the current financial accounting and reporting model, Government Accounting Standards Board Statement 34. The Informa- tion Technology (IT) Division continued to focus on the implementation of its IT Strategic Plan including initiat- ing plans for an e -government system to enable online billing and other functions, and implementing 24 -hour a day, 7 -day a week service and support for mission criti- cal systems, such a police and fire dispatching. The Human Resources Department recruited an all time high of 113 new employees and promoted a total of 108 employees. It also launched several learning opportuni- ties for City employees including a technology academy, an accelerated degree program, supervisors and cus- tomer service certificate programs, and a toastmasters club. Other efforts included the establishment of several employee retention initiatives with the City Manager's Office, and negotiation of a three-year contract with Ser- vice Employees International Union. The City Attorney's Office major accomplishments include the successful completion of assessment district proceedings for financ- ing the downtown park- ing garages, support towards the approval and implementation of the Joint Powers Author- ity cable television agreement with AT&T, support towards the development and imple- mentation of conditions of approval for a new cancer treatment outpa- tient facility so that Stan- ford could proceed without adverse impacts on the community, and work with the City Man- ager's Office and other City departments to structure a four party agreement to permit opening of a third mid- dle school in the City. The City Clerk's Office conducted special election pro- cesses for a citywide Storm Drainage fee, a charter amendment related to the Planning and Transportation Commission's decision -making authority, and for the Downtown Parking Assessment District. The Office administered the process for the January 2001 Council appointment to replace Council Member Liz Kniss. Community Services: The Community Services Depart- ment completed designs for Mitchell Park renewal work and PAUSD field renovations. The Department also developed a comprehensive trail master plan for the Arastradero preserve, worked collaboratively with PAUSD to produce a highly successful summer enrich- ment school program, completed a plan for the Elsa Seg- 4 c~ PERFORMINCE HIGHllIHTS Year ovia Women and Children's Day Center, conducted a feasibility study for a performing arts center with Stan- ford, and completed a Child Care Master Plan. The Library Division introduced a Virtual Reference Desk ser- vice providing live reference service via the Internet and began implementation of the New Library Plan, including the completion of building spatial programs for the expansion of Children's, Main and Mitchell Park libraries. The Golf and Parks Division completed the renovation of one of the golf course fairways and won the League of California Cities Award for Land Use and Environmental Quality for its Spare the Air program. . Sales Tax 22% Transfers In 12";6 General FUnd: Revenue &: Sources for the Year Ended June 30, 2001 Property Tax 10% Revenue 3% Utility Users Tax Interest Rental Earnings Income 5% 9% Transient Occupancy (Hotel) Tax Revenue from Other Agencies 1% Other Taxes 5% Fire: The Fire Department continued to educate the com- munity on disaster preparedness conducting 88 commu- nity talks on emergency preparedness, providing Standard Emergency Management System training to City employees, and working with 62 community mem- bers on the PANDA (Palo Alto Neighborhood Disaster Awareness) program. Other Department efforts included establishing a confined space awareness and rescue training program, instituting a fire station safety inspec- tion program, working with Public Works to develop new public education programs for wood burning appli- ances and to improve pollution prevention procedures during emergency response incidents and hazardous materials spills, and managing the development of a countywide online Hazardous Materials Inventory project to facilitate industry-reporting requirements. Planning: The Planning and Community Environment Department processed 242 planning applications and 4,040 building permits, conducted 14,422 field inspec- tions, and investigated and closed 605 code enforcement cases. The Department began providing an estimated plan review date for building applications, with an 89 percent success rate, implemented a voluntary design assistance program providing for expedited building per- mit processing, and formed the Future of Single Family Neighborhoods Advisory Committee, which will result in single family review guidelines. This fiscal year the multi- year program to update the City's Zoning Ordinance was initiated, including public workshops and community meetings. Traffic management and safety continued to be a high priority, including: the introduction of a highly successful traffic safety campaign; shuttle rides totaling 79,746 with the development of plans for shuttle expan- sion; and securing $3 million in grants for transportation programs. Police: The Police Department focused on technology, with the implementation of a high-tech crime unit and an automated information system at the Animal Shelter. Emphasis on traffic safety continued, with special atten- tion on school corridor safety. The Communications Divi- sion successfully completed three Department of Justice audits, and undertook a needs assessment of all existing technology. Final plans for a remodel of the 9-1-1 Dispatch Center Were completed and construction was initiated. In addition, a new monthly cable television program, Police Beat, aired in June. Public Works: The Public Works Department completed the majority of budgeted sidewalk replacements, resurfacing and slurry sealing on selected streets through- General Fund: Expenditures &: Uses for the Year Ended June 30, 2001 Planning Fire Community ..........................•••.........••••...........................••.............•........•••....................•••............... 5 ,~) PERFORMAICE HIGHLIIHTS out the City, new concrete valley gutters on several streets in the Barron Park Neighborhood, construction of a new deck on the Wilkie Way Bridge, Phase I of the downtown beautification project, courtyard improve- ments and the installation of a new HVAC system at the Lucie Stem Community Theatre. Public Works also received approval for the design of two new parking structures in the University Avemle area downtown and in conjunction with Administrative Services and the City Clerk's Office, held a special ballot vote resulting in the . creation of a new parking assessment district to fund the project. Palo Alto initiated the California Mercury Reduction Act (SB 633) and helped to secure its passage by both houses of the Legislature. "Fund balance" is the difference between assets and liabilities for govern- mental funds and is a key measure of financial health. Like most municipal- ities, Palo Alto subdivides fund balance into "reserved" and ·unreserved! designated" portions. The reserves portion represents set-asides for eXist-' lng obligations. The unreserved/designated portion represents set-asides for future purposes and is available for new expenditure appropriation. Think of unreservedldesignation portion of fund balance as the savings account of the /uno. GENERAL FUND BALANCES General Fund direct revenues rose $11.1 tnillion or 12.1 percent fromt~e prior year yielding a General Fund net surplus of $4.6;million for 2000-01. This compares to a $6.6 million surplus in 1999-00 and a $3.2 million surplus in 1998-99. Although revenue sources sensitive to the economy began to show weakness in the last half of the year, Palo Alto is fortunate in having a revenue base that is diverse and well balanced. Revenue diversity benefits the City in that periodic revenue declines in one area are typically balanced by growth in other areas. Total fund balance for the General Fund rose 8.3 percent to $60.4 million at June 30, 2001. This amount represents 59.2 percent of direct 2000-01 General Fund expenditures. The fund balance designated for Budget Stabilization, often referred to as the General Fund savings account, totaled $24.5 million at yearend, representing approxi- mately 20 percent of General Fund expenditures and uses, providing a conservative defense against unknown events. A total of $4.9 million was added to the fund des- ignated for infrastructure improvements, bringing the balance to $18.8 million, providing a critical funding source for the City's infrastructure replacement and reha- bilitation needs. In addition, during the 2001-03 budget process, Council approved a transfer of the Reserve for Emergencies ($6.8 million) to the Infrastructure Reserve bringing the total available for infrastructure improve- ments to $25.6 million. This transaction will be recorded at the end of 2001-02. ON FU1VD Capital Improvement Program (CIP) expenditures were $6.7 million in 2000-01, which is $5.9 million less than the prior year. When outstanding obligations are added to expenditures, the Capital Projects Fund used about a third of its budget. This result is due to unforeseen project design and approval delays, difficulties in recruit- ing staff during the strong economic period of 2000, and a delay in awarding street maintenance projects to contrac- tors. Expenditures for streets projects will increase in 2001-02 as projects move from design to construction phases. Transfers of resources into the Capital Projects Fund from other funds declined by $2.3 million or 18 percent when compared to the prior year. The primary component of this decline was a decrease in the transfer from the Street Improvement Fund to the Capital Projects Fund for a pavement management grant from the County of Santa Clara. General Fund CIP projects in the amount of $.3 million were closed out in 2000-01 and returned to reserves, com- pared to $43,000 in 1999-00. Operating transfers of resources "out" and "in" between City funds occur to accomplish specific purposes. An example is a SpeCial Revenue Fund transfer of grant funds to the Capital Projects Fund to construct streets and sidewalks. Another example is an Enterprise Fund transfer to the General Fund to provide a return on investment to the entire community from the ratepayers> INFRASTRUCTURE The primary focus of Palo Alto's capital improvement projects is the rehabilitation and replacement of the City's General Fund infrastructure. Several years ago the City inventoried, assessed and prioritized work on its build- ings, facilities, streets, sidewalks, medians, bikeways, parks and open space. This effort resulted in a long-term plan to rehabilitate Palo Alto's General Fund infrastruc- ..••..••..•••..••.•.••••...•....•....••...••.•.•..•••...•...••....•....••...•...••...••..•••...••..•••...•••..•••..••.••••.••••.••••.• 6 Alfu J) PERFORMAICE IIGlllGITS ture. In total, the City faces an infrastructure bill of $100 million over the next ten years. Palo Alto has begun to ramp up infrastructure projects, and plans to increase the budget from $7.3 million per year to approximately $10 million per year. This year, the City spent and committed $4.2 million on infrastructure projects, compared to an adjusted budget of $13.7 million. The lower than antici- pated infrastructure expenditures were attributed to a competitive employment market resulting in difficulty recruiting key positions, extendEld public review of some projects, and projects being in the design phase with con- struction scheduled for next year. :' Sidewalks: The budget for projects totaled $1.7 million of which $1.4 million was completed by year end. Side- walks were replaced in District 22, which is bounded by Middlefield, Louis, Embarcadero and Oregon and, Dis- trict 17 bounded by Oregon, Lorna Verde, Alma and Waverley. Streets: Capital Project Fund expenditures totaled $1.6 million out of a budget of $6.1 million. Part of the street improvement funding supported completion of resurfac- ing and slurry sealing work on selected streets through- out the City. The street resurfacing project included a major repair to University Circle and installation of new concrete valley gutters on several streets in the Barron Park Neighborhood. Expenditures do not reflect a con- tract award of over $3.0 million that was erroneously omitted from this category. This work is taking place now and will be reflected in next year's report. Medians, Islands, and Planters: Expenditures totaled $.03 million out of a budget of $.4 million. These projects included median renovations at Embarcadero Road/ Kingsley dead end and at Emerson and San Antonio Road/Briarwood Way to Alma Street. The development of landscape and hardscape design guidelines for EI Camino Real, the first step in improving the scenic impact of El Camino Real, are pending the securing of grant funding and negotiations with CalTrans. Buildings and Facilities: Expenditures totaled $.2 mil- lion out of a budget of $2.5 million. These projects included exterior maintenance of the Children's Theatre, upgrade of building systems within the Civic Center and Lucie Stem Community Center, replacement of the Civic Center plaza deck expansion joint, and electrical upgrades at various City facilities. This category suffered from the difficulties of recruiting staff, project delays due to uncertainty about overall infrastructure planning, and the diversion of staff to other critical projects or studies during the year. Parks and Open Space: Expenditures totaled $.9 million out of a budget of $2.9 million. These projects included playground renovations and the addition of lighting fix- tures at Mitchell Park, the renovation of the irrigation system at Robles Park and Cubberley athletic fields, and the restoration of trails, fences, picnic areas and camp- grounds in Foothills Park, Baylands, and Arastradero nature pres~rves. In addition, parking lots and entrance ways within the Baylands Nature Preserve were repaired and resurfaced. Most of the park projects were in design phase in 2000-01 and expenses will increase as construc- tion gets underway in 2002. TECHNOLOGY The 2000-01 CIP implemented the first year of the Infor- mation Technology Strategic Plan with several new tech- nology projects focused primarily on maintenance of mission critical systems. Expenditures and commitments amounted to $.5 million out of a budget of $1.0 million. This result is due to a delay in a major reconstruction of the computer room. At the present time, the electrical supply in the computer room is insufficient to house any new equipment needs. Actual expenses are expected to increase in 2001-02 as construction of the new room is completed. Systems Maintenance: Projects include a single, central- ized system and method to backup all City systems and networks; acquisition of equipment to provide backup of the existing network in the event of failure; and acquisi- tion of systems management software. Public Safety: Projects include software to assist the Police Department in the investigation and prevention of criminal activity; and software to assist City vehicles in determining optimal routing during emergency func- tions. .........•......••.....•.•••...............•...•...•....•.....•.........•..•......••..•.•................•..........•...............•. ?» ) S> PlIFORMIICE IIGllIGITS R~venues & Other Sources Property taxes Sales taxes Utility users tax Transient occupancy tax Other taxes, fines & penalties Service fees and pennits Rental income Other revenues Transfers in from other funds ~':.'. ':;" ::<~.. , ,:S% ","0;:':~ Total Sourcesot';¥bnds Expenditures & OtherUses Administrative Departments Community Services Public Safety -Fire Planning & Community Environment Public Safety -Police Public Works School Site Operations Non Departmental Transfers out to other funds ":,'/ :>#%'\1\\ -: ,t-:;'~~<f~~~::::?:?:i~i _ '_>:j~f!-!:_ 'l'otalUSes o~l'WidS~li;> ,;;: ><,-,-",. ,-~,,/._ -.,.o".-__ -,_~_',L~, ,;:\\+,' ¥.'.e·,·,·, N~t·SlltpIiis •. (Dei!~~~;~i;;;;. Beginning Fund Balance En~g;F.ilid B&~~~';i •• !, Reserved for: (1) Encumbrances Notes Inventory ' •.•. '."..... ", '" FT""" ,. R~~~d Fufid1iJ~f~.;~~,,;, UnreservedlDesignated.for: Unrealized gain on investments (1) Reapporopriations Budget stabilization Emergencies Infrastructure Streets/sidewalks/school site projects City of Palo Alto GENERAL FUND RESULTS Last Five Fiscal Years ($OOOs) 1996-97 1997-98 1998·99 $7,735 $8,903 $9,521 18,277 20,011 20,225 5,509 5,780 6,039 5,107 5,846 6,551 5,299 6,694 7,255 9,087 8,984 8,810 9,667 10,074 10,155 9,554 11,781 11,413 12,759 13,610 14,246 $82:994 ··$91,683 $94,215 $11,689 $12,987 $15,066 13,972 15,050 16,820 12,292 13,100 13,949 4,320 4,832 5,674 14,804 16,093 16,705 7,339 8,172 9,202 6,086 6,298 6,520 7,577 7,822 7,046 .~;;'$78W12· tij4,35~!: 11$90,982 .>#i<-.,,,,:: __ ' '::,_-.... 33,660 38,575 45,904 $38,s75¥~:;!;·$t\S~;2'. < $.l9 f137: , , '. $3,706 $5,036 $5,067 703 689 479 2,086 1,953 1,691 /$7;237; $0 $450 $7 670 17,900 19,050 20,591 5,600 5,875 5,966 8,152 12,588 14,666 428 263 , . >.;, >_" ~.: ,,::':-'::~':_ ,n,; ',,',', ,,:-_ -__ -/': 1> ">: :""'-\"'--:~_ UnreservedlDesignated F,.ndB;dQnCei.,;\ 's'~ $32,080 $j8~~'6 ">, ;~i:900 -<.~ I , %Chg 1999-00 2000-01 1997-01 $10,770 $12,110 57% 22,867 25,786 41% 5,861 6,895 25% 8,293 9,359 83% 9,096 8,887 68% 12,408 12,743 40% 9,944 10,270 6% 12,358 16,611 74% 12,837 14,157 11% $14)4,434 $116,818 4l% $15,772 $18,557 59% 17,858 18,469 32% 14,512 15,973 30% 6,639 6,652 54% 17,666 18,306 24% 8,827 9,522 30% 6,927 7,301 20% 7,186 100% 9,605 10,221 35% $9?iSOfti 0~i1Z1i11 " '.,.,;"" $7~f h """"'" 49,137 55,765 ~!2r~i55'765 ,<Y ~\>:;~ /' -, ;li\~~$60;j9ij $12,045 $4,916 33% 649 1,140 62% 2,144 2,226 7% "';;';~ti,,~S:li '3J i,,$8~8~. ~.23~ $0 $1,309 n.a. 612 749 n.a. 20,029 24,490 37% 6,388 6,777 21% 13,898 18,789 130% n.a. ~J1:f~!~O~927 ?$sj,lf4 'f2%" (1) In 1996·97 through 1997-98, reappropriations were included in the encumbrance reserve . .................................................................................................................•.................... 8 ) PERFORMAICE IIGILIGITS 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 other funds 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 intend to" recover their full cost through charges to customers and users. These funds focus on financial position, emphasizing net income and retained earnings. Proprietary fu nds 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). ON FUNDS COMBINED ENTERPRISE VIEW Enterprise Results: Enterprise Funds provided $235.6 million or 62.4 percent of the City's revenues in 2000-01. This represents an increase of $82.0 million, or 53.4 per- cent over the prior year. While revenues show remarkable growth, expenditures remained constant as a percent of revenue. This resulted in a 2000-01 net income of $49.3 million for combined Enterprise Funds, an increase of $28.8 million over prior year performance. The Electric Fund alone contributed net income of $42.7 million, accounting for 86.6 percent of combined Enterprise Fund net income. Sales of surplus electricity at higher than anticipated prices drove its positive results in 2000-01. Net income for the other Enterprise Funds for this year did not vary significantly from the prior year. Enterprise Fund Equity: Combined retained earnings at June 30, 2001 rose to $409.2 million, a 13.7 percent increase from the June 30, 2000 amount. In comparison, 1999-00 net income of $20.5 increased retained earnings 6.0 percent last year. Palo Alto has reserved portions of retained earn- ings for all Enterprise Funds to supplement regular bud- gets when unusual events, such as unseasonable weather conditions, affect revenues or expenses negatively. Ellergy Crisis: In 2000-01 the State began to face electric- ity supply shortages resulting in rolling blackouts and rapid increases in market prices. The City has taken a number of actions to protect against the threat of increased power purchase costs and rolling blackouts. It has installed a Cooperatively Owned Backup Generator (COBUG) to minimize the need for rolling blackouts and implemented a program to reduce energy consumption in the City. It has defended the Western Area Power Admin- istration contract from going to market rates at the Federal Energy Regulatory Commission (FERC) and in the PG&E bankruptcy proceedings. It entered into a long-term elec- tricity purchase contract to hedge its exposure to high market prices. These actions combined with an overall calming of the energy markets in California have substan- tially reduced uncertainties faced by the City. Aggressive customer conservation efforts, new generation plant addi- tions, the economic slow-down, and interventions by the Governor and PERC are expected to continue to ease the energy crisis and its impact in Palo Alto. Rate Stabilization Resenie COmbined Enterprise Funds: Retained Earnings ByType at June 30, 2001 ;',2<:.·'- ,} <,q~mmitr;:~tf . ,"~ £c' FJetlPprop,~& ."c;""'Bond ENTERPRISE HIGHLIGHTS & ACCOMPLISHMENTS Electric Fund: Electric Fund rates were unchanged in 2000-01. This resulted in substantially the same level of sales to residential, commercial and City departmental. customers in 2000-01. Other operating revenues increased ..........................................................................•..........•.....•...................•...•.....•••........•• i-li!o } PERFORMAICE HIGHliGHTS Year .ru,' ffH~" by $68.7 million, primarily due to sales of surplus elec- tricity. Operating expenditures remained constant as a percent of revenues resulting in a 2000-01 net income of $42.7 million, which is $28.3 million more than the 1999- 00 net income of $14.4 million. The Electric Fund ended the year with retained earnings of $247.4 million. In 2000- 01, the Electric Fund completed: • Construction in Underground District 37 • Sandhill Road improvements inclUding the 4 to 12 kV conversion at Stanford Shopping Center • 815 customer plan reviews and 513 work orders for new business and system improvements • Replacement of 3,200 traffic signal lights and lighting retrofits in 60 City buildings, partially funded by State grants Combined Enterprise Funds: Revenue & Sources ($millions) Other important accomplishments include: • Launching the fiber to the home (FTIH) trial and assembling the FfTH advisory team • Reducing system service interruptions from 33 out- ages to 29 outages in the last year • Reducing the average outage minutes from 57 to 55 minutes per customer Gas Fund: To cushion rate shock to Palo Alto residents and businesses, the Gas Fund staggered the implementa- tion of four retail gas rate increases during the year. This resulted in a $6.6 million or 38.4 percent increase in reve- nues during 2000-01. Wholesale gas supply prices surged upward this fiscal year and gas purchases were $9.0 mil- lion or 78.5 percent higher than the prior year. The City entered into several fixed price gas purchase contacts and Combined Enterprise Funds: Expenses & Uses ($mill ions) instituted a gas hedging program to protect against sky- rocketing gas prices. In addition, Palo Alto offered large customers the ability to enter into fixed price contracts to hedge market price risk. Year end results went from a net loss of $2.4 million in 1999-00 to a net loss of $4.5 million in 2000-01, an adverse change of $2.1 million. After deducting the year end loss, the ending rate stabilization reserves were $2.3 million representing 9.8 percent of rev- enues. The fund ended the year with retained earnings of $42.7 million. In 2000-01, the Gas Fund completed: • Installation of new gas service to COBUG at the MSC • Relocation of all gas and water mains from the inte- rior of the Stanford Shopping Center • Construction of Gas Main Replacement Project 9 • 754 customer plan reviews for gas system improve- ments and 379 service orders to install new gas ser- vices and mains, and to demo existing gas services "Fund equity" is the term used to describe the difference between assets and liabilities for proprietary funds. It is called "retained earnings" and consists of "unreserved" and "reserved" amounts."Unreserved retained earnings" represents the net of long-term assets and liabilities and is unavailable as a source of funds. "Reserved retained earnings" repre- sents the net of current assets and liabilities and acts like the saving account for the fund, with set-asides for particular purposes. Reserves are available for expenditure appropriation, if necessary. ....••.......•••....................................•....••..................•............••••••........•..••.•....................... 10 Palo ~ ......... " ~ ~ PEIFOIMIICE HIGHLIGHTS Water Fund: Net income in 2000-01 increased by $.5 million to $2.9 million compared to 1999-00, resulting from higher interest earnings. The Fund ended the year with retained earnings of $40.6 million. Combined Enterprise Funds: Net Income ($millions) In 2000-01, the Water Fund completed: • Study of alternate supply options in case of short- term and long-term supply deficiencies • Construction of Water Main Replacement Project 14 consisting of 10,000 linear feet of new main • Construction of the water reservoir access road • Water system distribution-flushing program • Modifications of the City's water distribution system serving the Stanford Shopping Center • 754 customer plan reviews for water system improvements and 75 service orders to install new water services, mains, and to demo exist- ing water services Wastewater Collection Fund: Net income declined by $.9 million or 22.5 percent from 1999- 00 to $3.0 million in 2000-01. The Fund ended the year with retained earnings of $42.2 million. In 2000-01, the Wastewater Collection Fund com- pleted: • Amarillo/Embarcadero Relief Sewer Project, negotiating and settling with Mountain Cas- cade, Inc. for $480,000 754 plans for wastewater system improve- ments and 29 service orders to install new wastewater services and mains Wastewater Treatment Fund: Net income increased by $1.4 million from $.4 million in 1999-00 to $1.8 million in 2000-01. The Fund ended the year with retained earnings of $11.7 million. In 2000-01 the Regional Water Quality Control Plant (RWQCP) treated 9,243 million gallons of wastewater for Palo Alto and its five partner cities. This fiscal year the Fund completed the rehabilitation and test- ing of two sludge incinerators at the RWQCP. This project was financed by a bond issuance to improve the reliabil- ity and performance of the two incinerators. The rehabili- tated incinerators are equipped with state-of-the-art emission control devices. The products of the rehabili- tated incineration process are non-hazardous ash and have a very clean exhaust. Refuse Fund: Net income increased by $1.3 million or 90.4 percent from $1.4 million in 1999-00 to $2.7 million in 2000-01. The Fund ended the year with retained earnings of $19.7 million. This is the second full year of refuse ser- vice under the new agreement with Palo Alto Sanitation Company (PASCO) after its acquisition by Waste Man- agement Inc. In 2000-01, the Refuse Fund completed: • Diversion of 59 percent of the waste sent to the land- fill exceeding the State mandate of 50 percent diver- sion • Addition of mixed paper and colored #2 plastic bot- tles to curbside recycling collection Combined Enterprise Funds: Reserved Retained Earnings by Fund at June 30, 2001 Wastewater Wastewater ; Collection: $15,081,0(X) Storm Drainage $1,265,000 .•.........•••.•••............••.....•......•••••............•..•....•............•.•.••.....•..••••••......•..•.••...••.... Alto f)) :z> PERF.I.UCE HIGHLIGHTS ...... Fiscal 2000-01 • Implementation of a clean up day for residents that provides an opportunity to dispose of large amounts of waste and debris at no additional cost one time per year • Partial closure of another section of the landfill in preparation for conversion to Byxbee Park. Storm Drainage Fund: Net income increased $.3 million from $.4 million in 1999-00 to $.7 million in 2000-01, prima- rily due to a $1.0 million transfer from the General Fund. The Fund ended the year with retained earnings of $4.9 mil- lion. In the fall of 2000, the City unsuccessfully sought property owner approval of a rate increase to fund augmented maintenance and future capital activities. The City currently is exploring other options for funding the necessary capi- tal and maintenance work. The Rate Stabilization Reserve has a balance of $.3 million mainly to cover bond covenant requirements related to debt service capacity. Palo Alto worked cooperatively with member agenCies of the San Francisquito Creek Joint Powers Authority on the planning and design of a levee restoration project along San Francisquito Creek near Highway 101. The project will provide increased flood protection to residents and businesses along the lower reaches of the creek and is scheduled for construction in Suriuner 2002. SPOTLIGHT ON INTERNAL FUNDS The Vehicle Maintenance & Replacement Fund purchased ten police vehicles, one sandbagger, 29 light duty trucks and vans, nine cargo trailers, one landfill tractor, one automobile, and golf course equipment; The Computer Replacement Fund purchased and installed 220 personal computers; The Printing &iMailing Fund billed City departments for $.7 million in services, a reduction of $.1 million from the prior year. The Fund ended the year with expenses exceeding revenues by $.1 million . .••..•.••...••......•....••...•••...••••..••••.••••...•••..•••.•.••••..••••..•.••...•••...•••.....•.....•.....••..•.•..•••••..•••.•.•• 12 ", PERFORMINCE HllHlllHTS l-ear city of Palo Alto ENTERPRISE FUND RESULTS Year ended June 30, 2001 ($0008) Water Electric Gas WWC wwr Refuse TOTAL Revenues Sales -customers Sales -city departments Sales -wholesale Other operating revenues Non-operating revenues Expenses & Net Transfers Purchase of utilities Administration & general Operations, maintenance & other Depreciation & amortization Non-operating expenses Net transfers , :\? '-~: < ~:': \~~ :~:-:);,'-'" ~:-: ,;Qses of ~ndS; Rate stabilization Emergency plant replacement Calaveras Reappropriations Commitments Restricted Bond Proceeds Underground loan Conservation loan Refuse Water Resources Board Shasta rewind loan Central Valley Project Public benefit program .e,dlte~a¥ $14,781 660 513 1,207 '$17,161 $5,969 1,603 3,484 878 $7,025 904 3,608 1,155 $51,536 -$22,529 i,545 657 4,065 74,408 483 10,413 831 ;::z/'/ ~1~1,9()7: $57,764 4,531 14,865 4,281 10,056 7,740 $64,971 2,252 64,780 9,266 6,676 623 64 .... $~,sOO $20,563 2,023 2,935 1,160 4 2,320 $2,315 783 2,076 1,720 34 $8,760 155 902 1,599 $11,416 , ,u,'/-/Yhyfy: _." .. ,,/- $4,974 524 1,575 1,069 89 $6,759 450 2,980 4,892 $0 5,031 8,868 741 $14,640 $0 1,375 9,072 2,186 190 49 $5,623 1,455 536 2,588 184 $18,496 $2,013 639 114 3,028 2 1,560 15 -_F'"," :~~'~< ~~.723 "$~.1~ $7,699 1,247 11,376 218 395 48 $11,102 1,496 825 590 $0 581 $334 663 116 152 $118,115 8,801 4,065 88,204 16,366 $235.551 $96,969 11,884 44,481 10,179 10,997 11,693 $98,129 5,844 64,780 20,625 17,972 336 623 34 590 64 •.....••.•.............................................................•.•••••.....•••.............•.•.....•........••••.......•••••.• l~f Ito 13 -~.) '~RFORMI.CE .HIGHLIGIITS Flfu:al 20()()-Ol City of Palo Alto COMBINED ENTERPRISE FUNDS RESULTS Last Five Fiscal Years ($OOOs) 1996-97 1997-98 1998-99 1999-00 Revenues Sales -customers $117,677 $121,777 $123,083 $114,573 Sales -city departments 7,072 7,332 7,912 7,895 Sales -wholesale 11,445 5,641 4,582 Other operating revenues 19,503 15,791 18,867 18,419 Non-operating revenues 7,663 10,002 8,555 8,058 tottltSoJi&s ~ffuds. $151,9150 $166,347 ;, , $164,058 $153,527" Expenses,& Net Transfers Purchase of utilities $50,548 $57,778 $51,262 $47,984 Administration & general 7,202 7,953 10,065 10,677 Operations, maintenance & other 35,572 38,762 39,414 41,128 Depreciation & amortization 8,257 8,746 9,191 9,640 Non-operating expenses 10,348 12,289 12,147 12,009 Net Transfers 12,306 12,623 12,370 11,567 ~~taI:iffs~,~fF:.mds $124;233 $l'3$:~iSr!i; y. $134449 .. . ~ ... $133,005 '~.·~.i~.$.~7,6.82 . .... {.$.' ... 28 ... · .v,.if96:~;;:;'~$29ii,;~09i[" 'm·', .... ",', .," ~>. ".' ':' '·'d/u/ "';"",,>'."'< "". ,'>. '" 253,869 281,551 309,747 Beginning Retained Earnings :F;hdi:i!?~Re~~:Eriridh~{i v. t~~~ I$281,s51$3()~,747 ~,~3$l Reserved RtitaineclEarnings: Rate stabilization Emergency plant replacement Calaveras Reappropriations & Commitments Restricted bond proceeds Underground loan Conservation loan Refuse Water Resources Board Shasta rewind loan Central Valley Project Public benefit program IJDreserved~:Retaihed Earnings: ti~~rt:dR~taii7~c&tnlKg$ $ 66,858 $ 63,940 5,102 5,354 41,680 55,583 22,061 27,714 600 632 472 2,954 688 $140,504 $151,053 $ 71,589 $ 73,870 5,568 5,612 71,072 68,013 21,606 26,117 2,271 2,750 600 613 634 634 590 590 867 64 990 908 2,172 2,322 $177,959' $181,493 $16i,3ri~Jt$178,j$s $ %Chg 2000-01 1997-01 $118,115 0% 8,801 24% 4,065 -64% 88,204 352% 16,366 114% $235i5~:L 55% 92% 65% 25% 23% 6% -5% 47% 15% 55% 75% n.a. 4% -95% 25% -98% 2% 42% fZ:~!{$i~~3 .••.•.........•.................•....•...............................................•....•..•............•..•..•••••.•..........••••• Alto t PERFORMANCE HIGHliGHTS Year TRENDS & CHALLENGES STATE AND REGIONAL ECONOMIC TRENDS Fiscal year 2000-01 effectively ended the nation's longest economic expansion in history. During the eight or nine years prior to and including part of 2000-01, the nation was in the midst of the most prosperous economic period ever experienced. It was the age of the new technology . and unsurpassed venture capital investments. It was a time of strong consumer confidence, stock options, high productivity, new highs on Wall Street, and unprece- dented spending. It was also a lucrative time for Federal State and local governments, adding abundant tax reve-' nue receipts to their coffers. However, starting with the spring of 2000, there were signs that this impressive eco- nomic growth was coming to an end. The City of Palo Alto began fiscal year 2000-01 with evidence that the economy was slowing. General Fund: Fund Balance ($m ill ions) 96-97 97-98 98-99 99-00 00-01 It was to be a year marked by massive dot-com company closures, along with thousands of job cuts and layoffs, bringing the nation to the edge of recession. Silicon Valley ~d the S~ate played a major role in the economic expan- Sion and 10 the devastating contraction, posing signifi- cant challenges for local government General Fund finances. Bay Area cities would be the hardest hit eco- ~omically due to the high concentration of high tech firms. This economic correction has also contributed to the slowdown of supporting sectors such as business ser- vices, office equipment and consumer spending, further impacting the finances of local governments. As the year progressed, evidence of the economic down- turn became more obvious. While in 2000 Santa Clara County's unemployment rate was at a record low of 1.7 percent, data from the federal government shows that local unemployment rate has since risen steadily to about 4.2 percent in June 2001. Growth in property values was also impacted. In some areas commercial real estate vacancy rates were hitting new highs compared to a near zero rate of a year ago. On the residential side, the State's Department of Finance reported that, "home sales have slowed the most dramatically in the San Francisco Bay Area." It. is anticipated ~t further slowdown is likely. Tom Lieser, of UCLA s Anderson Forecast believes that Cali- fornia's slowdown will produce negative growth in real personal income and gross state product for the remain- der of 2001. Gains in California taxable sales in 2001 will be the weakest since 1993. Lieser predicts much weaker growth in jobs through 2002, including a substantial slowdown in the service sector of the California economy, and a rising unemployment rate. The implications of Lieser's forecast portend trouble for revenue sources supporting local governments. A slow- down in economically sensitive revenue areas such as sales and hotel taxes means that the City must monitor these carefully and plan for any shortfalls. LOCAL ECONOMIC TRENDS Unlike many other cities, Palo Alto has been fortunate in having a broad revenue base. City revenues are distrib- u.t~d among many diverse sources. Howeve:ft like many Cities, several of Palo Alto's major revenue soun:es have been affected by the current economic slowdown. Sales tax is one of the City's primary revenue sources, account- ing for over 18 percent of its total Governmental Fund revenue. Recently, Bay Area cities have experienced as much as a 30 percent decline from quarter to quarter in sales tax. Palo Alto's 2000-01, 4th quarter drop of 12 per- cent places it roughly in the middle of Santa Clara County cities. Palo Alto's well-balanced sales tax base ......•••........................•••....................•••••••.......••••........•••.•....... .......••...........••••..........•••... tl) t> P~RFORMIICE HIGHLIGHTS FIscal and its major regional shopping center has helped to cushion falling sales tax receipts. In addition to its diverse sales tax base, Palo Alto is home to a wide array of many large, medium and small firms. Industries with more than 1,000 employees include higher education, satellite communications, medical research and outpatient services, electronics, pharmaceuticals, corporate law and government. It is expected that during the economic recovery, this diver- sity will contribute to a more balanced rebound as well. GENERAL FUND AND CAPITAL CHALLENGES ;' A considerable number of financial challenges, real and potential, face the City. Given the current state of the Combined Enterprise Funds: Total Retained Earnings ($millions) economy and the projection of modest General Fund surpluses of revenues over adjusted expenditures, it is necessary for the City to plan more prudently. There is no consensus among economists on the length or the depth of the current economic slowdown. But the slowdown is here. It has negatively impacted the City's revenue sources without lifting too much of the responsibilities and commitments. Furthermore, other challenges exist. For example, the negative eco- nomic situation could affect the State Retirement System investments and affect the contributions that are required of the City. New contracts with Safety personnel also increase the City's financial commitments. California cities could also be adversely affected by the State's economic woes. During economic budget crises in the past, the State solved its funding gap by reallocating and reducing local revenues. Such a possibility still exists. Staff is in the midst of making budget adjustments in the current year to ensure that current infrastructure goals are met. New infrastructure and cap- ital projects, such as library improvements, also place added demands on the City for which funding has yet to be identified. It is hopeful that the economic downturn will be short lived and the rebound will be in the near future. It is uncertain however as to the nature and timing of the recovery. Local housing and real estate shortages, traffic congestion, and the high cost-of-living are disincentives for companies and employees to locate in the area. Given the current economic conditions, the City is working hard to manage its finances carefully and to prioritize operational services and capital spending. ENTERPRISE FUND CHALLENGES The City continues to face the challenges of the deregulated marketplace for the electric and natural gas industries. The 1998 deregulation of the electric industry in California exhibited major flaws as witnessed by the electric supply shortages and rolling blackouts experienced in California this fiscal year. The actions taken by the State, the price caps imposed by FERC, and active conservation efforts undertaken by all Californians brought back a level of calm to the energy supply markets by the end of Summer 2001. In 2000-01, natural gas prices rose to unprecedented levels, requir- ing the City to institute series of rate increases during the fiscal year. The City continues to improve upon its rate set- ting methodologies and actively manage its energy supply portfolio to effectively handle the wholesale energy price volatility that exists in these deregulated industries. Another key Enterprise Fund challenge will be finding a solution to the financial condition of the Storm Drainage Fund. This Fund has depleted its reserves and is being balanced by the General Fund. WORKFORCE CHALLENGES For most of 2000-01, the employment market in the Bay Area was extremely competitive. The low unemployment rate, as low as 1.7 percent in December of 2000, made it difficult to recruit personnel. The City carried a high number of vacancies, especially in Police and key capital project positions. The year 2001 has brought a fast increase in the unem- ployment numbe~ which now stands at over 6 percent. This change has provided additional potential employees, but the downturn in the economy has forced staff to implement a voluntary job freeze. Staff faces some challenges, but will not sacrifice public safety or essential services in order to meet budget requirements and goals . ......••••.....................•.............•..................................•••.•••••......•...............••..................... .. ' t) t> .EBFDBMAIICE HIGHliGHTS : Fiscal Year 2000-01 !2Lcknowfe c£gements The City of Palo Alto greatly appreciates the work of these and all the individuals who have assisted in the assemblage of this document. Contributors Sharon Bozman Trudy Eikenberry Darryl Fair Judith Hejza Graphics Cherie McFadden Julie Pai Lalo Perez Charles Perl Rosemary Ralston ...................................................................................................................................... Cit)' of Palo Alto 17 • ~ PERFORMANCE HIGHliGHTS '/;,1" Fiscal Year 2000-01 The City of Palo Alto P.o. Box 10250 Palo Alto, CA 94303 650.329.2100 Visit our website at: www.city.palo-alto.ca.us .......••••••...••••••........••••••..•.••••••....••••....••..........••••••..••..••••..............•••........•••........••.......••• 18 City of Palo Alto