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HomeMy WebLinkAbout2024-01-22 City Council Agenda PacketCITY COUNCIL Regular Meeting Monday, January 22, 2024 Council Chambers & Hybrid CITY OF 5:30 PM PALO Amended Agenda ALTO Amended agenda items appear below in RED Palo Alto City Council meetings will be held as "hybrid" meetings with the option to attend by teleconference or in person. To maximize public safety while still maintaining transparency and public access, members of the public can choose to participate from home or attend in person. Information on how the public may observe and participate in the meeting is located at the end of the agenda. Masks are strongly encouraged if attending in person. The meeting will be broadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media Center https://midpenmedia.org. VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone: 1(669)900-6833 PUBLIC COMMENTS Public comments will be accepted both in person and via Zoom for up to three minutes or an amount of time determined by the Chair. All requests to speak will be taken until 5 minutes after the staff's presentation. Written public comments can be submitted in advance to city.council@CityofPaloAlto.org and will be provided to the Council and available for inspection on the City's website. Please clearly indicate which agenda item you are referencing in your subject line. PowerPoints, videos, or other media to be presented during public comment are accepted only by email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received, the Clerk will have them shared at public comment for the specified item. To uphold strong cybersecurity management practices, USB's or other physical electronic storage devices are not accepted. TIME ESTIMATES Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. January 22, 2024 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. CALL TO ORDER AGENDA CHANGES, ADDITIONS AND DELETIONS PUBLIC COMMENT (5:30 - 5:45 PM) Members of the public may speak to any item NOT on the agenda. Council reserves the right to limit the duration of Oral Communications period to 30 minutes. COUNCIL MEMBER QUESTIONS. COMMENTS, ANNOUNCEMENTS (5:45 - 5:50 PM) Members of the public may not speak to the item(s). CONSENT CALENDAR (5:50 - 5:55 PM) Items will be voted in one motion unless removed from the calendar by three Council Members. 1. Approval of Minutes from January 8, 2024 Meeting 2. Approval of Purchase Order With Siemens Inc. in the Amount of $489,527 for FY 2024 to Purchase Sixteen (16) 12KV Circuit Breakers for Hanover and Hansen Way Substations. CEQA Status: Exempt under CEQA Guidelines Section 15302 (Replacement of Existing Structures) 3. Adopt a Park Dedication Ordinance for the Tower Well site, 0.19 acres of land (8,437 square feet) at 201 Alma Street and approve the proposed name "Tower Well Park" as Recommended by the Parks and Recreation Commission. CEQA status - not a project. 4. Adoption of an Urgency Ordinance and an Ordinance Amending Palo Alto Municipal Code Title 18 (Zoning) Chapters 18.14 (Housing Incentives), 18.76 (Permits and Approvals), and 18.77 (Processing of Permits and Approvals) to Implement Housing Element Program 1.3 Creating By -Right Zoning Approval for Specific Housing Element Inventory Sites. CEQA Status: An Addendum to the City's Comprehensive Plan Environmental Impact Report was Prepared for the 2023-2031 Housing Element. 5. Adoption of an Ordinance Authorizing the Improvements to the Palo Alto Baylands as Part of the Horizontal Levee Pilot Project and Approval of a Cooperative Agreement with the Association of Bay Area Governments to Construct the Horizontal Levee Pilot Project (WQ-22001); CEQA — exempt under Section 15133 6. QUASI-JUDICIAL. 949 Scott Street [22PLN-00410]: Request for City Council Hearing on the Director's Decision to Approve a Variance application to Allow a New Single -Story, Single -Family Home with a Basement to Encroach into the Front, Side, and Rear Setbacks and Deviate from Standards for Below Grade Patio Side and Rear Setbacks, and Number of Parking Spaces. Zoning District: R-2. Environmental Assessment: Exempt from the California Environmental Quality Act per Section 15303. January 22, 2024 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. 7. QUASI-JUDICIAL. 420 Acacia [23PLN-00059]: Request for Approval of a Vesting Tentative Map to Allow for a Condominium Subdivision to Create 16 Units on a Single 35,573 Square Foot Parcel. The Subdivision map Would Facilitate Construction of the Previously Approved 33,833 Square Foot Mixed -use Development Project (23PLN-00058). Environmental Assessment: Exempt from the Provisions of the California Environmental Quality Act in Accordance with CEQA Guidelines Section 15332 (In -fill Development) and 15315 (Minor land Divisions). Zoning District: Split Zoning Designation of RM-30 and R-1 (Multi -Family and Single -Family Residential). 8. Approval of the Office of the City Auditor's Wastewater Treatment Plant Agreement Audit Report as Recommended by Policy & Services Committee (CEQA Status - Not a Project) 9. Approval of Office of City Auditor Risk Assessment and Audit Plan (CEQA Status - Not a Project) CITY MANAGER COMMENTS (5:55 - 6:10 PM) BREAK (5-10 MINUTES) ACTION ITEMS (Item 10: 6:20 - 6:25 PM, Item 11: 6:25 - 6:55 PM, Item 12: 6:55 - 7:55 PM, Item 13: 7:55 - 8:55 PM) Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, Unfinished Business and Council Matters. 10. Approval of an Employment Agreement and Approval of Resolution to Appoint Mahealani Ah Yun to the Position of City Clerk at an Annual Salary of $165,000. CEQA Status — Not a Project 11. Adoption of a Resolution and Approving an Easement Relocation Agreement Relocating and Vacating a 25 Foot Public Service Easement at the Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also commonly known as 1310 Bryant Street), Assessor Parcel Numbers 124-12-033 & 124-12-034; CEQA status — categorically exempt. 12. Review and Accept the FY 2025 - FY 2034 Long Range Financial Forecast (LRFF) and FY 2025 Budget Development Guidelines as Recommended by the Finance Committee, CEQA Status — Not a Project 13. Update regarding State and Federal Legislation and Approval of the Annual Legislative Guidelines and Legislative Platform as Recommended by the Policy & Service Committee. CEQA Status — Not a Project Supplemental Report added January 22, 2024 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. ADJOURNMENT INFORMATION REPORTS Information reports are provided for informational purposes only to the Council and the public but are not listed for action during this meeting's agenda. 14. Bicycle and Pedestrian Transportation Plan (BPTP) Update: an active transportation plan --Introduction & Overview, Community Engagement, Context & Baseline Conditions, and Next Steps 15. First Quarter Fiscal Year 2024 Financial Status Report OTHER INFORMATION Standing Committee Meetings this week Rail Committee January 23, 2024 Public Comment Letters Schedule of Meetings AMENDED AGENDA ITEMS 13. Item 13 Supplemental Report: Update, Discussion, and Potential Direction regarding State and Federal Legislation January 22, 2024 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom -based meeting. Please read the following instructions carefully. o You may download the Zoom client or connect to the meeting in- browser. If using your browser, make sure you are using a current, up-to-date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. o You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. o When you wish to speak on an Agenda Item, click on "raise hand." The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. o When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 362-027-238 Phone: 1-669-900-6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City's ADA Coordinator at (650) 329-2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. January 22, 2024 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. Item 1 Item 1 Staff Report CITY OF PALO ALTO TITLE Approval of Minutes from January 8, 2024 Meeting RECOMMENDATION That the minutes be reviewed and approved. ATTACHMENTS Attachment A: January 8, 2024 Draft Action Minutes APPROVED BY: Mahealani Ah Yun City Council Staff Report Report Type: CONSENT CALENDAR Lead Department: City Clerk Meeting Date: January 22, 2024 Report #:2401-2502 Item 1: Staff Report Pg. 1 Packet Pg. 6 of 341 Item 1 Attachment A - January 8, 2024 Draft Action CITY COUNCIL Minutes CITY Or PALO DRAFT ACTION MINUTES ALTO Regular Meeting January 8, 2024 The City Council of the City of Palo Alto met on this date in the Council Chambers and by virtual teleconference at 5:30 P.M. Present In Person: Burt, Kou, Lauing, Lythcott-Haims, Stone, Tanaka, Veenker Present Remotely: Absent: ecial Orders of the Da 1. Election of the 2024 Mayor NOMINATION: Council Member Lythcott-Haims nominated Council Member Stone for Mayor for 2024. NOMINATION FOR COUNCIL MEMBER STONE AS MAYOR FOR 2024 PASSED: 6-1, Tanaka no 2. Election of the 2024 Vice Mayor NOMINATION: Council Member Burt nominated Council Member Lauing for Vice Mayor for 2024. NOMINATION: Council Member Lythcott-Haims nominated Council Member Veenker for Vice Mayor for 2024. First Round of voting for the position of Vice Mayor with term ending December 31, 2024. Voting For: Ed Lauing Vicki Veenker Burt, Kou, Lauing, Stone Lythcott-Haims, Tanaka, Veenker NOMINATION FOR COUNCIL MEMBER LAUING AS VICE MAYOR FOR 2024 PASSED: 4-3 Page 1 of 3 Item 1: Staff Report Pg. 2 Packet Pg. 7 of 341 Item 1 Attachment A - January 8, DRAFT ACTION MI N UT 2024 Draft Action Minutes 3. Adoption of a Resolution Expressing Appreciation for Outstanding Public Service to Lydia Kou as 2023 Mayor MOTION: Council Member Burt moved, seconded by Council Member Lythcott-Haims to adopt a resolution expressing appreciation to Lydia Kou as 2023 Mayor. MOTION PASSED: 7-0 Adjournment: The meeting was adjourned at 9:36 P.M. Page 2 of 3 City Council Meeting Draft Action Minutes: 01/08/2024 Item 1: Staff Report Pg. 3 Packet Pg. 8 of 341 Item 1 Attachment A - January 8, DRAFT ACTION M I N UT 2024 Draft Action Minutes ATTEST: APPROVED: City Clerk Mayor NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC) 2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section 2.04.160(c). Beginning in January 2018, in accordance with Ordinance No. 5423, the City Council found action minutes and the video/audio recordings of Council proceedings to be the official records of both Council and committee proceedings. These recordings are available on the City's website. Item 1: Staff Report Pg. 4 Page 3 of 3 City Council Meeting Draft Action Minutes: 01/08/2024 Packet Pg. 9 of 341 Item 2 Item 2 Staff Report CITY OF PALO ALTO City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Utilities Meeting Date: January 22, 2024 Staff Report: 2310-2179 TITLE Approval of Purchase Order With Siemens Inc. in the Amount of $489,527 for FY 2024 to Purchase Sixteen (16) 12KV Circuit Breakers for Hanover and Hansen Way Substations. CEQA Status: Exempt under CEQA Guidelines Section 15302 (Replacement of Existing Structures) RECOMMENDATION Staff Recommends the City Council approve and authorize the City Manager or designee to execute a purchase order with Siemens Inc. in the amount of $489,527 to purchase sixteen (16) 12 kV replacement power circuit breakers for Hanover and Hansen Substations. BACKGROUND The circuit breaker is a device that interrupts high voltages and currents during switching or fault conditions on the distribution feeders. These devices require regular maintenance and routine testing to ensure proper operation. The circuit breakers in Hanover and Hansen Way Substations are still operational, however, they have exceeded their normal life of 30-40 years. Replacement parts are no longer readily available, and there have been instances where they have not operated properly after maintenance was completed. For these reasons, staff recommends these breakers be replaced with modern circuit breakers that can be retrofitted in the existing switchgear. ANALYSIS The City's Utilities engineers evaluate distribution systems on an ongoing basis, including replacement of existing facilities. Staff has determined the only viable option for replacing the circuit breakers in Hanover and Hansen Way Substations is to use retrofitted breakers made by the original manufacturer, Siemens Inc. (Allis Chalmers was the original manufacturer prior to being purchased by Siemens, approximately 15 years ago). In 2021 the City entered into a sole source agreement with Siemens for $30,575 to purchase one circuit breaker. On November 7, 2023, the City entered into a new sole source agreement with Siemens for $489,527 to purchase 16 breakers. Sole source authorization was approved based on Palo Alto Municipal Code Item 2: Staff Report Pg. 1 Packet Pg. 10 of 341 Item 2 Item 2 Staff Report 2.30.350(d) only one of the sources available can meet requirements. As discussed above due to the physical restrictions and integrations with existing built facilities, staff has determined replacement of this circuit breaker equipment is best done with the original equipment manufacturer for the direct replacement units. FISCAL/RESOURCE IMPACT Funding for the $489,527 to purchase the circuit breakers is available in the FY 2024 Electric CIP Budget under Capital Improvement Project EL -89044 (Substation Facilities Improvements.) STAKEHOLDER ENGAGEMENT Procurement of new 12 KV circuit breakers for City's substations does not involve or impact any stakeholders. ENVIRONMENTAL REVIEW This project is categorically exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines 15301 (repair, maintenance, of existing facilities) and 15302 (replacement or reconstruction of existing facilities). ATTACHMENTS Attachment A: Purchase Order APPROVED BY: Dean Batchelor, Director of Utilities Staff: Tomm Marshall, Assistant Director of Electric Utilities Item 2: Staff Report Pg. 2 Packet Pg. 11 of 341 Vendor Address City of Palo Alto Purchasing and Contract Administration P.O.Box 10250 Palo Alto CA 94303 Tel:(650)329-2271 Fax:(650)329-2468 SIEMENS INDUSTRY, INC. 100 TECHNOLOGY DRIVE ALPHARETTA GA 30005 Tel: 8003337421 Fax: 9193651098 Ship Tn. MSC Stores Warehouse City of Palo Alto 3201 E. Bayshore Rd. Palo Alto CA 94303 Rill Tn. Utilities Engineering City of Palo Alto 1007 Elwell Court Palo Alto CA 94303 Item 2 Attachment A - Purchase Order Purchase Order P.O. NUMBER MUST APPEAR ON ALL INVOICES, PACKAGES, SHIPPING PAPERS AND CORRESPONDENCE PERTAINING TO THIS ORDER PO Number 4524000237 Date 12/05/2023 Vendor No. 107247 Payment Terms Payment Due 30 days FOB Point F.O.B Destination Ship via Vendor to ship bestway Required Date 08/13/2024 Buyer/Phone Renee Howard / 650-496-5900 Email renee.howard@cityofpaloalto.org DELIVERIES ACCEPTED ONLY BETWEEN 7:00 AM & 3:00 PM UNLESS OTHER ARRANGEMENTS ARE INDICATED HEREIN Item Material/Description Quantity UM Net Price Net Amount Honn Quote #: SAM4659 dated 10/23/23 valid until: February 1, 2024 Quotation:City of Palo Alto Hanover Substation 0010 Replacement MV Circuit Breaker 16 EA 24,515.00 392,240.00 Catalog number: P/N 15FSV-500-1200-37 0020 Racking Screw Assembly Type F 16 EA 2,750.00 44,000.00 Catalog number: P/N P3R18389211503 New vendor: Siemens Industry (pending vendor ID) Requesting: $270, 000 for the Hanover substation and $180, 000 for the Hansen substation to purchase power circuit breakers for project EL -89044 PM: Rick Baptist x6902 richard.baptist@cityofpaloalto.org 0030 Racking Motor Type F 1 EA 5,480.00 5,480.00 Catalog number: P/N P3R18669246600 0040 Freight Terms 1 USE 7,500.00 7,500.00 Interim Chief Procurement Officer THIS P.O. IS SUBJECT TO THE TERMS AND CONDITIONS STATED BELOW AND ON THE LAST PAGE SPECIFICATIONS - Any specification and /or drawings referred to and/or attached hereto are expressly made a part of this Purchase Order. DELIVERY - Please notify the City promptly if delivery cannot be made on or before the date specified. If partial shipment is authorized, so indicate on all documents. Complete packing lists must accompany each shipment. INVOICE - A separate invoice is required for each order. Send to address indicated above. Item 2: Staff Report Pg. 3 1 Packet Pg. 12 of 341 City of Palo Alto Purchasing and Contract Administration Item 2 Attachment A - Purchase Order P.O.Box 10250 Palo Alto CA 94303 Lf> oR�1 Tel:(650)329-2271 Fax:(650)329-2468 Vendor Address SIEMENS INDUSTRY, INC. 100 TECHNOLOGY DRIVE ALPHARETTA GA 30005 Tel: 8003337421 Fax: 9193651098 Ship Tn. MSC Stores Warehouse City of Palo Alto 3201 E. Bayshore Rd. Palo Alto CA 94303 Rill Tn. Utilities Engineering City of Palo Alto 1007 Elwell Court Palo Alto CA 94303 Purchase Order P.O. NUMBER MUST APPEAR ON ALL INVOICES, PACKAGES, SHIPPING PAPERS AND CORRESPONDENCE PERTAINING TO THIS ORDER PO Number 4524000237 Date 12/05/2023 Vendor No. 107247 Payment Terms Payment Due 30 days FOB Point F.O.B Destination Ship via Vendor to ship bestway Required Date 08/13/2024 Buyer/Phone Renee Howard / 650-496-5900 Email renee.howard a citvofoaloalto.o DELIVERIES ACCEPTED ONLY BETWEEN 7:00 AM & 3:00 PM UNLESS OTHER ARRANGEMENTS ARE INDICATED HEREIN Page 2 of 2 Item Material/Description Quantity UM Net Price Net Amount Catalog number: P/N 15FSV-500-1200-37 Sub-Total ------------------------- 449,220.00 Sales Tax 40,306.95 * * ORDERING VIA EMAIL * * * * * * * PRICE HAS BEEN QUOTED * * * * Total 489,526.95 Interim Chief Procurement Officer THIS P.O. IS SUBJECT TO THE TERMS AND CONDITIONS STATED BELOW AND ON THE LAST PAGE SPECIFICATIONS - Any specification and /or drawings referred to and/or attached hereto are expressly made a part of this Purchase Order. DELIVERY - Please notify the City promptly if delivery cannot be made on or before the date specified. If partial shipment is authorized, so indicate on all documents. Complete packing lists must accompany each shipment. INVOICE - A separate invoice is required for each order. Send to address indicated above. Item 2: Staff Report Pg. 4 l Packet Pg. 13 of 341 TERMS AND CONDITIONS OF PURCHASE Item 2 Attachment A - Purchase ACCEPTANCE/AGREEMENT: City of Palo Alto (City) reserves the right to reject any and all quotations, to waive any informalities, and, unless otherwise specified by Seller, to accept any item in a quotation. By accepting or filing this Purchase Order (P.O.), Seller agrees to the terms and conditions herein which shall prevail over any inconsistent provision in any form or other paper submitted by Seller. All shipments or services performed shall be deemed to have been made pursuant hereto. No other terms are acceptable. This P.O., including all specifications and drawings, shall constitute the entire agreement between the parties unless modified in writing by City. CITY'S PROPERTY: Seller agrees that the information, tools, jigs, dies, or materials, and drawings, patterns, and specification supplied or paid for by City shall be and remain City property and shall be held by Seller for City unless directed otherwise. Seller shall account for such items and keep them protected, insured, and in good working conditions without expense to City. DELIVERY: The terms of delivery are as stated on the reverse side hereof. The obligation of Seller to meet the delivery dates, specifications, and quantities set forth herein is of the essence of this P.O. No boxing, packing, or cartage charge will be allowed unless authorized by this P.O. Deliveries are to be made both in quantities and at times specified herein or, if not, such quantities and times are specified pursuant to City's written instruction. Items not delivered may be canceled without penalty to City. Shipments in greater or lesser quantity that ordered may be returned at Seller's expense unless written authorization is issued by City. PRICES: The price which Seller charges in filling this P.O. shall not be higher than Seller's most recent quote or charge to City for such materials, supplies, services and/or installations unless City expressly agrees otherwise in writing. Notwithstanding the prices set forth the P.O. City shall receive the benefit of any general reduction in the price of any item(s) listed herein which may be made by Seller at any time prior to the last delivery of goods or services covered by this P.O. TERMINATION: City shall have the right to terminate this P.O. or any part thereof upon ten (10) days notice in writing to Seller. (1) Without Cause. City may terminate all or any part of this P.O. without cause. Any claim by Seller for damages due to termination without cause must be submitted to City within thirty (30) days after effective date of termination. (2) For Cause. If Seller fails to make any delivery in accordance with the agreed delivery date, delivery schedule, or otherwise fails to observe or comply with any of the other instructions, terms, conditions or warranties applicable to this P.O., City may, in addition to any other right or remedy provided by this P.O. or by law, terminate all or any part of this P.O. in writing without any liability of City with respect to Seller at any time during the term of this P.O. In the event of termination for cause, City may purchase supplies or services elsewhere on such terms or in such manner as City may deem appropriate and Seller shall be liable to City for any cost and other expenses incurred by City, which is charged to City. CHANGES: City shall have the right at any time by written notice via P.O. Change Order to Seller to make changes in the specifications, the quantity of items called for, delivery schedules, and requirements covering testing, packaging, or destination. Any claim by Seller for adjustment under this clause shall be deemed waived unless made in writing with then (10) days after receipt by Seller of notice of such change. Price increases or extensions of time for delivery shall not be binding on City unless evidenced by a P.O. Change Order issued by City's Purchasing Manager. INSPECTION: City shall have the right to inspect and approve or reject any materials, supplies, services and/or installations upon arrival of notice of completion prior to payment without regard to the manner of shipment, completion, or any shipping or price terms contained in this P.O. All materials, supplies, services and/or installations must be furnished as specified. (1) Defective, damaged, and nonconforming materials and/or supplies may be returned for credit or refund, at Seller's expense. City may charge Seller for all expenses of unpacking, examining, repacking and reshipping of such materials and/or supplies. (2) Defective, incorrect and nonconforming services and/or installations may be returned for credit or refund, at Seller's expense. All of the above notwithstanding prior payment by City (3) City may waive defects that exist. WARRANTY: Seller expressly warrants that all materials, supplies, services and/or installations covered by this P.O. shall: (1) conform to the specifications, drawings, samples, or other descriptions specified by City or if none are so specified, to Seller's standard specification or the standards of the ASTM or ANSI or other national standard organizations; (2) be new and unless specified to the contrary on the face hereof, will be free from defects in material and workmanship and will be free of all liens and encumbrances and will conform to any affirmation of facts made on the container or label; Order (3) be adequately c U-,,_F..g1 axed, labeled and/or provided in compliance with all applicable federal and state laws and regulations (including materials deemed hazardous); (4) be performed within the rules and regulations of the Occupational Safety and Health Act of 1970 (as amended); (5) be produced or transferred or disposed of as required by federal and state laws and regulation under the conditions of the Toxic Substances Control Act; the Hazardous Materials Control and Hazardous Waste Regulations; and other toxic laws and programs. Seller further expressly agrees to protect, indemnify, and hold harmless City, its employees and agents for any loss, damage, fine, liability, fee (including reasonable charges and fees) or expense arising in connection with or resulting from Seller's failure to furnish materials or supplies or perform services that conform with any warranty contained herein. (6) have good marketable title. GOVERNING LAW: This P.O. shall be governed by the laws of the State of California. INDEPENDENT CONTRACTOR, INSURANCE: Seller certifies, by acceptance, that he/she is an independent contractor. Seller shall protect, defend, and indemnify and hold City harmless against all damages, liability, claims, losses and expenses (including attorney's fees) arising out of , or resulting in any way from Seller's negligence in providing the goods or services purchased hereunder or from any act or omission of Seller, its agents, employees, or subcontractors, Seller shall maintain such public liability insurance, including contractual liability, automobile and general public liability, (including non -owned automobile liability) Worker's Compensation, and employer's liability insurance as well adequately protect City against such damage, liabilities, claims, losses, and expenses (including attorney's fees). Seller agrees to submit certificates of insurance, evidencing its insurance coverage when requested by City. EQUAL OPPORTUNITY CLAUSE: By acceptance of this P.O., Seller certifies it is in compliance with the Equal Opportunity Clause required by Executive Order 11246, as amended, and the Palo Alto Municipal Code, as amended, including Affirmative Action Compliance Programs for Veterans; Handicapped; and Minority Business, and other equal opportunity programs. FORCE MAJEURE: City may delay delivery or acceptance occasioned by causes beyond its control. Seller shall hold such materials, supplies, services and or installations at the direction of City and shall deliver them when the cause affecting the delay has been removed. City shall be responsible only for Seller's direct additional costs in holding the goods or delaying performance of this P.O. and City's request. Seller shall also be excused if delivery is delayed by unforeseen events beyond its reasonable control, provided Seller notifies City as soon as they occur. City may cancel this P.O. if such delay exceeds thirty (30) days from the original delivery date. Seller shall use its best efforts to grant preference to this P.O. over those of other customers, which were placed after this P.O. AUTHORITY OF AGENT OR FACTOR: Seller represents that, whenever it executes this P.O. on behalf of a third party as an agent or factor, it shall disclose the existence of the agency or factor relationship to City. Seller shall be deemed to have the legal authority to enter into this P.O. with City on behalf of the third party. INTERPRETATION OF CONTRACT DOCUMENTS: In the event of a conflict between the terms of this P.O. and the attached specification with respect to any obligation of Seller, the provision which impose the greater obligations upon Seller shall prevail. CITY OF PALO ALTO Page 1 of 3 GDS Rev. 06/14/2016 Item 2: Staff Report Pg. 5 Packet Pg. 14 of 341 TERMS AND CONDITIONS OF PURCHASE EVIRONMENTALLY PREFERRED PURCHASING REQUIREMENTS: Seller agrees to comply with the City's Environmentally Preferred Purchasing Requirements. (1) Hazardous Waste: Seller shall take -back all spent or otherwise discarded hazardous products sold to the City by the Seller if the spent or discarded products are classified as hazardous or universal wastes by State or Federal regulations. Seller shall provide convenient collection and recycling services (or disposal services if recycling technology is unavailable) for all universal wastes, which originate from the Vendor. Hazardous waste manifests or bills of lading must be provided to City staff upon request. Recycling and reuse of hazardous wastes must occur within the United States. Universal waste lists and information are available www.dtsc.ca.gov/HazardousWaste/UniversalWaste/. A hazardous waste list is available at http://www.calrecycle.ca.gov/LEA/Training/wasteclass/yep.htm. Additional information can be obtained by contacting the City of Palo Alto Hazardous Waste Department at (650) 496-6980. (2) Zero Waste and Pollution Prevention: Per Palo Alto City Council policy, the City is targeting to achieve Zero Waste by 2021. The City must also meet Municipal Regional Stormwater Permit requirements requiring no visible impact from litter via stormdrains by 2022. To that end the vendor, manufacturer and or contractor must individually or collboaratively comply with the waste reduction, reuse and recycling requirements of the City's Zero Waste and Pollution Prevention Programs. Seller acknowledges and agrees that if Seller fails to fully and satisfactorily comply with these requirements, the City will suffer, as a result of Seller's failure, substantial damages which are both extremely difficult and impracticable to ascertain. Therefore, the Seller agrees that in addition to all other damages to which the City may be entitled, in the event Seller fails to comply with the below requirements Seller shall pay City as liquidated damages the amounts specified below. The liquidated damage amount is not a penalty but considered to be a reasonable estimate of the amount of damages City will suffer as a result of such non-compliance. • Sellers shall adhere to the standard that all printed materials provided to the City that are generated from a personal computer and printer including, proposals, quotes, invoices, reports, and public education materials shall be double -sided, printed on a minimum of 30% post -consumer content paper or greater unless otherwise approved by the City's Environmental Services Division (650) 329-2117. Materials printed by a professional printing company shall be a minimum of 30% post -consumer material or greater and printed with vegetable based inks. Liquidated damages of $30 per document will be assessed by City for failure to adhere to this requirement; • All paper packaging must be Forest Stewardship Council (FSC) Certified. • All primary, secondary and shipping (tertiary) packaging be minimized to the maximum extent feasible while protecting the product being shipped; • All primary, secondary and shipping packaging shall be recyclable in the City's recycling program. A complete list of items accepted for recycling are found at www.zerowastepaloalto.org or by calling (650) 496-5910. If any portion is received that does not meet this requirement, liquidated damages of $235 or a minimum of $50 if the combined product and shipping cost is $235 or less will be assessed by City for failure to adhere to this requirement. • Expanded foam plastics (e.g., foam or cushion blocks, trays, packing "peanuts"), such as but not limited to polystyrene (aka StyrofoamTM) polypropylene, or polyurethane shall not be used as primary, secondary or tertiary/shipping packaging with the following exceptions: o Primary packaging made from these materials may be used if the vendor, manufacturer, contractor individually or collaboratively does one of the following: • takes the material back at the City's convenience and at no cost to the City, or • pays the City of Palo Alto's disposal costs via payment of liquidated damages of $235, or a minimum of $50 if the combined product and shipping cost is $235 or less; o Bioplastics that meet ASTM D6400 standards for compostability may be accepted with approval from the City's Environmental Services Division subject to local municipal compost facility requirements; o if approved by the City's Environmental Services Division, a packaging requirement may be waived if no other viable packaging alternative exists; Item 2 Attachment A - Purchase Order Reusable/returnable pallets shall be used and taken back by the Seller, at no additional cost to the City. Seller shall provide documentation upon request ensuring reuse of pallets and/or recycling of broken pallets. Liquidated damages of $262 or a minimum of $50 if the combined product and shipping cost is $262 or less will be assessed by City for failure to adhere to this requirement. (3) Energy and Water Efficiency: Seller shall provide products with an ENERGY STAR, Water Sense or State of California standard rating, whichever is more efficient, when ratings exist for those products. A life cycle cost analysis shall be provided to the City upon request and shall at minimum include: first cost, operating costs, maintenance costs, and disposal costs. Contacts for additional information about City of Palo Alto Hazardous Waste, Zero Waste and Utilities programs: Hazardous Waste Program (Public Works) (650) 496-6980 Zero Waste Program (Public Works) (650) 496-5910 Watershed Protection (650) 329-2117 Energy Efficiency (650) 496-2244 (4) Liciuidated Damages: Seller agrees that failure to comply with the City's Environmentally Preferred Purchasing Requirements will result in Liquidated Damages, according to the table marked Liquidated Damages on page 3 of this P.O. CITY OF PALO ALTO Page 2 of 3 GDS Rev. 06/14/2016 Item 2: Staff Report Pg. 6 Packet Pg. 15 of 341 TERMS AND CONDITIONS OF PURCHASE Item 2 Attachment A - Purchase Order NONCOMPLIANCE WITH EVIRONMENTALLY PREFERRED PURCHASING REQUIREMENTS, LIQUIDATED DAMAGES: The following table lists the events that constitute breaches of the Agreement's standard of performance warranting the imposition of liquidated damages; the acceptable performance level, and the amount of liquidated damages for failure to meet the contractually required standards of performance. Event of Non -Performance Acceptable Performance Level (Allowed events per Fiscal Year) Liquidated Damage Amount Recycled Paper Use Failure to use 30% recycled content paper 1 $30 per each document Recyclable Packaging Materials Failure of Seller to Use secondary and shipping packaging that is recyclable in the City's recycling program. 1 $235 or a minimum of $50 if the combined product and shipping cost is $250 or less will be incurred if this is not adhered to. Expanded Foam Plastics Unapproved use of expanded foam plastics for secondary or shipping acka in 0 $235 or a minimum of $50 if the combined product and shipping cost is $235 or less Pallet use Failure of Seller to take -back and reuse pallets, recycling only broken pallets, at no additional cost to the City. 1 $262 or a minimum of $50 if the combined product and shipping cost is $2 or less CITY OF PALO ALTO Page 3 of 3 GDS Rev. 06/14/2016 Item 2: Staff Report Pg. 7 Packet Pg. 16 of 341 Item 3 Item 3 Staff Report CITY OF PALO ALTO City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Community Services Meeting Date: January 22, 2024 Report #:2311-2292 TITLE Adopt a Park Dedication Ordinance for the Tower Well site, 0.19 acres of land (8,437 square feet) at 201 Alma Street and approve the proposed name "Tower Well Park" as Recommended by the Parks and Recreation Commission. CEQA status - not a project. RECOMMENDATION The Parks and Recreation Commission and staff recommend that the City Council adopt a Park Dedication Ordinance (Attachment A) for the Tower Well site, 0.19 acres of land (8,437 square feet) at 201 Alma Street and approve the proposed name "Tower Well Park." BACKGROUND The Parks and Recreation Commission (PRC) 2023-2024 Work Plan', approved by the City Council, includes a goal of conducting a broad review and assessment of potential sites within Palo Alto to recommend dedicating as parkland. A Park Dedication Ordinance reserves the land for park, recreation, or conservation purposes. Article VIII of the City Charter states: "All lands owned or controlled by the city which are or will be used for park, playground, recreation or conservation purposes shall be dedicated for such purposes by ordinance." Additionally, the Charter states that all dedicated parklands shall be listed, with their legal description and map, in Section 22 of the Municipal Code. The proposed site is currently functioning as a park; however, the land is currently not designated as parkland. Historically, the City Council considered selling the property in 1992 but rejected three proposals to purchase the property because they did not preserve the Tower. In February 1996 the City Council discussed proposed concepts for use of the Tower Well site, and as a result of that discussion, in June 1996 a Request for Proposal (REP) for an option to purchase the Tower Well site was released. In February 1997 there was a recommendation from staff to accept a 1 Parks and Recreation Commission 2023-2024 Workplan, https://cityofpaloaIto.primegov.com/Portal/viewer?id=1819&type=2 Item 3: Staff Report Pg. 1 Packet Pg. 17 of 341 Item 3 Item 3 Staff Report proposal from Thomas and Kathleen Taylor for an option to purchase the Tower Well site for $100,000. There was a sizable amount of public comment and discussion, and a motion was made to continue the discussion to a later meeting. Ultimately, the City Council rejected the four proposals in a 4-5 split vote. In April 1999 the City Council approved an offer to perform a structural analysis of the Tower Well. With the integrity of the Tower passing, in 2000 the City Council decided to preserve the site and honor the historic Tower Well and transition the function of the site to a park and plaza. ANALYSIS On October 24, 2023, the PRC discussed dedicating the Tower Well site as parkland. The Commission was supportive of the PRC Park Dedication Ad Hoc Committee (Ad Hoc) and staff's recommendation to dedicate the site. Commissioners asked what costs would be associated with dedicating the site as parkland. Staff explained that the only near -term cost would be adding a park sign, which would cost approximately $2,500. The site has several existing park amenities: a decomposed granite pathway, six interpretive signs, two park benches, and landscaping. Commissioners also asked about the existing cost of the maintenance for the site. The Tower Well site is maintained as part of a contract managed by the Community Services Department. The annual cost for the maintenance of the site (landscaping, trash and litter collection, and general maintenance) is approximately $7,000 per year. On October 27, 2023, the Ad Hoc and staff consulted with Darla Secor, Historian with the Palo Alto Historical Association (PAHA), to seek a name recommendation for the potential park at the Tower Well site. The City's Naming Policy (Attachment B) establishes criteria which guides the PAHA and the appropriate City Commission or Committee in recommending names to the Council for approval. The PAHA Board, noting the significant historic landmark on the property, recommends the name "Tower Well Park" (Attachment C). The PAHA Board explained in their November 8, 2023, letter to City Council, "When constructed in 1910, the water tower was the first major visible infrastructure of the City's utilities and is a symbol of the City's successful beginnings and forward -thinking leaders. The PAHA Board agrees that 'Tower Well Park' reflects the historic significance of this site." On November 28, 2023, the PRC voted unanimously2 (7-0) to approve the recommendation that the City Council adopt a Park Dedication Ordinance for the Tower Well site, 0.19 acres of land (8,437 square feet) at 201 Alma Street and approve the proposed name "Tower Well Park." FISCAL/RESOURCE IMPACT 2 Parks and Recreation Commission, November 28, 2023; Agenda Item # 3; Minutes, www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/agendas-minutes/parks-and-recreation- commission/agendas-minutes/2023-agendas-and-minutes/11-nov/prc-draft-minutes-11.28.23.pdf Item 3: Staff Report Pg. 2 Packet Pg. 18 of 341 Item 3 Item 3 Staff Report The Community Services Department's existing operating budget will absorb the $2,500 expense for adding a park sign at the site. The annual cost for the maintenance of site (landscaping, trash and litter collection, and general maintenance) is approximately $7,000 per year and is already included in the CSD Operating Budget. At the PRC's November 28, 2023 meeting there was discussion about refreshing the landscaping, including adding a meditative space or Zen Garden. While there are currently no plans for park improvements, staff will consider the recommendations of the PRC and other community partners. Future improvements would either be absorbed by the Department's existing operating or capital budget, or funds would be requested through the annual budget process. STAKEHOLDER ENGAGEMENT Prior to the PRC November 28, 2023, meeting, a Tower Well Park Dedication Fact Sheet was posted at the site and on the PRC website. There were no public comments on this item at the PRC meeting. A public notice was mailed directly to 255 resident parcels within 500 ft of the 201 Alma Street site on December 19, 2023, advising of the proposed dedication ordinance. Staff reached out to the Utilities, Planning, and Public Works Departments to ensure that dedication of this site would not conflict with future planned projects. No conflicts were identified. ENVIRONMENTAL REVIEW Council action on this item is not a project as defined by CEQA because Adopt a Park Dedication Ordinance for the Tower Well site is an administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5). ATTACHMENTS Attachment A: Park Dedication Ordinance for Tower Well Site at 201 Alma Street Attachment B: Policy Naming City Owned Land or Facilities Attachment C: Letter from the Palo Alto Historical Association with Park Name Recommendation APPROVED BY: Kristen O'Kane, Community Services Director Item 3: Staff Report Pg. 3 Packet Pg. 19 of 341 NOT YET ADOPTED ORDINANCE NO. Item 3 Attachment A - Park Dedication Ordinance for Tower Well Site at 201 Alma Street Ordinance of the Council of the City of Palo Alto Dedicating the Area to Become the Tower Well Park The Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. Findings and Improvements. The City Council finds and declares that: (a) Article VIII of the Charter of the City of Palo Alto and section 22.08.004 of the Palo Alto Municipal Code specify that land intended to be used for park purposes can be dedicated for such use by ordinance. (b) The Tower Well Park site ("site") is defined as the area described in Exhibit A-31 to this ordinance. Generally, the site is at the corner of Alma Street and Hawthorne Avenue, and contains a water tower constructed in 1910. The Palo Alto Historical Association remarks that "[w]hen constructed in 1910, the water tower was the first major visible infrastructure of the City's utilities and is a symbol of the City's successful beginnings and forward thinking leaders." (c) The City intends to dedicate the Tower Well Park as parkland through this ordinance. SECTION 2. The City Council hereby dedicates the site pursuant to Article VIII of the Charter of the City of Palo Alto and section 22.08.004 of the Palo Alto Municipal Code. SECTION 3. Section 22.08.440 is hereby added to Chapter 22.08 (Park dedications) to read as follows: 22.08.440 Tower Well Park That certain parcel of land known as the Tower Well Park, as delineated and described in Exhibit A-31, is hereby reserved for park, playground, recreation or conservation purposes. SECTION 4. Exhibit A-31 of this ordinance shall be codified as Exhibit A-31 to the Exhibits of Title 22. SECTION 5. The City Council finds that this ordinance is not a project within the meaning of CEQA. // // // // 1 100_2023 1113ts24 Item 3: Staff Report Pg. 4 Packet Pg. 20 of 341 Item 3 NOT YET ADOPTED Attachment A - Park 1 Dedication Ordinance for Tower Well Site at 201 SECTION 6. This ordinance shall be effective on the thirty-first da& Alma Street if its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Community Services 2 100_2023 1113ts24 Item 3: Staff Report Pg. 5 Packet Pg. 21 of 341 Item 3 Exhibit A-31 Attachment A - Park Dedication Ordinance for Tower Well Site at 201 A.P.NO. 120-25-060 AP Alma Street REQUESTED BY: JANET FREELAND APPROVED BY: JAMES D. KIEHL CREATED BY: JAMES T. BOURQUIN =� CHECKED BY: JAY E. REMLEY, SR/ LEGAL DESCRIPTION PARCEL 1 All that real property situated in the City of Palo Alto, County of Santa Clara, State of California described as follows. Being a portion of Lot 1, Block 2, as shown upon that certain map of the re -subdivision of Block 2, recorded on September 6, 1902 in Volume F-3 of Maps, Page 4, said re -subdivision being a portion of that certain map entitled "UNIVERSITY PARK", recorded on February 27, 1889 in Book D of Maps, Page 69; Beginning at the intersection of the northeasterly line of Alma Street with the southeasterly line of Hawthorne Avenue; THENCE, northeasterly 112.50 feet along.the southeasterly line of Hawthorne Avenue; THENCE, southeasterly 75.00 feet and parallel with Alma Street; THENCE, southwesterly 112.50 feet and parallel with Hawthorne Avenue; THENCE, northwesterly 75.00 feet along the northeasterly line of Alma Street to the POINT OF BEGINNING, Said Parcel 1 contains 8,437.50 square feet more or less , Said Parcel 1 is shown on attached map Exhibit "B" and made a part hereof, End of Legal Description LEGAL: 12025060.wpd PLAT: 12025060.DWG Exhibit "A" EXHIBIT A ( 1 of 2) (to Deed) Item 3: Staff Report Pg. 6 Packet Pg. 22 of 341 Item 3 Attachment A - Park Dedication Ordinance for Tower Well Site at 201 Alma Street P1-LANO \O ........•.... 3orfr!i Exp. �.AA; 7152 .j• �TF0FCA1-Vr HAWTH0RNE AVENUE P.O.B. PARCEL I 112.50' PARCEL 1 0 A,P.No, 1E0 -c5-060 112.50' 77.13' A.P.No. 120-c5-0 I o CK 2 LOT1 35.37' A.P.No. 120-25-053 EXHIBIT "A" PARCEL 1 SCALE: 1" = 40' DRAWN BY: J. KIEHL WELL SITE P.L.S. 7152 -- CHECKED BY: J. BOOR UI CHECKED BY: J. REMLEY UNIVERSITY PARK LEGAL FILENAME 1202506 APPROVED DRAVING FILENAME: 12025060 I CITY OF PALO ALTO, CALIFORNIA REVISION (4) 4/18/96 Item 3: Staff Report Pg. 7 Packet Pg. 23 of 341 Item 3 Attachment B - Policy POLICY AND PROCE Naming City Owned Land or Facilities 008 NAMING CITY -OWNED LAND AND FACILITIES POLICY STATEMENT The purpose of this policy is to ensure that City -owned land and facilities, when named for individuals, are persons who have made significant contributions or performed services deemed to have been of major importance to the community. This policy establishes uniform procedures for the naming of City -owned land and facilities as set forth by Council Resolution No. 6211, approved on December 12, 1983, and revised by Council on April 12, 2004. The policy is applicable to new and existing City -owned land and facilities. The policy provides a mechanism for citizens to suggest names which they believe should be considered for new City facilities or land acquisitions and for the renaming of existing facilities and lands. The policy also establishes criteria which will guide the Historical Association and the appropriate City Commission or Committee in recommending names to the Council for approval. Naming and renaming City -owned land and facilities shall be the responsibility of the City Council. However, places within City -owned land or facilities, such as a room or patio within a building or a trail or athletic field within a park, which do not require formal dedication by the City Council, may be named by the City Manager or his/her designee, subject to final approval by the City Council via the consent calendar. This process does not apply to the naming of streets which will continue to be processed through the Planning and Community Environment Department (Policy and Procedure 1-16: Naming of City Streets). The naming of a street may be considered an appropriate alternative means of honoring an individual. The City Council has determined that significant individual, family or foundation contributions to the construction/renovation of City facilities can be recognized through the naming of said facilities after these groups. This document outlines the procedure to be followed when a fund- raising group or board, with the approval of the City Council, embarks upon a capital campaign for the purpose of securing private funds for the acquisition of land, renovation/expansion of an existing building, or the construction of a new facility, and wishes to offer naming opportunities in recognition of significant donations of money or land. The City Council has determined that significant contributions from corporations or corporate foundations to capital campaigns will not be accepted in exchange for the ability to name entire facilities in recognition of these corporate entities. However, the City Council has agreed to allow naming recognition of corporate or commercial entities in facility interiors or on sub -facilities as described in this policy. Business logos associated with any benefactor seeking naming rights shall not be allowed on any City owned land, facility, building or sub -facility under this policy. Page 1 of8 Item 3: Staff Report Pg. 8 Packet Pg. 24 of 341 Item 3 Attachment B - Policy POLICY AND PROCE Naming City Owned Land or Facilities 008 The City may remove any business name from a City facility or property if the business declares bankruptcy and goes out of business. The City may remove any individual name from a City facility or property if the person is convicted of a felony or other crime of moral turpitude. If a name is removed under this provision, the City shall not be required to return the donation. SECTION 1: PROCEDURE FOR NAMING NEW FACILITIES OR CITY -OWNED LANDS In cases involving a major capital fundraising campaign, there will be a separate and different procedure from the one outlined below. Section 3 below on "Naming Recognition for Capital Campaigns" further outlines this process. A. Responsibility of the Project Manager Implementation of this policy is the responsibility of the department in which the project to be named is managed. In the instance of a new City -owned land or facility, the project manager should incorporate the process for naming into the project schedule so the naming is accomplished in a timely manner. 1. Requests concerning a name to be given to the City -owned land or facility shall be made in writing on an approved suggestion form to the City Clerk. a. The project manager should alert the City Clerk when to expect the submission of names and the anticipated time frame for the naming process. b. The project manager may submit suggested names on an approved suggestion form on behalf of staff or citizens who have been involved in the project development. c. In some instances, it may be appropriate to actively solicit suggestions and, in those cases, the project manager should specify a time frame for submissions and method of notification. d. All submittals, whether from an individual or an organization, must include the name and address of the submitter. No anonymous submittals will be accepted. e. All suggestions will be given the same consideration without regard to the nomination source. 2. The project manager is responsible for conveying the name suggestion forms from the City Clerk to the Palo Alto Historical Association and presenting the recommendations from the Historical Association to the appropriate commission or committee whose sphere of influence is most closely associated with the facility in question. The Parks and Recreation Commission shall review name suggestions for acquired land to be dedicated as a park, recreational facilities, community centers and interpretive centers. The Library Page 2 of 8 Item 3: Staff Report Pg. 9 Packet Pg. 25 of 341 Item 3 Attachment B - Policy POLICY AND PROCE Naming City Owned Land or Facilities 008 Advisory Commission shall review name suggestions for library facilities. The Public Art Commission shall review name suggestions for art facilities. The Policy and Services Committee shall review name suggestions for police, fire or utility facilities as well as major civic complexes. a. The Historical Association may also originate suggestions for names or provide suggestions for appropriate alternatives as part of its recommendations. b. The project manager shall assure that adequate time is allowed for the Historical Association and the appropriate commission or committee to evaluate the recommended names. c. The Historical Association shall determine if the suggested names meet the criteria of appropriate significance, and shall submit the recommendations to the appropriate commission or committee together with the rationale for the recommendations. The response from the Historical Association shall acknowledge all the names that are submitted, but recommend only those which it feels meet the criteria and warrant serious consideration. B. Responsibility of the Reviewing Commission Or Committee 1. The commission or committee shall conduct a public hearing, confirm that the recommended names meet the criteria of appropriate significance, select recommendation(s) provided by the Historical Association, and shall forward its recommendation to the City Council. The report from the commission or committee shall acknowledge all of the recommended names together with their evaluation, but present only the name(s) which it feels best meets the criteria and merits serious consideration by the City Council. 2. Once approved, a transmittal and resolution will be prepared by staff for consideration and approval by the City Council. The transmittal shall include a narrative of historic reference prepared by the Palo Alto Historical Association for the name, a copy of the name suggestion form, and minutes of the Commission meeting when the recommendation was discussed. C. Criteria The following criteria shall be used in selecting an appropriate name for City -owned land and facilities. 1. The name should, if possible, have or preserve the geographic, environmental (relating to natural or physical features), historic or landmark connotation of particular significance to the area in which the land or facility is located, or for the City as a whole. Either connotation is equally valid. Page 3 of 8 Item 3: Staff Report Pg. 10 Packet Pg. 26 of 341 Item 3 Attachment B - Policy POLICY AND PROCE Naming City Owned Land or Facilities 008 2. Acknowledgement of contributions: Consideration may be given to naming the City - owned land or facility after an individual when the land or facility, or the money for its purchase, has been donated by the individual, or when otherwise warranted by some contribution or service which is deemed to be of major and lasting significance to the acquisition of that piece of land, or planning, development, construction or renovation of that particular facility. Donation of land or resources shall not constitute an obligation by the City to name the land or facility or any portion thereof, after an individual, family, or individual/family foundation. City -owned lands, parks, or entire facilities shall not be named for benefactor organizations, groups or businesses, but in special cases, may be considered for sub -facilities such as rooms or playgrounds. In cases involving a major capital fundraising campaign, see Section 3 below — Naming Recognition for Capital Campaigns. 3. Names honoring individuals or families, other than those of recognized historic importance, must be supported by compelling reasons. 4. In the event the City -owned land or facility was formerly school property or had other ownership such that the name of the school, building or site has community significance or community recognition, consideration may be given to preserving that name. 5. The City encourages naming which reflects the City's ethnic and cultural diversity. 6. No City -owned land or facility shall be named after a seated elected or appointed official. 7. No City -owned land or facility shall be named after a person whose contribution to the City of Palo Alto was or is a part of that individual's normal duties as an employee of the City. An exception may be made for former such employees who have contributed volunteer services of an exceptional nature beyond their normal duties. 8. When naming sub -facilities or interior spaces, such as rooms or playgrounds, after corporate or commercial entities or foundations, these entities must abide by the City's anti -discrimination policy. D. Council Action 1. The recommendations received from the Historical Association and the commission or committee shall be placed on the Council agenda for final approval. 2. Action by the Council shall be by Council Resolution. E. Follow-up to Selection of the Name 1. The above -described process for selecting an appropriate name should precede the preparation of a park dedication ordinance. Page 4 of 8 Item 3: Staff Report Pg. 11 Packet Pg. 27 of 341 Item 3 Attachment B - Policy POLICY AND PROCE Naming City Owned Land or Facilities 008 2. Subsequent to approval by the City Council, the name for the City -owned land or facility shall be conveyed to the Department of Public Works for incorporation in City official maps and plans, and to the Palo Alto Historical Association for its records. F. Naming Places Within City -owned Land or Facilities In the case of places within City -owned land or facilities, where the policy does not require a Council resolution, responsibility for requesting Council approval of the new name shall reside with the department head who manages the land or facility. Ideally, the naming of features within a park and specific trails or facilities within open space lands will occur during the master plan or site plan process. Names within parks should be appropriate to the park by reflecting the expression of the place (topography, geology, natural features), flora and fauna, or history of the area. In advance of the naming, the department head shall send a memorandum to the City Manager advising of the proposed action and requesting approval. The City Manager will then seek approval of the name from the City Council via the consent calendar. SECTION 2: PROCEDURE FOR RENAMING EXISTING FACILITIES OR CITY - OWNED LANDS Existing place names are deemed to have historic recognition. City policy is not to change the name of any existing facilities or City -owned land, particularly one whose name has City or regional significance, unless there are compelling reasons to do so. Further, the City will consider renaming to commemorate a person or persons only when the person or persons have made major, overriding contributions to the City and whose distinctions are as yet unrecognized. A. Renaming Suggestions 1. All requests concerning a new name to be given to the City -owned land or facility shall be made in writing on an approved suggestion form to the City Clerk. The suggestion must detail how the proposed name change is consistent with the criteria, the purpose of the name change, and how the new name is directly associated with the land or facility. 2. All submittals, whether from an individual, organization or City staff, must include the name and address or the submitter. No anonymous submittals will be accepted. 3. The City Council shall initiate the renaming process by referral of the public or staff request to the commission or committee whose sphere of influence is most closely associated with the facility in question. Council can also initiate the renaming of lands or a facility without a public request whenever deemed necessary or in the best interest of the City of Palo Alto, following established criteria. Once the referral is made by the City Page 5 of 8 Item 3: Staff Report Pg. 12 Packet Pg. 28 of 341 Item 3 Attachment B - Policy POLICY AND PROCE Naming City Owned Land or Facilities 008 Council to a specific commission or committee, the commission or committee will await comment and evaluation of the new name from the Palo Alto Historical Association. B. Responsibility of the Project Manager 1. The City Clerk is responsible for conveying the name suggestion form(s) received by the deadline to the Project Manager, who will be responsible for forwarding to the Palo Alto Historical Association and then transmitting the recommendation(s) from the Palo Alto Historical Association to the appropriate commission or committee as outlined in Section A above. 2. The recognized neighborhood association in the vicinity of the land or facility will be notified of the proposed name change at the time the reviewing commission or committee receives the report from the Historical Association. C. Responsibility of the Reviewing Commission Or Committee 1. The commission or committee shall conduct a public hearing, confirm that the suggested name(s) meet the criteria of appropriate significance, select recommendation(s) from the names provided by the Historical Association, and shall forward its recommendation to the City Council. The report from the commission or committee shall acknowledge any recommended names together with its evaluation, but present only the name or names which it feels best meets the criteria and merits serious consideration by the Council. 2. Once approved, a transmittal and resolution will be prepared by staff for consideration and approval by the City Council. The transmittal shall include a narrative of historic reference for the name or names, together with a copy of the name suggestion form. D. Criteria Each application for renaming a city park or facility must meet the criteria in this policy, but meeting all criteria does not ensure renaming. City -owned lands and facilities may be renamed for an individual(s) under the following conditions. Where the individual: 1. Has made lasting and significant contributions to the protection of natural or cultural resources of the City of Palo Alto, or 2. Has made substantial contributions to the betterment of a specific facility or park, consistent with the established standards for the facility, or 3. Has made substantial contributions to the advancement of commensurate types of recreational opportunities within the City of Palo Alto. Page 6 of 8 Item 3: Staff Report Pg. 13 Packet Pg. 29 of 341 Item 3 Attachment B - Policy POLICY AND PROCE Naming City Owned Land or Facilities 008 E. Council Action 1. The recommendations received from the Palo Alto Historical Association and commission or committee shall be submitted for Council approval. 2. Action by the Council shall be by Council Resolution. F. Follow-up to Selection of Name 1. Subsequent to approval by the City Council, the new name for the City -owned land or facility shall be conveyed to the Department of Public Works for incorporation in City official maps and plans, and to the Palo Alto Historical Association for its records. NOTE: Questions and/or clarification of this policy should be directed to the City Manager's Office. SECTION 3: PROCEDURE FOR OFFERING NAMING RECOGNITION FOR SIGNIFICANT DONATIONS TO CAPITAL FUNDRAISING CAMPAIGNS This section applies to any organized fundraising initiated by the City, a Board/Commission or other group whose sole purpose is to support City programs and operations in support of the renovation/expansion of an existing building, the construction of a new facility, the acquisition of a building/land, or the furnishings, fixtures and equipment in said facilities. A. Responsibility of the staff liaison to the Board, Commission, Task Force or group conducting the Campaign Implementation of this policy is the responsibility of department in which the project to be acquired/constructed/renovated is managed. A staff liaison appointed to work with the board/committee will guide them through the process and manage appropriate contacts with other departments as necessary during the acquisition, design and construction process. This will ensure that appropriate information and materials are provided to the group and that opportunities and expectations are clear, understandable, and feasible within the framework of the project. B. When a Capital Campaign is initiated by the City, a Commission or other group whose sole purpose is to support City programs and operations, accommodations to the procedures outlined in Sections 1 and 2 shall be made as follows: a. The organizing body may meet and discuss preliminary plans with the City's liaison, Department Head and the City Attorney's office in order to facilitate any "silent" fundraising period. b. The organizing body shall request authorization from the City Council for a Naming Recognition Plan in support of a specific project. They shall provide the following information in their request: Page 7 of 8 Item 3: Staff Report Pg. 14 Packet Pg. 30 of 341 Item 3 Attachment B - Policy POLICY AND PROCE Naming City Owned Land or Facilities 008 i. Name of the organizing body; ii. Purpose of the campaign; iii. Monetary goal of the campaign; iv. Expected term of the campaign; v. Plan for naming recognition including a schedule of naming opportunities and associated gift levels vi. Maintenance/replacement of naming recognition items — City staff shall work with the organizing body to ensure that the plan includes acknowledgement of the maintenance responsibilities associated with any naming recognition items within the facility. c. Once the Naming Recognition Schedule has been approved by the City Council, the fund-raising body shall have the authority to proceed with making commitments for naming opportunities with potential donors subject to final Council review. d. The naming of a facility or sub -facility will not occur until the pledged donation is received. e. Consistent with the Gifts to the City policy, all gifts paid directly to the City shall be duly reported to the Administrative Services Department (ASD) Director and recognized appropriately in accordance with that policy (Policies and Procedures 1-18). If a donation was given anonymously, the donor's identity shall be protected to the extent possible. f. Under this procedure, the organizing body must present a final report to the City Council for approval, detailing the funds received and any naming opportunities granted, along with a timeline for the completion of the recognition. The group may also come to the Council at any time during the capital campaign for approval of one or more naming recognition items. All naming recognition must be adopted by resolution of the City Council. The City Manager or designee can also request that any donations and associated naming recognitions be brought to the City Council at an earlier point in the capital campaign for approval. C. The one exception to this procedure shall be for the naming of an entire building as recognition for a significant monetary or land contribution. If a fund-raising group secures a donation significant enough to warrant naming the entire facility in recognition of that individual, family or foundation, this should be presented directly to the City Council for approval separately and as soon as possible after this type of donation is secured. As part of this approval process, the Council may solicit input from the Palo Alto Historical Association or the appropriate board/commission. Consistent with the policy statement, the City will not recognize significant corporate donations by naming an entire facility in honor of these entities. D. In cases of major building reconfigurations or disasters that destroy or damage portions of the building, the City reserves the right to remove and not replace naming recognitions. However, the City will consider the original donation intent in these instances and make accommodations as feasible. Page 8 of 8 Item 3: Staff Report Pg. 15 Packet Pg. 31 of 341 Item 3 POLICY AND PROCEI Attachment B - Policy R Naming City Owned Land 008 or Facilities APPLICATION FOR NAMING OR RENAMING ��oF Pnto� CITY -OWNED LANDS OR FACILITIES U` O * t Naming objectives: rb 1. Ensure that parks, recreational areas and facilities are easily identified and located. 2. Ensure that names designated for parks, recreational areas and facilities are consistent with the values and character of the area or neighborhood served. 3. Encourage public participation in the naming, renaming and dedication of parks, recreation areas and facilities. 4. Encourage the donation of land, funds for land acquisition or development by individuals and groups. Criteria for naming new facilities or parks: The following criteria shall be used in selecting an appropriate name for City -owned land and facilities. 1. The name shall have or preserve the geographic, environmental (relating to natural or physical features), historic or landmark connotation of particular significance to the area in which the land or facility is located, or for the City as a whole. Either connotation is equally valid. 2. Consideration may be given to naming the City -owned land or facility after an individual when the land or facility, or the money for its purchase, has been donated by the individual, or when otherwise warranted by some contribution or service which is deemed to be of major and lasting significance to the acquisition of that piece of land, or planning, development, construction or renovation of that particular facility. Donation of land or resources shall not constitute an obligation by the City to name the land or facility or any portion thereof, after an individual or family. City -owned lands or parks shall not be named for benefactor organizations, groups or businesses, but in special cases, may be considered for sub - facilities such as rooms or playgrounds. 3. Names honoring individuals or families, other than those of recognized historic importance, must be supported by compelling reasons. 4. In the event the City -owned land or facility was formerly school property or had other ownership such that the name of the school, building or site has community significance or community recognition, consideration may be given to preserving that name. 5. The City encourages naming which reflects the City's ethnic and cultural diversity. 6. No City -owned land or facility shall be named after a seated elected or appointed official. 7. No City -owned land or facility shall be named after a person whose contribution to the City of Palo Alto was or is a part of that individual's normal duties as an employee of the City. An exception may be made for former such employees who have contributed volunteer services of an exceptional nature beyond their normal duties. 8. When naming sub -facilities, such as rooms or playgrounds, after corporate or commercial entities or foundations, these entities must abide by the City's anti -discrimination policy. Page 1 of 3 Item 3: Staff Report Pg. 16 Packet Pg. 32 of 341 Item 3 POLICY AND PROCEI Attachment B - Policy R Naming City Owned Land 008 or Facilities Criteria for renaming existing facilities of parks: Each application for renaming a city park or facility must meet the criteria listed above, but meeting all criteria does not ensure renaming. Existing place names are deemed to have historic recognition. City policy is not to change the name of any existing facilities or City -owned land, particularly one whose name has City or regional significance, unless there are compelling reasons to do so. Further, the City will consider renaming to commemorate a person or persons only when the person or persons have made major, overriding contributions to the City and whose distinctions are as yet unrecognized. City -owned lands and facilities may be renamed for an individual(s) under the following conditions. Where the individual: 1. Has made lasting and significant contributions to the protection of natural or cultural resources of the City of Palo Alto, or 2. Has made substantial contributions to the betterment of a specific facility or park, consistent with the established standards for the facility, or 3. Has made substantial contributions to the advancement of commensurate types of recreational opportunities within the City of Palo Alto. Suggestions for naming or renaming City -owned lands or facilities shall be evaluated on the basis of the above criteria and upon appropriate documentation. Person making the name suggestion (required): Address (required): Contact phone number (required): E-mail (not required): Location of site or facility to be named: Suggested name (required): Biographical information: (Explain) Civic involvement: (Explain) Page 2 of 3 Item 3: Staff Report Pg. 17 Packet Pg. 33 of 341 Item 3 POLICY AND PROCEI Attachment B - Policy R Naming City Owned Land 008 or Facilities Connection to the facility: (Please explain in depth) Reason for Nomination (required): Additional Comments (additional information may be attached): Date Received by the City Clerk: Submitted to Palo Alto Historical Association: Date scheduled for review by commission: Page 3 of 3 Item 3: Staff Report Pg. 18 Packet Pg. 34 of 341 Item 3 Attachment C - Letter from Palo Alto Historical Association with Park Name Recommendation Palo Alto Historical Association P.O. Box 193 Palo Alto, CA 943O2 November 8, 2023 Palo Alto City Council 250 Hamilton Avenue Palo Alto, CA 94301 Dear Members of the City Council, Following the City's Naming Policy, the Palo Alto Historical Association has been requested to recommend a name for the new park at the corner of Alma Street and Hawthorne Avenue. Given the significant historic landmark on the property, we recommend "Tower Well Park." When constructed in 1910, the water tower was the first major visible infrastructure of the City's utilities, and is a symbol of the City's successful beginnings and forward thinking leaders. The PAHAboard agrees that "Tower Well Park" reflects the historic significance of this site. For the Palo Alto Historical Association Board, Darla Secor Historian, Palo Alto Historical Association Item 3: Staff Report Pg. 19 Packet Pg. 35 of 341 Item 4 Item 4 Staff Report City Council Staff Report From: City Manager CITY O F Report Type: CONSENT CALENDAR PALO Lead Department: Planning and Development Services ALTO Meeting Date: January 22, 2024 Report #:2311-2302 TITLE Adoption of an Urgency Ordinance and an Ordinance Amending Palo Alto Municipal Code Title 18 (Zoning) Chapters 18.14 (Housing Incentives), 18.76 (Permits and Approvals), and 18.77 (Processing of Permits and Approvals) to Implement Housing Element Program 1.3 Creating By - Right Zoning Approval for Specific Housing Element Inventory Sites. CEQA Status: An Addendum to the City's Comprehensive Plan Environmental Impact Report was Prepared for the 2023-2031 Housing Element. RECOMMENDATION Staff recommends that the City Council: 1. Adopt an urgency ordinance (Attachment A), that would be effective immediately, Amending Palo Alto Municipal Code Title 18 (Zoning) Chapters 18.14 (Housing Incentives), 18.76 (Permits and Approvals), and 18.77 (Processing of Permits and Approvals) to implement Housing Element Program 1.3 creating by -right zoning approval for specific housing element inventory sites; and 2. Adopt an ordinance (Attachment B) that would replace the urgency ordinance prior to its expiration. EXECUTIVE SUMMARY The adopted 2023-2031 Housing Element (Housing Element) includes 122 implementation programs. Implementation of Program 1.3, Sites Used in Previous Housing Cycle, would establish a non -discretionary by -right zoning review process for eligible Housing Element opportunity sites reused from previous Housing Element cycles. The Program is required to be implemented by January 31, 2024, per the adopted Housing Element and state law. The urgency ordinance (Attachment A) and permanent ordinance (Attachment B) are required to be adopted in order to meet the required timeline. The ordinances, which contain the same text, Item 4: Staff Report Pg. 1 Packet Pg. 36 of 341 Item 4 Item 4 Staff Report establish a new by -right review process for eligible sites in the Palo Alto Municipal Code (PAMC). The Planning and Transportation Commission (PTC) reviewed the permanent ordinance on December 13, 2023 and unanimously recommended approval. These changes were inadvertently left off the recent Housing Element implementation ordinance approved by the City Council late last year. This ordinance only applies to 16 properties included in the adopted Housing Element and does not modify development potential; only the process by which development is reviewed. BACKGROUND The Housing Element is one of seven mandatory elements that must be included in Palo Alto's Comprehensive Plan. This element evaluates housing needs and issues in the City, and contains goals, policies, programs, and implementing objectives that the City uses to guide actions related to housing. The City Council adopted the Housing Element on May 8, 2023. The State Department of Housing and Community Development (HCD) provided a letter on August 3, 2023, requesting additional revisions to the Housing Element. Staff anticipates the Housing Element will be brought to the City Council for re -adoption to address HCD's requested revisions in early 2024. More information about the Housing Element can be found at the project website: www.paloaltohousingelement.com. The adopted Housing Element includes 122 implementation programs with several key programs needing to be completed by January 2024; the implementation of Program 1.3, Sites Used in Previous Housing Cycle, is one of those programs that must be completed. Council took action on November 13, 2023 adopting an ordinance implementing Housing Element programs 1.1A and 1.1B (rezoning housing inventory sites) and creating a new chapter of the PAMC. Program 1.3 implementation was inadvertently omitted from that ordinance. Ordinance Review Process To implement Program 1.3 by the January 31, 2024 deadline, staff prepared an urgency ordinance concurrently with the permanent ordinance. With staff's recommended action, the urgency ordinance will become effective immediately for 45 days and the permanent ordinance will go into effect prior to the expiration of the urgency period. PTC Review On December 13, 2023 the PTC recommended (6-0) City Council adoption of the permanent ordinance to implement Housing Element Program 1.3. The PTC was supportive of the proposed by -right application review process that will comply with state law, while also allowing the Director to refer projects to the Architectural Review Board (ARB) for one Study Session. The PTC discussion was minimal and included some clarifying questions. Item 4: Staff Report Pg. 2 Packet Pg. 37 of 341 Item 4 Item 4 Staff Report ANALYSIS The following section outlines the state law requirements for by -right development and the existing and proposed application review processes. By -Right State Law for Recycled Sites Housing Element Program 1.3 implements a requirement of state law that requires a "by-right"1 approval process for certain housing projects on housing opportunity sites that were included in a prior housing element(s). The attached ordinance (Attachment A) would provide a new mechanism for by -right zoning approval of qualifying projects on these "recycled" Housing Element sites. Pursuant to state law, jurisdictions cannot require a discretionary approval process2 for projects that utilize certain Housing Element inventory sites that were used in prior Housing Elements cycles and designated as meeting the City's lower income regional housing needs allocation. Additional criteria apply and include: 1. Qualifying sites may be non -vacant sites used in one previous housing element cycle, or vacant sites included in two previous housing element cycles; 2. Projects must provide 20% of its total units to lower income households; and 3. Sufficient water, sewer, and other dry utilities available and accessible. In total, 16 sites in the adopted Housing Element meet criterion 1, above. Applicability of the by -right provision for these sites depends on a project specific application and demonstrated compliance with Criteria 2 and 3. As defined in state law, by -right zoning approval means the City cannot require a conditional use permit, planned unit development permit, or other discretionary local government review, or any approval that would constitute a "project" under the California Environmental Quality Act (CEQA). In addition to these procedural requirements, state law requires that recycled sites be zoned to require a minimum density of 20 dwelling units per acre, while allowing at least 30 dwelling units per acre. State law also requires density and development standards that would allow development of at least 16 units per site. The recently adopted ordinance implementing Housing Element Program 1.1 satisfied all of these density and development standards requirements. 1 Per Government Code § 65583.2 "Use by right" means "local government's review of the owner -occupied or multifamily residential use may not require a conditional use permit, planned unit development permit, or other discretionary local government review or approval that would constitute a 'project' [under CEQA]." 2 Projects requiring subdivision would not be eligible for by -right approval and still be subject to all requirements of the Subdivision Map Act and the City's subdivision ordinance, including any discretionary review required thereunder. Item 4: Staff Report Pg. 3 Packet Pg. 38 of 341 Item 4 Item 4 Staff Report Existing Development Review Process Under the City's current development review process, multifamily developments are subject to the architectural review process set forth in PAMC Section 18.77.070. This allows the ARB to make a recommendation to the Planning and Development Services Department Director (Director). There is also an alternative streamlined review process (PAMC Section 18.77.073) for eligible mixed -use and multi -family projects which utilize the objective design standards outlined in PAMC Chapter 18.24. This streamlined process allows applicants with compliant projects to go through a staff level review and attend one study session with the ARB prior to the Director's decision. Table 1: Key Differences in the Multifamily Development Review Process Existing Proposed Standard Review Streamlined Review By -Right Review (PAMC 18.77.070) (PAMC 18.77.073) (PAMC 18.77.074) ARB Purview Review & Study Session review Study Session review, if recommendation following a staff -level referred by the Planning required for projects review of projects Director, following a staff - not compliant with compliant with level review of projects Objective Standards Objective Standards for Objective Standard compliance CEQA Applicable Applicable Not Applicable Decision Planning Director Planning Director Planning Director New By -right Review Process for Eligible Sites The proposed ordinance outlines a new ministerial approval process for by -right projects which includes staff review for compliance with the City's objective standards in the Comprehensive Plan, Specific Plans, Area Plans, PAMC (including Section 18.77.074), and other rules and regulations. At the discretion of the Director, applicants may also have their projects reviewed by the ARB at a study session. No CEQA review would be associated with developments eligible for the by -right process. The Director would make the final staff level decision on by -right projects. This process is similar to how 525 East Charleston Road was processed under AB 2162. The attached ordinance makes minor changes to Chapters 18.76 (Permits and Approvals) and 18.77 (Processing of Permits and Approvals) to clarify which projects are subject to streamlined review and ministerial review. The ordinance also clarifies that such projects are required to obtain a planning entitlement prior to issuance of a building permit, even if they are only subject to ministerial review. FISCAL/RESOURCE IMPACT This action has no fiscal or resource impact. Item 4: Staff Report Pg. 4 Packet Pg. 39 of 341 Item 4 Item 4 Staff Report f{I.1Ic114kI Notice of the ordinance will be made available online, posted on the public noticing kiosk at King Plaza, City Hall, and published in the Daily Post at least 10 days in advance of the meeting. ENVIRONMENTAL REVIEW The adoption of the ordinances would implement Program 1.3, Sites Used in Previous Housing Cycle, of the adopted Housing Element. An Addendum to the Comprehensive Plan Environmental Impact Report (EIR) was prepared to analyze the potential environmental impacts of the Housing Element and the sites inventory contained therein. This environmental analysis under CEQA includes all components of the Housing Element, including implementation of Program 1.3 and the associated text amendments. ATTACHMENTS Attachment A: Urgency Ordinance to Implement Housing Element Program 1.3 Creating By - Right Zoning Approval for Specific Housing Element Inventory Sites Attachment B: Ordinance to Implement Housing Element Program 1.3 Creating By -Right Zoning Approval for Specific Housing Element Inventory Sites APPROVED BY: Jonathan Lait, Planning and Development Services Director Item 4: Staff Report Pg. 5 Packet Pg. 40 of 341 *NOT YET APPROVED* Ordinance No. Item 4 Attachment A - Emergency Ordinance Amending Ch 18.14, 18.76, 18.77 of Title 18 of PAMC to Implement Emergency Ordinance of the Council of the City of Palo Alto Amen Programs 1.3 of CPA 18.14 (Housing Incentives), 18.76 (Permits and Approvals), and 18.1 2023-2031 Housing Permits and Approvals) of Title 18 (Zoning) of the Palo Alto Muni& Element Implement Programs 1.3 of the City of Palo Alto 2023-2031 Housing Element The Council of the City of Palo Alto ORDAINS as follows: SECTION 1. Findings and Declarations. 0 (a) On May 8, 2023, the City Council adopted the City of Palo Alto 2023-2031 Housing Element ("Housing Element") pursuant to Government Code Section 65585. (b) In accordance with AB 1397 (2017), Program 1.3, Sites Used in Previous Housing Cycle, requires rezoning and a "by right" approval process for qualifying projects proposed on certain housing opportunity sites that were included as opportunity sites in prior housing elements. (c) Government Code Section 65583.2, subdivision (c) and the Housing Element require that the City complete its implementation of Program 1.3 by January 31, 2024, which is one year from the statutory deadline for adoption of the Housing Element. (d) Ordinance No. 5608, adopted on December 11, 2023, accomplished the required rezoning for all sites subject to Program 1.3. (e) This ordinance implements the "by right" development process for sites subject to Program 1.3 and makes conforming changes to existing provisions of Title 18. (f) The City Council finds and declares that this emergency ordinance is necessary as an emergency measure to preserve the public peace, health or safety by promoting the development of much -needed housing in Palo Alto, and by ensuring compliance with the deadlines and requirements of state law set forth above. (g) The City Council further finds and declares that the need for housing development presents a current and immediate threat to the public health, safety, or welfare and that the provisions of this ordinance will remove barriers that contribute to this threat. SECTION 2. Section 18.14.050 (By Right Status of Qualifying Projects on Specified Housing Opportunity Sites) of Chapter 18.14 (Housing Incentives) of Title 18 (Zoning) of the Palo Alto Municipal Code is added to read as follows: 18.14.050 By Right Status of Qualifying Projects on Specified Housing Opportunity Sites (a) Multi -family residential projects on housing opportunity sites shall be a "use by right," subject to all of the following requirements: (1) The site is designated in Appendix D of the Housing Element to accommodate lower income households and it is either: (A) a nonvacant site included in one prior housing element; or (B) a vacant site that has been included in two or more consecutive, prior housing elements; 1 0160134_20240109_ayl6 Item 4: Staff Report Pg. 6 Packet Pg. 41 of 341 Item 4 *NOT YET APPROVED* I Attachment A nt A Emergency Ordinance Amending Ch 18.14, (2) The site was not previously approved to develop a portion of City's 18.76, 18.77 of Title 18 of eed allocation; PAMC to Implement (3) The project restricts at least 20 percent of the units to rents or sales p Programs 1.3 of CPA wer income households; and 2023-2031 Housing (4) The site has sufficient water, sewer, and other dry utilities available arL Element (b) "use by right" shall have the same meaning as provided in Government Code Section 65583.2, subdivision (i). (c) "lower income households" shall have the same meaning as provided in Health and Safety Code Section 50079.5. (d) Qualifying projects shall be reviewed pursuant to Section 18.77.074. SECTION 3. Section 18.77.020 (Architectural Review) of Chapter 18.76 (Permits and Approvals) of Title 18 (Zoning) of the Palo Alto Municipal Code is amended to read as follows (additions underlined, deletions struck through, and omitted text left unchanged indicated by [...j): 18.76.020 Architectural Review (a) Purpose [...) (b) Applicability No permit required under Title 2, Title 12 or Title 16 shall be issued for a major or minor project, as set forth in this section, unless an application for architectural review is reviewed, acted upon, and approved or approved with conditions as set forth in Section 18.77.070. (1) Exempt Projects. The following projects do not require architectural review: (C) Housing development projects, as defined in Government Code Section 65589.5(h)(2) (the Housing Accountability Act), but only t^thc ;t if such projects qualify for ministerial review under Government Code sections 65913.4 or 65951, or if they comply with all applicable objective standards, this-codcand the City's discretion is thereby qualify for strcamlining under limited by Government Code sections 65589.5, 6C9' 3." or 65905.5. Such projects shall be subject to the processes set forth in Sections 18.77.073 or 18.77.074, as applicable. SECTION 4. Section 18.76.025 (Multi -Family Residential Projects Exempt Architectural Review) of Chapter 18.76 (Permits and Approvals) of Title 18 (Zoning) of the Palo Alto Municipal Code is added to read as follows: 18.76.025 Multi -Family Residential Projects Exempt from Architectural Review No permit required under Title 2, Title 12 or Title 16 shall be issued for a multi -family residential project that is exempt from Architectural Review under Section 18.76.020, subdivision (b)(1)(C), unless it first receives a planning approval from the Planning Director under this Section. Projects subject to ministerial review or that are defined as a "use by right" under state law shall be reviewed under Section 18.77.074. 2 0160134_20240109_ayl6 Item 4: Staff Report Pg. 7 Packet Pg. 42 of 341 Item 4 Attachment A - *N0T YET APPR0VED* nt A Emergency Ordinance Amending Ch 18.14, Projects that are not subject to ministerial review, but that comply with all applica 18.76, 18.77 of Title 18 of rds, shall be reviewed under Section 18.77.073. PAMCto Implement Programs 1.3 of CPA SECTION 5. Section 18.77.073 (Streamlined Housing Development Project Re 2023-2031 Housing ter 18.77 (Processing of Permits and Approvals) of Title 18 (Zoning) of the Palo A Element e is amended to read as follows (additions underlined, deletions struck through, and omitted text left unchanged indicated by [...]): 18.77.073 Streamlined Housing Development Project Review Process (a) Applicability This section shall apply to applications for residential mixed -use and multifamily housing development projects, as defined in Government Code Section 65589.5(h)(2), that comply with all applicable objective standards in this codc and for which the City's discretion is thereby qualify for streamlining undcr limited I .Government Code sections 65589.5, or 65905.5. [...] SECTION 6. Section 18.77.074 (Ministerial and By Right Review Processes) of Chapter 18.77 (Processing of Permits and Approvals) of Title 18 (Zoning) of the Palo Alto Municipal Code is added to read as follows: 18.77.074 Ministerial and By Right Review Process (a) Purpose and Applicability This section is intended to define a streamlined, ministerial review process for qualifying Housing Development Projects that are submitted pursuant to streamlining provisions in AB 2162 (2018), AB 1397 (2017), and SB 35 (2017). This section shall apply to multi -family residential projects that are subject to ministerial review or defined as a "use by right" in state law, including, but not limited to, Government Code Sections 65651, 65583, 65583.2, and 65913.4. This section does not apply to the creation of an accessory dwelling unit and/or junior accessory dwelling unit. The review required by this section shall not involve the exercise of discretion in a manner that would constitute a "project" for purposes of the California Environmental Quality Act (CEQA). This section does not, however, excuse a project involving a subdivision from compliance with Title 21 and the subdivision map processes set forth therein, which may result in a "project" for purposes of CEQA. (b) Staff level review. Applications under this section shall be reviewed by City staff for compliance with applicable objective standards in the City's Comprehensive Plan, Specific Plans, Area Plans, Municipal Code, and other rules and regulations. A decision on the application shall be made by the Planning Director within any timeframes dictated by applicable state law. (c) Public study session. Prior to preparing a written decision, the Director may, in his or her sole discretion, refer the application to the Architectural Review Board or to other advisory boards or commissions for informal review. The recommendations of such boards and commissions shall not be binding. (d) Public notices. 3 0160134_20240109_ay16 Item 4: Staff Report Pg. 8 Packet Pg. 43 of 341 Item 4 Attachment A *NOT YET APPROVED* I nt A Emergency Ordinance Amending Ch 18.14, Notice of a public meeting to consider the application shall be given at least 18.76, 18.77 of Title 18 of the meeting by mailing to the applicant and all residents and owners of property within PAMC to Implement ect. Notice shall include the address of the property, a brief description of the propos Programs 1.3 of CPA Elate and time of the hearing. 2023-2031 Housing Element SECTION 7. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The City Council hereby declares that it would have passed this Ordinance and each and every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the ordinance would be subsequently declared invalid or unconstitutional. SECTION 8. In accordance with the California Environmental Quality Act (CEQA), the City prepared an Addendum to the 2017 Comprehensive Plan Environmental Impact Report (EIR), analyzing the potential environmental impacts of the 2023-2031 Housing Element. On May 8, 2023, the City Council adopted Resolution No. 10107, finding that the Addendum and the 2017 EIR adequately analyzed the environmental impacts of the Housing Element, including Program 1.3 of the Housing Element, which this ordinance implements. SECTION 9. This ordinance shall be effective immediately upon adoption by a four -fifths vote of the City Council, unless extended or repealed by the City Council, shall remain in effect for 45 days, or until a replacement ordinance becomes effective, whichever occurs first. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor Assistant City Attorney City Manager Director of Planning and Development Services 4 0160134_20240109_ayl6 Item 4: Staff Report Pg. 9 Packet Pg. 44 of 341 *NOT YET APPROVED* Ordinance No. Ordinance of the Council of the City of Palo Alto Amending Cha Item 4 Attachment B - Ordinance Amending Ch 18.14, 18.76, 18.77 of PAMC to Implement Programs 1.3 of CPA 2023-2031 Housing Element J (Housing Incentives), 18.76 (Permits and Approvals), and 18.77 (Processing Permits and Approvals) of Title 18 (Zoning) of the Palo Alto Municipal Code to Implement Programs 1.3 of the City of Palo Alto 2023-2031 Housing Element The Council of the City of Palo Alto ORDAINS as follows: SECTION 1. Findings and Declarations. It (a) On May 8, 2023, the City Council adopted the City of Palo Alto 2023-2031 Housing Element ("Housing Element") pursuant to Government Code Section 65585. (b) In accordance with AB 1397 (2017), Program 1.3, Sites Used in Previous Housing Cycle, requires rezoning and a "by right" approval process for qualifying projects proposed on certain housing opportunity sites that were included as opportunity sites in prior housing elements. (c) Government Code Section 65583.2, subdivision (c) and the Housing Element require that the City complete its implementation of Program 1.3 by January 31, 2024, which is one year from the statutory deadline for adoption of the Housing Element. (d) Ordinance No. XXXX, adopted on December 11, 2023, accomplished the required rezoning for all sites subject to Program 1.3. (e) This ordinance implements the "by right" development process for sites subject to Program 1.3 and makes conforming changes to existing provisions of Title 18. SECTION 2. Section 18.14.050 (By Right Status of Qualifying Projects on Specified Housing Opportunity Sites) of Chapter 18.14 (Housing Incentives) of Title 18 (Zoning) of the Palo Alto Municipal Code is added to read as follows: 18.14.050 By Right Status of Qualifying Projects on Specified Housing Opportunity Sites (a) Multi -family residential projects on housing opportunity sites shall be a "use by right," subject to all of the following requirements: (1) The site is designated in Appendix D of the Housing Element to accommodate lower income households and it is either: 1 0160133_ 20231221_ay16 Item 4: Staff Report Pg. 10 Packet Pg. 45 of 341 *NOT YET APPROVED* Item 4 attachment B - Ordinance Amending Ch 18.14, nt B 18.76, 18.77 of PAMC to (A) a nonvacant site included in one prior housing element; I Implement Programs 1.3 of CPA 2023-2031 Housing Element (B) a vacant site that has been included in two or more consecutive, sing elements; (2) The site was not previously approved to develop a portion of City's regional housing need allocation; (3) The project restricts at least 20 percent of the units to rents or sales prices affordable to lower income households; and (4) The site has sufficient water, sewer, and other dry utilities available and accessible. (b) "use by right" shall have the same meaning as provided in Government Code Section 65583.2, subdivision (i). (c) "lower income households" shall have the same meaning as provided in Health and Safety Code Section 50079.5. (d) Qualifying projects shall be reviewed pursuant to Section 18.77.074. SECTION 3. Section 18.77.020 (Architectural Review) of Chapter 18.76 (Permits and Approvals) of Title 18 (Zoning) of the Palo Alto Municipal Code is amended to read as follows (additions underlined, deletions struck through, and omitted text left unchanged indicated by [...j): 18.76.020 Architectural Review (a) Purpose (b) Applicability No permit required under Title 2, Title 12 or Title 16 shall be issued for a major or minor project, as set forth in this section, unless an application for architectural review is reviewed, acted upon, and approved or approved with conditions as set forth in Section 18.77.070. (1) Exempt Projects. The following projects do not require architectural review: 2 0160133_ 20231221_ay16 Item 4: Staff Report Pg. 11 Packet Pg. 46 of 341 Item 4 Attachment B - Ordinance *NOT YET APPROVED* Amending Ch 18.14, nt B 18.76, 18.77 of PAMC to (C) Housing development projects, as defined in Government Code Implement Programs 1.3 )(2) ' of CPA 2023-2031 +., +h„ ,,..tent (the Housing Accountability Act), but only if such projects rial Housing Element review under Government Code sections 65913.4 or 65951. or if they coma cable objective standards,. in this code and the City's discretion is thereby gu3Iif„ for streamlining under limited by Government Code sections 65589.5, 65913.4, 65905.5. Such projects shall be subject to the processes set forth in Sections 18.77.073 or 18.77.074, as applicable. SECTION 4. Section 18.76.025 (Multi -Family Residential Projects Exempt Architectural Review) of Chapter 18.76 (Permits and Approvals) of Title 18 (Zoning) of the Palo Alto Municipal Code is added to read as follows: 18.76.025 Multi -Family Residential Projects Exempt from Architectural Review No permit required under Title 2, Title 12 or Title 16 shall be issued for a multi -family residential project that is exempt from Architectural Review under Section 18.76.020, subdivision (b)(1)(C), unless it first receives a planning approval from the Planning Director under this Section. Projects subject to ministerial review or that are defined as a "use by right" under state law shall be reviewed under Section 18.77.074. Projects that are not subject to ministerial review, but that comply with all applicable objective standards, shall be reviewed under Section 18.77.073. SECTION 5. Section 18.77.073 (Streamlined Housing Development Project Review Process) of Chapter 18.77 (Processing of Permits and Approvals) of Title 18 (Zoning) of the Palo Alto Municipal Code is amended to read as follows (additions underlined, deletions struck through, and omitted text left unchanged indicated by [...]): 18.77.073 Streamlined Housing Development Project Review Process (a) Applicability This section shall apply to applications for residential mixed -use and multifamily housing development projects, as defined in Government Code Section 65589.5(h)(2), that comply with all applicable objective standards in l, this code and for which the City's discretion is thereby qu31i1y for s+ro-,,.,.,lining under limited by Government Code sections 65589.5, or 65905.5. SECTION 6. Section 18.77.074 (Ministerial and By Right Review Processes) of Chapter 18.77 (Processing of Permits and Approvals) of Title 18 (Zoning) of the Palo Alto Municipal Code is added to read as follows: 3 0160133_ 20231221_ay16 Item 4: Staff Report Pg. 12 Packet Pg. 47 of 341 *NOT YET APPROVED* 18.77.074 Ministerial and By Right Review Process Item 4 Attachment B - Ordinance Amending Ch 18.14, 18.76, 18.77 of PAMC to Implement Programs 1.3 of CPA 2023-2031 Housing Element J (a) Purpose and Applicability. This section is intended to define a streamlined, ministerial review process for qualifying Housing Development Projects that are submitted pursuant to streamlining provisions in AB 2162 (2018), AB 1397 (2017), and SB 35 (2017). This section shall apply to multi -family residential projects that are subject to ministerial review or defined as a "use by right" in state law, including, but not limited to, Government Code Sections 65651, 65583, 65583.2, and 65913.4. This section does not apply to the creation of an accessory dwelling unit and/or junior accessory dwelling unit. The review required by this section shall not involve the exercise of discretion in a manner that would constitute a "project" for purposes of the California Environmental Quality Act (CEQA). This section does not, however, excuse a project involving a subdivision from compliance with Title 21 and the subdivision map processes set forth therein, which may result in a "project" for purposes of CEQA. (b) Staff level review. Applications under this section shall be reviewed by City staff for compliance with applicable objective standards in the City's Comprehensive Plan, Specific Plans, Area Plans, Municipal Code, and other rules and regulations. A decision on the application shall be made by the Planning Director within any timeframes dictated by applicable state law. (c) Public study session. Prior to preparing a written decision, the Director may, in his or her sole discretion, refer the application to the Architectural Review Board or to other advisory boards or commissions for informal review. The recommendations of such boards and commissions shall not be binding. (d) Public notices. Notice of a public meeting to consider the application shall be given at least seven days prior to the meeting by mailing to the applicant and all residents and owners of property within 600 feet of the project. Notice shall include the address of the property, a brief description of the proposed project, and the date and time of the hearing. SECTION 7. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The City Council hereby declares that it would have passed this Ordinance and each and every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the ordinance would be subsequently declared invalid or unconstitutional. 4 0160133_ 20231221_ay16 Item 4: Staff Report Pg. 13 Packet Pg. 48 of 341 Item 4 Attachment B - Ordinance *NOT YET APPROVED* Amending Ch 18.14, nt B 18.76, 18.77 of PAMC to SECTION 8. In accordance with the California Environmental Quality Implement Programs 1.3 ity prepared an Addendum to the 2017 Comprehensive Plan Environmental ofCPA2023-2031 IR), Housing Element analyzing the potential environmental impacts of the 2023-2031 Housing iemenl. un ivay 8, 2023, the City Council adopted Resolution No. 10107, finding that the Addendum and the 2017 EIR adequately analyzed the environmental impacts of the Housing Element, including Program 1.3 of the Housing Element, which this ordinance implements. SECTION 9. This ordinance shall be effective on the thirty-first date after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Planning and Development Services 0160133_ 20231221_ay16 61 Item 4: Staff Report Pg. 14 Packet Pg. 49 of 341 Item 5 Item 5 Staff Report City Council Staff Report From: City Manager CITY O F Report Type: CONSENT CALENDAR PALO Lead Department: Public Works ALTO Meeting Date: January 22, 2024 Report #:2303-1230 TITLE Adoption of an Ordinance Authorizing the Improvements to the Palo Alto Baylands as Part of the Horizontal Levee Pilot Project and Approval of a Cooperative Agreement with the Association of Bay Area Governments to Construct the Horizontal Levee Pilot Project (WQ- 22001); CEQA — exempt under Section 15133 RECOMMENDATION Staff recommends that Council: 1) Accept the Recommendation from the Parks and Recreation Commission to adopt a Park Improvement Ordinance authorizing improvements to the Palo Alto Baylands as part of the Horizontal Levee Pilot Project; and 2) Approve and authorize the City Manager or their designee to execute an agreement between the Association of Bay Area Governments and the City for implementation and construction of the Horizontal Levee Pilot Project (WQ-22001) EXECUTIVE SUMMARY Horizontal levees are a green, nature -based, multi -beneficial alternative to traditional greyscape solutions (e.g., rip rap, sheet piling) for wave attenuation on the bayside of flood control levees. Since 2017, the City has been working in collaboration with the Association of Bay Area Governments (ABAG — host agency for the San Francisco Estuary Partnership) to design and eventually construct the Palo Alto Horizontal Levee Pilot Project (WQ-22001) on the east side of Harbor Road near Byxbee Park. The Project requires Council approval and adoption of a Park Improvement Ordinance (Attachment A) because the Project seeks to substantially alter a City park. The Project will: • construct a berm and horizontal levee along a portion of existing, poor -quality upland habitat adjacent to Harbor Marsh within the Palo Alto Baylands Nature Preserve; • install various native plants on the Project site to restore diverse transitional habitats including freshwater marsh, wet meadow, and riparian scrub; Item 5: Staff Report Pg. 1 Packet Pg. 50 of 341 Item 5 Item 5 Staff Report • install an underground pipeline to transport treated wastewater along Embarcadero and Harbor Roads to the horizontal levee for native plant irrigation; • realign a portion of the Marsh Front Trail as required to accommodate the horizontal levee and reconnect habitats; and • install educational signage and provide opportunities for public participation in community science activities. The proposed Cooperative Agreement (Attachment B) would establish ABAG and the City's responsibilities to bring the Project to completion through any unforeseen obstacles, delays, cost overruns, or unpredicted circumstances that affect the Project scope, budget, or timeline. Through implementation of the Cooperative Agreement, ABAG will fund construction management and construction via grants that have been awarded to them; the City would oversee change orders and budget overruns, assist with public outreach, obtain and pay for required construction permits, implement the Monitoring and Adaptive Management Plan, and once constructed, own and operate the Project. BACKGROUND Horizontal levees are a nature -based alternative to traditional greyscape solutions (e.g., rip rap, sheet piling) for wave attenuation on the bayside of flood control levees (Figure 1). Horizontal levees utilize treated wastewater to irrigate a gently sloping, vegetated ecotone slope that provides wave attenuation as well as refugia, transitional habitat between tidal wetlands and terrestrial uplands, sea level rise adaptation, and polishing treatment of treated wastewater. A unique aspect to horizontal levees is their use of treated wastewater to irrigate the ecotone slope. Other ecotone slopes that have been built in the area utilize passive irrigation or potable water for irrigation of the vegetated area. Unlike much of the shoreline along the San Francisco Bay, the Palo Alto shoreline, while highly developed and altered, continues to sustain tidal marsh. The Palo Alto Baylands shoreline is comprised of low levees and a closed landfill. Directly behind these levees are City assets that are critical infrastructure, including the City's Regional Water Quality Control Plant (RWQCP), airport, the Palo Alto Flood Basin, roads, and light commercial development. Potential flooding of City infrastructure, buildings, and other development west of Highway 101 is limited by the existing levees. However, these levees are not engineered to meet Federal Emergency Management Agency (FEMA) accreditation standards, and in many locations do not provide 100 -year flood protection. To improve shoreline flood protection, the San Francisquito Creek Joint Powers Authority evaluated possible new levee alignments and improvements via the Strategy to Advance Flood Protection, Ecosystems and Recreation (SAFER) study. This study is now under consideration by United States Army Corps of Engineers as part of the South San Francisco Bay Shoreline Feasibility Study Phase II (Valley Water coordinates regional partners and discussion for this effort). Item 5: Staff Report Pg. 2 Packet Pg. 51 of 341 Item 5 Item 5 Staff Report An emerging regional goal and best practice for levee improvement is to incorporate nature based solutions, such as horizontal levees, to provide flood protection that can evolve in the future, restore Bay habitats, and enhance public access. Since design considerations for horizontal levees are still early in their development, a permanent pilot project was pursued to answer outstanding questions about permitting requirements, construction costs, and site - specific design parameters (e.g., plant palletes). Information from Palo Alto's Horizontal Levee Pilot Project will inform the design for potential additional future horizontal levees around Palo Alto and the greater Bay Area. Since 2017, the City of Palo Alto has collaborated with ABAG —the host entity for the San Francisco Estuary Partnership —to evaluate and design a permanent horizontal levee pilot project within the Palo Alto Baylands with the following objectives: 1. Be on the leading edge of integrating habitat enhancement with sea level rise adaptation and novel wastewater treatment approaches around the San Francisco Bay; 2. Integrate a horizontal levee on the bayfront of a traditional flood control levee to provide wave attenuation; 3. Adapt to sea level rise by providing a vegetated transitional slope that will build organic soils and support sediment accretion and accumulation to allow for future tidal marsh migration; 4. Improve habitat along the perimeter of Harbor Marsh for native species; 5. Provide polishing treatment to treated wastewater; and 6. Maintain and provide opportunities for compatible low -impact recreation and social infrastructure. MUDFLAT Figure 1: IIIt ANALYSIS The Project will: TIDAL MARSH stration of a horizontal levee system. Item 5: Staff Report Pg. 3 Packet Pg. 52 of 341 Item 5 Item 5 Staff Report • construct a berm and horizontal levee along a portion of existing, poor -quality upland habitat adjacent to Harbor Marsh within the Palo Alto Baylands Nature Preserve; • install various native plants on the Project site to restore diverse transitional habitats including freshwater marsh, wet meadow, and riparian scrub; • install an underground pipeline to transport treated wastewater along Embarcadero and Harbor Roads to the horizontal levee for native plant irrigation; • realign a portion of the Marsh Front Trail as required to accommodate the horizontal levee and reconnect habitats; and • install educational signage and provide opportunities for public participation in community science activities. The Project will require temporary rerouting of a portion of the Trail and temporary traffic restrictions to a portion of Harbor Road to accommodate construction; complete trail and road closures are not anticipated. The Municipal Code requires the Council to adopt an ordinance approving any substantial building, construction, reconstruction or development on City park lands. Staff presented the proposed ordinance (Attachment A) to the Parks and Recreation Commission on March 28, 2023, which voted unanimously to recommend the proposed ordinance for approval. Through the proposed Cooperative Agreement between ABAG and the City for the Palo Alto Horizontal Levee Pilot Project Construction (Attachment B), Project implementation and construction responsibilities will be divided accordingly: 1) ABAG will use grant funding it obtained to provide Project construction, construction management, and related permit compliance; 2) the City will actively participate during project construction and provide oversight of change orders and budget overruns, assist with public outreach, obtain and pay for required construction permits, implement the Monitoring and Adaptive Management Plan, and once constructed own and operate the Project. The proposed Cooperative Agreement serves to establish ABAG's and the City's responsibilities to bring the Project to completion through any unforeseen obstacles, delays, cost overruns, or unpredicted circumstances that affect the Project scope, budget, or timeline. FISCAL/RESOURCE IMPACT The Project is included in the City's Capital Improvement Budget as Project Number WQ-22001. The total Project cost is estimated at $4.7 million, including design, construction, and post - construction monitoring. The total available funding amount, including grants and City contributions, is $5.5 million, which is 17 percent more than estimated costs to account for unforeseen costs during bidding or construction. The Project team has secured $4.5 million from numerous grants that have funded the majority of total Project costs. Grantors include the Item 5: Staff Report Pg. 4 Packet Pg. 53 of 341 Item 5 Item 5 Staff Report California Coastal Conservancy and the United States Environmental Protection Agency. Grants were awarded to and are administered by ABAG. The City serves as a vested stakeholder and is required to provide $4.8 million in matching local funds by leveraging multiple Capital Improvement Projects already occurring at the Regional Water Quality Control Plant. In addition, the City expects to contribute a total of $1 million to the Project in direct payments for permitting, environmental review, community outreach, and monitoring studies which are paid for by the Wastewater Treatment Fund; to date the City has spent approximately $0.4 million as direct payments with the remainder anticipated to be spent on required post - construction monitoring. The proposed Cooperative Agreement acknowledges that ABAG's sole source of financial resources to fund the Project is through the awarded grants and that ABAG has no separate financial resources to contribute to Project costs. The City acknowledges and agrees in the proposed Cooperative Agreement that the City, not ABAG, is responsible for any Project costs that exceed the available grant funding. Should actual construction costs exceed the available grant funding, ABAG agrees to work in good faith with the City to identify additional funds to cover Project costs and that the City, at its sole discretion, has the right to modify the Project based upon availability of additional funding. STAKEHOLDER ENGAGEMENT Since the beginning of the project in 2017, staff has conducted more than 20 stakeholder engagement activities including several community events (e.g., bioblitzes to tally pre -project animal and plant species) and specific presentations to local non -governmental organizations. In addition, the project team elicited feedback from the Parks and Recreation Commission throughout the design phases, at the November 27, 20181, February 25, 20202, and July 28, 20223 meetings. Most recently, staff took the draft Park Improvement Ordinance to the March 28, 2023 Parks and Recreation Commission meeting where it was unanimously recommended for Council to adopt and approve4. Stakeholder engagement will continue during construction 1 Parks and Recreation Commission, November 27, 2018; Agenda Item # V.3, https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/parks-and- recreation-commission/agendas-minutes/2018-agenda-and-minutes/park-and-recreation-commission-report- horizonta l -levee -11-27-2018. pdf?t=65128.09 2 Parks and Recreation Commission, February 25, 2020; Agenda Item # V.5, https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/parks-and- recreation-commission/agendas-minutes/2020-agenda-and-minutes/prc-staff-report pahlpp feb2020 v2. pdf 3 Parks and Recreation Commission, July 28, 2022; Agenda Item # 7, https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/parks-and- recreation-commission/agendas-minutes/2022-agendas-and-minutes/07.2022/prc-staff- report pahlpp mul2022.pdf 4 Parks and Recreation Commission, March 28, 2023; Agenda Item # 3, https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/parks-and- recreation-commission/agendas-minutes/2023-agendas-and-minutes/3-mar/horizontal-levee-protect-pio-prc- 03.28.23.pdf Item 5: Staff Report Pg. 5 Packet Pg. 54 of 341 Item 5 Item 5 Staff Report and after through strategic partnerships with local non -governmental organizations including Save the Bay, Nuestra Casa, the Association of Ramaytush Ohlone, and Environmental Volunteers. These activities will include community planting, photo -point monitoring, educational signage, and community science activities. ENVIRONMENTAL REVIEW This project is exempt from review under the California Environmental Quality Act (CEQA) under section 15133 of the CEQA Guidelines (small habitat restoration). In addition, the City and ABAG will obtain permits/permit coverage determinations from the United States Army Corps of Engineers and the United States Fish and Wildlife Service. ATTACHMENTS Attachment A: Park Improvement Ordinance for Horizontal Levee Pilot Project Improvements Attachment B: DRAFT Cooperative Agreement APPROVED BY: Brad Eggleston, Director Public Works/City Engineer Item 5: Staff Report Pg. 6 Packet Pg. 55 of 341 Item 5 Attachment A - Park *NOT YET APPROVED* Improvement Ordinance for Horizontal Levee Pilot ORDINANCE NO. Project Improvements Ordinance of The Council of The City of Palo Alto Approving a Plan for Improvements to the Palo Alto Baylands as part of the Horizontal Levee Pilot Project The Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. Findings. The City Council finds and declares that: (a) Article VIII of the Charter of the City of Palo Alto and Section 22.08.005 of the Palo Alto Municipal Code (PAMC) require that, before any substantial building, construction, reconstruction or development is commenced or approved, upon or with respect to any land held by the City for park purposes, the Council shall first cause to be prepared and by ordinance approve and adopt a plan therefor. (b) The Horizontal Levee Pilot Project (Project) is part of the Marsh Front Trail (Trail). The Project site is located in the City's Baylands, which is dedicated parkland (See PAMC § 22.08.020 et seq.) Based on the current habitat quality of the Project site, the location has been identified as in need of enhancements to better provide refugia for many species including the endangered Salt Marsh Harvest Mouse. (c) The City of Palo Alto intends to authorize the construction of a horizontal levee pilot system that will enhance habitat, maintain public access, provide educational opportunities, provide regionally -beneficial information on nature -based sea level rise adaptation options, and beneficially reuse treated wastewater. (d) The Plan of improvements shall comprise, as follows: (1) The Project will construct a horizontal levee along Harbor Marsh and install along Embarcadero and Harbor Roads an underground treated wastewater pipeline for irrigation of the horizontal levee. The horizontal levee will be planted with various native plants to restore diverse transitional habitats including freshwater marsh, wet meadow, and riparian scrub. The Project will re -align a portion of the Trail as required to accommodate the horizontal levee and reconnect habitats. The Project will install educational signage and provide opportunities for public participation in community science activities such as photo -point monitoring of habitat restoration and water quality testing. (2) The Project will require temporary rerouting of a portion of the Marsh Front Trail and temporary traffic restrictions to a portion of Harbor Road to accommodate construction. 1 Item 5: Staff Report Pg. 7 Packet Pg. 56 of 341 Item 5 Attachment A - Park *NOT YET APPROVED* Improvement Ordinance for Horizontal Levee Pilot (e) The Project described above and as otherwise depicted in the attac Project Improvements consistent with recreation and conservation purposes (f) The Council desires to approve the Plans for the Project described above and as depicted in Exhibit "A". SECTION 2. The Council hereby approves the Plan for construction of the Horizontal Levee Pilot Project as described in this Ordinance. SECTION 3. City of Palo Alto is the Lead Agency for the Project under the California Environmental Quality Act (CEQA) and finds that the Project is categorically exempt under CEQA Section 15333, Class 33 for small habitat restoration projects. SECTION 4. This ordinance shall be effective on the thirty-first day after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk APPROVED AS TO FORM: Deputy City Attorney Mayor APPROVED: City Manager Director of Community Services 2 Item 5: Staff Report Pg. 8 Packet Pg. 57 of 341 Item 5 EXHIBIT A Attachment A -Park Improvement Ordinance • for Horizontal Levee Pilot Al to M ENLO' Phi Project Improvements PALO ALSO + r + r+.._w.— ww.++r+ ow. �+r�..� ."� rrrr �y A4o7 ors mrA - PALO 'ALTO CO T S ►nd Point Sand 'Palo AI' o COUNTY A ' - (4 = Palo Alto -1 Yatht wAirport Club o/� Harbor.: ,,,� ���" Palo Alto Marsh ! ��_� RWQCP-_ / ' "° 0 r .►�_ M 5 Byxbee _=' i Park 2 I — a I ; — 3 Fr �f r�► �rir � M► �r O l ' - _ O� ,,r k ` II_ Project Boundary 1 ' 0 650 1,300 ` ��� Feet/±fd' SOURCE: USGS 7.5' Topographic Quadrangle (Mountain View, CA); ESA 2022 Palo Alto Horizontal Levee Pilot Project. D201 801 306 Figure 1 Project Location Item 5: Staff Report Pg. 9 Packet Pg. 58 of 341 Item 5 EXHIBIT A AttachmentA-Park Improvement Ordinance .•L_.— — '- for Horizontal Levee Pilot r �r ?••• r Project Improvements Palo Alto 'i '� � . � j p —� .►, -,� Airport _ .� „ kI course _ w` Install pump \` fluent junction box and connect tonew effluent line A \ alo Alto�� ,�� . RWQCP '♦ i w 0 100 200 \ - - Feet Byxbee Park, Project Boundary Project Component �► Horizontal Levee Area Access Effluent Line in Roadway�";�.',�, - - - Equipment Staging Area = , - Contractor Parking Area SOURCE: ESRI 2021; ESA 2022 Palo Alto Horizontal Levee Pilot Project. D201801306 Figure 2 Project Components Item 5: Staff Report Pg. 10 Packet Pg. 59 of 341 SOURCE: ESRI 2021; ESA 2022 Palo Alto Horizontal Levee Pilot Project. D201801306 Figure 3 Draft Horizontal Levee Plan Item 5: Staff Report Pg. 11 Packet Pg. 60 of 341 r ESA Item 5: Staff Report Pg. 12 Palo Alto Horizontal Levee Pilot Project . D201801306 Figure 4 Draft Horizontal Levee Sections Packet Pg. 61 of 341 r ESA Item 5: Staff Report Pg. 13 Palo Alto Horizontal Levee Pilot Project . D201801306 Figure 5 Draft Distribution Detail Packet Pg. 62 of 341 Item 5 Attachment B - DRAFT Cooperative Agreement COOPERATIVE AGREEMENT BETWEEN ASSOCIATION OF BAY AREA GOVERNMENTS AND THE CITY OF PALO ALTO FOR PALO ALTO HORIZONTAL LEVEE PILOT PROJECT CONSTRUCTION This COOPERATIVE AGREEMENT ("Agreement") entered into and effective as of , is between the Association of Bay Area Governments ("ABAG") and the City of Palo Alto ("City"), individually referred to herein as "Party" and together as "Parties." RECITALS A. WHEREAS, ABAG and the Metropolitan Transportation Commission ("MTC") entered into a Contract for Services under which MTC provides administrative and program services to ABAG. Effective July 1, 2017, the staffs of ABAG and MTC were consolidated. MTC staff now serve both the Association of Bay Area Governments and the Metropolitan Transportation Commission. As such, all interactions between ABAG and City contained within this Agreement, shall be conducted by MTC staff on behalf of ABAG; and B. WHEREAS, ABAG serves as the host to the San Francisco Estuary Partnership, established in 1988 by the State of California and the U.S. Environmental Protection Agency under the Clean Water Act's National Estuary Program when the San Francisco Estuary was designated as an estuary of national significance; and C. WHEREAS, the Palo Alto Horizontal Levee Pilot Project ("PROJECT"), which is fully described in Appendix A, attached hereto and incorporated by reference, is a jointly sponsored project by the ABAG and City, to construct a 315 linear foot horizontal levee and irrigated ecotone, construct a 500 linear foot levee berm, install a new pump at the City of Palo Alto's Regional Water Quality Control Plant ("RWQCP"), trench a buried pipeline (approximately 1,650 linear feet of effluent line) along Harbor Road and Embarcadero Road in Palo Alto, and vegetate the area with native species; and D. WHEREAS, ABAG has received funding via United States Environmental Protection Agency (EPA) Grant #W9 -98T55001 ("Breaking Ground Grant"), Date of Award May 8, 2023, in the amount of eight million, six hundred fifty-eight thousand, nine hundred eighteen dollars ($8,658,918.00) and Grant #W9 -98T20401 ("Nature Based Solutions (NBS) for Resilient Shorelines Grant"), Date of Award September 13, 2021, in the amount of three million, seven hundred eighty-two thousand, eight hundred eighteen dollars ($3,782,818.00) a portion of which will be used in the completion of this PROJECT, and Grant #98T45901 in the amount of nine hundred nine thousand eight hundred dollars ($909,800), a portion of which will be used in the completion of this project. All three grants allow for no -cost extensions possible up to approximately four years beyond the completion dates as contemplated by the Grants; and Item 5: Staff Report Pg. 14 Packet Pg. 63 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot E. WHEREAS, Parties' respective funding contributions to the PROJECT (excluding City staff time) are as follows: Project Phase ABAG Source(s) of City Source(s) of City Contribution ABAG Funding Contribution Funding Integrated Regional Water Wastewater Preliminary- Management Treatment Plant Design $620,673 (paid) Program Grant $275,000 (paid) Fund and (completed) and State Coastal Secondary Conservancy Treatment Proposition 1 Upgrades Project' Grant EPA NBS for Wastewater Resilient Treatment Plant Design & Shorelines Grant $1,31Permitting Fund and (99% $763,661 (paid) and Bipartisan (paid) ,794.29 (paid) Secondary complete) Infrastructure Law Treatment Funding from Upgrades Projecta EPA EPA NBS for $2,573,882 Resilient $3,429,459 Local Advanced Construction (pending) Shorelines Grant (pending) Water Purification and EPA Breaking Facility Projecta Ground Grant Post -construction $777,055 Wastewater Monitoring & $0 Not Applicable (pending) Treatment Plant Reporting Fund Operation & Wastewater Maintenance $0 Not Applicable Unknown Treatment Plant Fund °City is leveraging funds spent on planned Capital Improvements that are occurring upstream of the PROJECT at the wastewater treatment plant; actual out-of-pocket expenses for this project are lower than reported in this table. F. WHEREAS, for preliminary design and design phases, ABAG has contributed a total of $1,384,334 while the City has contributed a total of $1,591,794.29 (including the required $1,266,409 matching funds needed for the NBS for Resilient Shorelines Grant) towards the PROJECT; and G. WHEREAS, for construction and post -construction phases, ABAG will contribute a total of $2,573,882 towards the PROJECT, as further described in Appendix A; and H. WHEREAS, for construction and post -construction phases, the City will contribute a total of $4,206,514 (including the required $3,429,459 matching funds for the Breaking Ground Grant); and I. WHEREAS, on December 19, 2023, the City issued a Notice of Exemption that the PROJECT was exempt from review under the California Environmental Quality Act ("CEQA") (Cal. Public Resources Code § 21000, et seq.) pursuant to CEQA Guideline Section 15333 because the PROJECT qualifies as a small habitat restoration project; and Item 5: Staff Report Pg. 15 Packet Pg. 64 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot J. WHEREAS, the City owns the property at 2375 Embarcadero Road, Palo Alto, CA, 94303 and APN: 008-05-005, ("City Property" or "Property") where the PROJECT will be located; and K. WHEREAS, the PROJECT is consistent with (1) Federal Executive Order 14072 (April 27, 2022): Strengthening the Nation's Forests, Communities, and Local Economies; (2) California State guidance in the California Executive Order N-82-20 (October 7, 2020) on Nature -based Shorelines; and (3) regional guidance in the Bay Adapt Joint Platform and the San Francisco Estuary Partnership's Estuary Blueprint; and L. WHEREAS, ABAG entered into an agreement on June 1, 2023, with Save the Bay to assist in native plant propagation and installation to vegetate the freshwater and riparian habitat in the Palo Alto Baylands with funding provided by the NBS for Resilient Shorelines Grant; and, M. WHEREAS, the purpose of this Agreement is to outline the responsibilities of the Parties for the PROJECT delivery; and NOW, THEREFORE, the Parties agree as follows: SECTION I ABAG OBLIGATIONS 1.1 Subject to the City fulfilling its responsibilities under this Agreement, ABAG, on behalf of the San Francisco Estuary Partnership, will design and construct, or cause to be designed and constructed, the PROJECT, at the Property, as described in Appendix A, as it may be amended from time to time solely with the funds from the Breaking Ground Grant and NBS for Resilient Shorelines Grant (collectively referred to as "EPA Grants") and in accordance with the requirements of the EPA Grants. 1.2 ABAG will implement, or cause to be implemented, Avoidance and Minimization Measures (A&M Measures) and permit conditions during construction, including the qualified biological surveys. The A&M Measures will be finalized by the applicable regulatory agencies for the PROJECT as part of permit issuance. In addition to construction permit conditions and requirements, the A&M Measures will inform activities performed by the construction management and construction firm to ensure regulatory compliance and will be coordinated between ABAG and the City. 1.3 ABAG will promptly notify City of the discovery of hazardous materials at the Property. ABAG and the City will jointly evaluate the severity and extent of the hazardous materials contamination at the Property and decide on the appropriate course of action to remediate the contamination pursuant to federal and state laws and regulations. ABAG and the City will reassess the feasibility of the PROJECT and mutually agree on a course of action prior to the commencement of additional work. Should the Parties conclude the PROJECT is no longer feasible financially with the available EPA Grants' funding, the Parties may, individually or collectively, terminate proceeding with the PROJECT. Should EPA Grants' funding be cancelled or approval withdrawn as a result of such termination, the City shall be fully and solely responsible for all costs incurred for the PROJECT. 1.4 ABAG will be the recipient of the EPA Grants. ABAG shall disburse the EPA Grants' funds as required or permitted by the agreements for the Breaking Ground Grant and NBS for Resilient Shorelines Grant. Notwithstanding the foregoing, ABAG is not obligated to disburse any funds to City Item 5: Staff Report Pg. 16 Packet Pg. 65 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot and is not obligated to disburse any other funds until such are authorized and disbursed by the EPA to ABAG. 1.5 Upon the acceptance of the PROJECT as complete by the ABAG Executive Board, all rights and title to the PROJECT including, without limitation, all structures, plantings and documentation will become the property of the City, provided that ABAG retains the right to make, retain, use and distribute copies of all documents related to the PROJECT without limitation. 1.6 ABAG agrees to indemnify, defend, and hold harmless City and its elected and appointed officers, employees, and agents from and against any and all liability resulting from ABAG's act(s) and/or omission(s) arising from and/or relating to this Agreement. Such liability includes, without limitation, the following: any funding disallowance; audits; demands; claims; actions; liabilities; damages; fines; fees, costs, and expenses, including attorney, auditor, and/or expert witness fees. 1.7 ABAG will require any Contractors and sub -Contractors performing work on tasks related to this PROJECT to maintain for term of this Agreement insurance policies for the coverages and amounts specified in APPENDIX B - Insurance Requirements. ABAG will furnish a copy of all certificates of insurance to City in accordance with the Notice provisions contained herein. SECTION II CITY OBLIGATIONS 2.1 The City is, and at all times will continue to be, in full compliance with the terms and conditions of the EPA Grants that are applicable to it for the PROJECT. The City understands, agrees, and acknowledges that any requirements imposed upon ABAG under the EPA Grants that are applicable to the PROJECT are hereby passed -through and adopted by the City as the City's obligations, excepting only ABAG's obligations as defined in this Agreement. 2.2 The City shall not cause ABAG to be in violation of either or both EPA Grants, whether by act or omission. 2.3 The City shall provide appropriate documentation to ABAG of the required Breaking Ground Grant funding match obligation in the amount of three million, four hundred twenty-nine thousand, four hundred fifty-nine dollars ($3,429,459). 2.4 Should EPA Grants' funding be cancelled or approval withdrawn before construction of the PROJECT is complete, the City shall be fully and solely responsible for remaining costs to complete the PROJECT. 2.5 With respect to the design and construction of the PROJECT, the City will (a) attend PROJECT Kick -Off meeting, (b) meet with design team to verify the Property is suitable for the PROJECT, (c) provide to the design, construction and construction management teams the best available information regarding features within and under the Property including, without limitation, utility locations, (c) process and pay for, all permits and licenses needed for the construction of the Project, (d) participate in the review and approval of the design for the PROJECT at the 30%, 60%, 90% and 100% plan levels, and (e) assist with any public outreach efforts in connection with construction of 4 Item 5: Staff Report Pg. 17 Packet Pg. 66 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot the PROJECT, including attendance and participation at public meetings and use of the City's logo in connection with outreach efforts and PROJECT signage. 2.6 The City will comply with the Monitoring and Adaptive Management Plan ("MAMP") as approved on September 14, 2023, by the San Francisco Bay Restoration Regulatory Integration Team for the PROJECT. City is responsible for any and all costs associated with MAMP compliance. 2.7 After completion of construction of the PROJECT and acceptance of the PROJECT as complete by the ABAG Executive Board, by way of execution of this Agreement, the City accepts all rights and title to the PROJECT including, without limitation, all structures, plantings and documentation will become the property of the City, subject to ABAG retaining the right to make, retain, use and distribute copies of all documents related to the PROJECT without limitation. Upon ABAG Executive Board's acceptance of the PROJECT as complete, the City shall be fully and solely be responsible for all future costs associated with the PROJECT including, without limitation, PROJECT compliance with MAMP, post -construction A&M Measures, as well as operation and maintenance costs. 2.8 The City shall provide ABAG, MTC, and Construction Manager, Project contractors / subcontractors and their employees, representatives, consultants, and other necessary Project participants with access to the Property and an area in the vicinity for construction staging, and storage of any equipment or site -specific materials during construction of the PROJECT. Prior to commencing construction activities, the Parties agree to execute a construction license agreement in a form to be furnished by City. 2.9 Indemnification 2.9.1 Notwithstanding any provision to the contrary, whether expressly or by implication, to the furthest extent permitted by California law, the City shall indemnify, defend, and hold harmless ABAG, MTC, and their elected and appointed officers, employees, and agents from and against any and all liability resulting from the City's act(s) and/or omission(s) arising from and/or relating to this Agreement. Such liability includes, without limitation, the following: any grant or other funding disallowance; audits; demands; claims; actions; liabilities; damages; fines; fees, costs, and expenses, including fees and expenses for attorneys, auditors, and/or expert witnesses. 2.9.2 The City's defense, indemnification, and hold harmless obligations hereunder shall survive the PROJECT's completion and termination of the Contract. SECTION III MUTUAL OBLIGATIONS OF THE PARTIES 3.1 Subject to reimbursement of such costs as may be allowed the Parties under the EPA Grants, and except as otherwise provided in this Agreement, each Party shall be separately and solely responsible for their respective PROJECT costs including, without limitation, for employees, consultants, subconsultants, contractors, and officers. 3.2 Each Party to this Agreement shall, at its own expense, perform all acts and execute all documents and instruments that may be necessary or convenient to carry out its obligations under this Agreement. Each Party shall pay its own attorneys' fees and other expenses in connection with the negotiation or execution of this Agreement. Item 5: Staff Report Pg. 18 Packet Pg. 67 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot 3.3 Each Party will promptly notify the other party of any notices given or actions taken by the EPA or any authority having jurisdiction over the Property that relates to or impacts the PROJECT. To the extent practicable, the Parties agree to cooperate and work together in responding to and promptly addressing and resolving such notice or action. 3.4 This Agreement shall serve to establish the Parties' good faith effort to work together to bring the PROJECT to completion through any unforeseen obstacles, delays, cost overruns, or unpredicted circumstances that affect the scope, PROJECT budget, or timeline. ABAG and the City pledge to work separately and together cooperatively, as needed, to address issues as they arise to ensure the PROJECT is completed and that it is of benefit to the region. 3.5 City understands and acknowledges that ABAG's sole source of financial resources to fund the PROJECT is through the EPA Grants and that ABAG has no separate financial resources to contribute to the PROJECT costs. City further understands, acknowledges, and agrees that City is responsible for any PROJECT costs that exceed the available EPA Grants funding. ABAG will, therefore, coordinate and cooperate with City in advance on any PROJECT issues arising during the PROJECT's construction that may increase the PROJECT price or time. 3.6 City shall have the right to review and approve the PROJECT design. During the design and approval process, should it become apparent that the PROJECT is not feasible within the PROJECT budget, the Parties shall meet and confer regarding the redesign of the PROJECT in order to maintain the cost of the PROJECT within the PROJECT budget. Should the PROJECT design and construction cost estimate(s) exceed the Parties respective funding contributions as described in Recital E, ABAG will work in good faith with City to identify additional funds to cover all costs of the PROJECT, but the City, not ABAG, is responsible to fund any costs that exceed ABAG's contribution. In no event, shall ABAG be obligated to complete design and construction of the PROJECT if the design and construction cost estimate(s) exceed the PROJECT's EPA Grants' funding. Should cost estimates exceed the EPA Grants' funding, the Parties may, individually or collectively, terminate proceeding with the PROJECT. 3.7 Should actual construction costs exceed the Parties' respective funding contributions as described in Recital E, ABAG will work in good faith with City to identify additional funds to cover all costs of the PROJECT, but the City, not ABAG, is responsible to fund any costs that exceed ABAG's contribution. City, in its sole discretion, shall have the right to modify the PROJECT based upon availability of additional funding. 3.7.1 Any change in the approved design or in work by the construction contractor performed pursuant to this Agreement shall be made by a Change Order Request approved in advance by both Parties. A Change Order Request is a written instrument prepared and issued by ABAG's representative, the construction contractor, the City, and/or the Engineer or construction manager requesting revisions or deviations to the approved PROJECT design. Neither ABAG, the City, nor any other entity, shall have the authority to order any changes in the approved design or to perform work inconsistent with the approved design without ABAG and the City's prior written authorization. 3.8 Both Parties agree to cooperate with one another to accomplish the purposes of this Agreement, and to confer in advance on policy matters and proposed changes in PROJECT scope, cost, and schedule as it relates to this Agreement. 6 Item 5: Staff Report Pg. 19 Packet Pg. 68 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot SECTION IV MISCELLANEOUS 4.1 Each Party shall comply with all applicable Federal, State, and local laws, rules, regulations, ordinances, and directives, now existing and as such may change from time -to -time. Any such laws, rules, regulations, ordinances, and directives required thereby to be included in this Agreement are incorporated herein by reference. 4.2 This Agreement shall commence on the effective date and shall remain in effect until the PROJECT is accepted as complete by the ABAG Executive Board or if terminated as provided in this Agreement. 4.3 Assignment. No rights of any Party under this Agreement may be assigned, transferred, hypothecated or otherwise alienated, whether voluntarily or by operation of law, and shall be null and void except with the express written prior consent of the Party against which such rights are enforceable. 4.4 The validity of this Agreement and of any of its terms and provisions, as well as the rights and duties of the Parties hereunder, shall be governed by the laws of the State of California. Venue shall be the County of Santa Clara. 4.5 No alteration or variation of the terms of this Agreement shall be valid unless made in writing and signed by both Parties hereto. This Agreement shall be binding upon each Party, their legal representatives, and successors. 4.6 Each Party agrees to respond in a timely manner to all reasonable requests from the other Party for any rights, material, and information as may be required by the requesting Party to successfully fulfil its obligations under this Agreement. Each Party further agrees to promptly provide documentation, reports, and information pursuant to such reasonable requests. Notwithstanding this commitment, the Parties may withhold material and information subject to any claims of privilege or limitations any Party may have as a result of agreements with other persons or entities. 4.7 Any substantive material changes in the activities to be performed under this Agreement, or in the terms thereof, shall be incorporated in written amendments, which shall specify the changes in work performed and any adjustments in schedule. All amendments shall be executed by each Party's authorized representative. 4.8 Each individual executing this Agreement on behalf of a Party represents and warrants that he or she is duly authorized to execute this Agreement on behalf of said Party and that this Agreement is binding upon the Party in accordance with its terms. 4.9 Except as specifically provided herein, nothing in the provisions of this Agreement is intended to create duties or obligations to or rights in third parties not parties to this Agreement. 4.10 No Party shall assign this Agreement, or any part thereof without the other Party's prior written consent; any attempts to assign this Agreement without the other Party's' prior written consent shall be void and unenforceable. 4.11 Any Party's failure to exercise or delay in exercising any right or remedy under this Agreement shall not constitute a waiver of such right or remedy or any other right or remedy set forth herein. Any Party's waiver of any right or remedy under this Agreement shall not be effective unless made Item 5: Staff Report Pg. 20 Packet Pg. 69 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot in a writing duly executed by an authorized officer of the Party, and such waiver shall be limited to the specific instance so written and shall not constitute a waiver of such right or remedy in the future or of any other right or remedy under this Agreement. 4.12 Disputes 4.12.1 In case of a dispute over the meaning or performance of this Agreement or a dispute during construction including, without limitation, contractor Change Order Requests, contractor defective work, failure of the Parties to agree on design revisions, construction schedule changes or delays, the Parties will first attempt to resolve such dispute at the PROJECT team level. If they cannot resolve the dispute themselves, the MTC Executive Director and City Manager of the City, or their designees, will attempt to negotiate a resolution. If the Parties do not reach a resolution, the Parties' legal counsel will initiate mediation. The Parties agree to participate in mediation in good faith, mutually agree on a mediator, and will share equally in mediation fees and expenses. 4.12.2 Neither the dispute nor the mediation process relieves Parties from full and timely performance of the Agreement's scope in accordance with its terms. However, if any Party stops fulfilling its obligations, any other Party may seek equitable relief to ensure that the work continues. 4.12.3 Except for equitable relief, no Party may file a civil complaint until after mediation, or forty-five (45) calendar days after filing the written mediation request, whichever occurs first. The Parties maintain the ability to pursue alternative or additional dispute remedies if a previously selected remedy does not achieve resolution. 4.12.4 This dispute resolution process shall be undertaken in good faith and exhausted prior to commencing an action or legal proceeding. However, compliance with this process does not waive any Party's obligation to comply with, or right to assert as a defense, any applicable statute of limitations. The Parties may agree in writing to toll any applicable statute of limitations for such period as may reasonably be necessary to complete the dispute resolution process. 4.13 Should litigation be necessary to enforce any terms or provisions of this Agreement, then each party shall bear its own litigation and collection expenses, witness fees, court costs, and attorneys' fees. 4.14 Termination. 4.14.1 Upon termination of either EPA Grant, either Party may terminate this Agreement effective the same date as the termination of the EPA Grant, as the case may be, and by delivering notice to the other Party within thirty (30) days of the Grant termination. 4.14.2 Either Party may terminate this Agreement upon ten (10) business days prior written notice to the other Party of a breach of this Agreement that allows the other Party to cure said breach prior to the effective date of the termination. 4.15 Notices and Administrative Contacts. All notices or notifications under this PROJECT Agreement shall be in writing addressed to the persons set forth in this section: 4.16 Project Manager. Heidi Nutters, heidi.nutters@sfestuary.org, or other individual designated by the MTC Executive Director, will serve as the ABAG Project Manager. Samantha Engelage, Samantha.engelage@cityofpaloalto.org or other individual designated by the City Manager will serve as the City Project Manager. Item 5: Staff Report Pg. 21 Packet Pg. 70 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot 4.17 All notices, or other communication, to either party by the other shall be deemed given when made in writing and delivered, mailed, or emailed to such party at their respective addresses as follows: To ABAG: Caitlin Sweeney Association of Bay Area Governments 375 Beale Street, Suite 800 San Francisco, CA 94105 caitlin.sweeney(sfestuary.org To City of Palo Alto: Karin North Assistant Director of Public Works, City of Palo Alto 2501 Embarcadero Way Palo Alto, CA 94303 karin.northcityofaloalto.org 4.18 This Agreement, including all attachments, constitutes the complete agreement between the Parties and supersedes any prior written or oral communications. The Parties represent that in entering into the Agreement they have not relied on any previous representations, inducements, or understandings of any kind or nature. This Agreement may be modified or amended only by written instrument signed by all of the Parties. In the event of a conflict between the terms and conditions of this Agreement and the attachments, the terms of this Agreement will prevail. This Agreement may be executed in multiple counterparts, each which will be deemed as an original, and electronic signatures shall have the same force and effect as original signatures. 4.19 Should all or any portion of any provision of this Agreement be held unenforceable or invalid for any reason, the remaining portions or provision shall be unaffected. IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto on the date first above written. ASSOCIATION OF BAY AREA GOVERNMENTS (ABAG) CITY OF PALO ALTO (CITY) Andrew B. Fremier Ed Shikada Metropolitan Transportation Commission City Manager Executive Director, Acting pursuant to the Contract for Services dated May 30, 2017 Item 5: Staff Report Pg. 22 Packet Pg. 71 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot APPENDIX A Project Description and Scope of Work Project Description Figure 1 Palo Alto Horizontal Levee Rendering The Palo Alto Horizontal Levee Pilot (PAHLP) project is a novel initiative led by the City of Palo Alto and the San Francisco Estuary Partnership. The goals of the Project are to enhance the ecological function of the project site and improve resilience to sea level rise. The project objectives include: • Improve habitat along the perimeter of Harbor Marsh for native species; • Restore rare and historic broad ecotone that supports a variety of transitional plant assemblages; • Determine design standards, permitting requirements, and extent of maintenance for incorporation into the future larger levee improvement project (i.e., SAFER Bay/Shoreline Study); • Adapt to sea level rise by providing a transitional slope that will support freshwater plants, which in turn build organic soils, all of which is aimed at keeping pace with sea level rise; • Maintain public access to the existing trail system while providing opportunities for compatible low -impact recreation, increased social infrastructure, and educational opportunities on sea level rise and other topics; • Ensure perspectives of marginalized communities are incorporated into social infrastructure and educational components; and. • Provide polishing treatment to discharged treated wastewater. 10 Item 5: Staff Report Pg. 23 Packet Pg. 72 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot The Project site is directly adjacent to the City's Regional Water Quality Control Plant ("RWQCP") and Byxbee Park. The Project location is also adjacent to the existing Harbor Marsh, an approximately 90 - acre tidal saltmarsh that was established within the former Palo Alto Yacht Harbor. The Project site is bounded by Harbor Marsh to the east, Embarcadero Road to the north, the RWQCP and Harbor Road to the west, and the Byxbee Park parking lot entrance to the south. The project location includes a 500 -linear - foot (LF) proposed levee berm, including 315 linear feet of treatment zone irrigated with treated wastewater to create a transitional freshwater wetland slope with upland/riparian transitional plantings in adjacent areas supported with limited irrigation. A 1,650-LF treated wastewater pipeline will be buried along Harbor Road and Embarcadero Road north and west of the proposed levee, connecting to a new supply pump at the City of Palo Alto Regional Water Quality Control Plant (RWQCP), located at 2501 Embarcadero Way, Palo Alto, California 94303. The horizontal levee itself would have a variety of freshwater marsh, wet meadow, and riparian/upland scrub ecotypes. As the freshwater inputs enter the marsh plain, a brackish marsh ecotone band is expected to form within the salt marsh immediately adjacent to the horizontal levee. The horizontal levee would be divided into four primary areas: (1) an engineered levee berm to support the horizontal levee slope; (2) a treatment zone designed to support polishing of treated wastewater via subsurface seepage through a drainage layer while supporting native transitional habitats; (3) a downslope habitat zone designed to support a variety of ecotypes where polished wastewater would seep toward the adjacent Harbor Marsh as shallow surface/subsurface flow; and (4) transitional slopes north and south of the treatment zone where the project conforms to the existing bank line. The horizontal levee is designed to be a freshwater ecotone transition zone to the tidal marsh. The City of Palo Alto is the permittee on all permits which have been issued: • USACE Nationwide Permit 27 (SPN-2019-00445) • NMFS Letter of Concurrence (with 'not likely to adversely affect' determination) (WCRO-2023- 00141) • USFWS Signed/approved ESA Section 7(a)(2) Review Form (2022-0005149-S7) (take coverage under the Programmatic Biological and Conference Opinion (PBO) for the California Statewide Programmatic Restoration Effort) • SWRCB Water Quality Certification for Small Habitat Restoration Projects (WDID# 2 CW451131) • Restoration Management Permit (No. RMP 2023-0008-R3) The City of Palo Alto expects issuance of the following permits in early 2024: • BCDC Major Permit Amendment • City of Palo Alto Street Work Permit and Parks Improvement Ordinance Finally, a Notice of Exemption is expected under the California Environmental Quality Act ("CEQA") (Cal. Public Resources Code § 21000, et seq.) pursuant to CEQA Guideline Section 15333. 11 Item 5: Staff Report Pg. 24 Packet Pg. 73 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot Table A: Outstanding Work to be Paid for by ABAG Party Name Service Provided Responsible Entity Budgeted Amount TBD Construction Management Services Contract ABAG $371,449 TBD Construction Services Contract ABAG $1,859,543.00 Save The Bay Plant propagation, planting, community outreach ABAG $162,890.00 TBD Contingency ABAG $180,000.00 TOTAL $2,573,882 Table B: Palo Alto Horizontal Levee Pilot — Design, Community Engagement, and Implementation Process Task Status Funder Phase 1— Early Design Concepts and Stakeholder Engagement - 2017 - 2020 Feasibility Study Completed Oro Loma Sanitary District 30% Design Completed EPA Climate Ready Estuaries Planning and Stakeholder Outreach Completed State Coastal (carried over from Phase 1 and 2 Conservancy Phase 2 — Design and Permitting - 2020 - 2023 Permitting studies, Geotechnical Completed City of Palo Alto Report 60% Design, Construction Budget Completed State Coastal and Permitting Memo Conservancy and EPA Water Quality BRRIT Consultations — including pre- Completed permitting consultation in June, 2022 Improvement Fund Grant # #W9 -98T55001 Permit Applications Submitted — permit issuance expected Fall 2023 Permit Fees Completed City of Palo Alto CEQA - Categorical Exemption Completed City of Palo Alto QAPP Scheduled for completion in EPA Water Quality Winter 2023 Improvement Fund o 100 /o Design, including final design Scheduled for completion end of Grant # #W9 -98T55001 specifications, bid package and bid 2023 period support Phase 3 — Construction, Stewardship, Monitoring and Outreach — 2024 - 2026 Plant Propagation, Community EPA Water Quality Outreach and Planting — Save The Improvement Fund Bay In progress (#W9 -98T55001) Construction management and monitoring 12 Item 5: Staff Report Pg. 25 Packet Pg. 74 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot EPA Water Quality Construction In progress Improvement Fund 1) Phase 4— Monitoring & Reporting — 2023 - 2029 EPA Water Quality Community Science & Monitoring In progress Improvement Fund 1) Salt Marsh Harvest Mouse Site In progress City of Palo Alto Utilization Studies Sediment Accretion Study In progress City of Palo Alto Photo -point Monitoring In progress City of Palo Alto Vegetation Surveys, Vegetation Establishment, and Habitat Type To be started after construction City of Palo Alto Evaluations Benthic Community Monitoring To be started after construction City of Palo Alto Wastewater Effluent and Volume In progress City of Palo Alto Monitoring 13 Item 5: Staff Report Pg. 26 Packet Pg. 75 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot APPENDIX B Insurance Requirements for Work on City of Palo Alto Property ABAG, at their expense, shall for the term of the Agreement, obtain and maintain insurance in the amounts and for the coverage specified below, afforded by companies with AM Best's key rating of A - :VII, or higher, licensed or authorized to transact insurance business in the State of California. Agreement is contingent on compliance with City's insurance requirements as specified herein: MINIMUM LIMITS REQUIRED TYPE OF COVERAGE REQUIREMENT EACH OCCURRENCE AGGREGATE YES WORKER'S COMPENSATION STATUTORY STATUTORY STATUTORY YES EMPLOYER'S LIABILITY STATUTORY YES GENERAL LIABILITY, INCLUDING BODILY INJURY $2,000,000 $5,000,000 PERSONAL INJURY, BROAD FORM PROPERTY DAMAGE $2,000,000 $5,000,000 PROPERTY DAMAGE BLANKET CONTRACTUAL, AND FIRE LEGAL BODILY INJURY & PROPERTY $2,000,000 $5,000,000 LIABILITY DAMAGE COMBINED. BODILY INJURY $1,000,000 $1,000,000 - EACH PERSON $1,000,000 $1,000,000 YES AUTOMOBILE LIABILITY, - EACH OCCURRENCE $1,000,000 $1,000,000 INCLUDING ALL OWNED, HIRED, PROPERTY DAMAGE $1,000,000 $1,000,000 NON -OWNED BODILY INJURY AND PROPERTY $1,000,000 $1,000,000 DAMAGE, COMBINED YES PROFESSIONAL LIABILITY, INCLUDING, ERRORS AND OMISSIONS, MALPRACTICE (WHEN ALL DAMAGES $1,000,000 APPLICABLE), AND NEGLIGENT PERFORMANCE YES THE CITY OF PALO ALTO IS TO BE NAMED AS AN ADDITIONAL INSURED: CONSULTANT, AT ITS SOLE COST AND EXPENSE, SHALL OBTAIN AND MAINTAIN, IN FULL FORCE AND EFFECT THROUGHOUT THE ENTIRE TERM OF ANY RESULTANT AGREEMENT, THE INSURANCE COVERAGE HEREIN DESCRIBED, INSURING NOT ONLY CONSULTANT AND ITS SUBCONSULTANTS, IF ANY, BUT ALSO, WITH THE EXCEPTION OF WORKERS' COMPENSATION, EMPLOYER'S LIABILITY AND PROFESSIONAL INSURANCE, NAMING AS ADDITIONAL INSUREDS CITY, ITS COUNCIL MEMBERS, OFFICERS, AGENTS, AND EMPLOYEES. I. INSURANCE COVERAGE MUST INCLUDE: A. Contractual liability endorsement providing insurance coverage for ABAG's agreement to indemnify the City. II. SUBMISSION OF CERTIFICATES: A. ABAG must submit certificate(s) of insurance evidencing required coverage to City of Palo Alto to: Samantha.engelage( cityofpaloalto.org 14 Item 5: Staff Report Pg. 27 Packet Pg. 76 of 341 Item 5 Cooperative Agreeme Attachment B - DRAF Alto Pal Cooperative Agreement pilot III. ENDORSEMENT PROVISIONS WITH RESPECT TO THE INSURANCE AFFORDED TO ADDITIONAL INSUREDS: A. Primary Coverage: With respect to claims arising out of the operations of the named insured, insurance as afforded by this policy is primary and is not additional to, or contributing with, any other insurance carried by, or for the benefit of, the additional insureds. B. Cross Liability: The naming of more than one person, firm, or corporation as insureds under the policy shall not, for that reason alone, extinguish any rights of the insured against another, but this endorsement, and the name of multiple insureds, shall not increase the total liability of the company under this policy. C. Notice of Cancellation: 1. If the policy is canceled before its expiration date for any reason other than the non-payment of premium, ABAG shall provide City at least thirty (30) day written notice before the effective date of cancellation. 2. If the policy is cancelled before its expiration date for the non-payment of premium, ABAG shall provide City at least ten (10) days written notice before the effective date of cancellation. 15 Item 5: Staff Report Pg. 28 Packet Pg. 77 of 341 Item 6 Item 6 Staff Report City Council Staff Report From: City Manager CITY O F Report Type: CONSENT CALENDAR PALO Lead Department: Planning and Development Services ALTO Meeting Date: January 22, 2024 Report #:2312-2455 TITLE QUASI-JUDICIAL. 949 Scott Street [22PLN-00410]: Request for City Council Hearing on the Director's Decision to Approve a Variance application to Allow a New Single -Story, Single -Family Home with a Basement to Encroach into the Front, Side, and Rear Setbacks and Deviate from Standards for Below Grade Patio Side and Rear Setbacks, and Number of Parking Spaces. Zoning District: R-2. Environmental Assessment: Exempt from the California Environmental Quality Act per Section 15303. RECOMMENDATION Staff recommends that Council take the following action(s): 1. Find the proposed project exempt from the California Environmental Quality Act per Section 15303 (New Construction) 2. Adopt the attached Record of Land Use Action, thereby denying the appeal, upholding the Director's approval and the Planning and Transportation Commission's recommendation of approval of the Variance and finding the proposed project exempt from review under the California Environmental Quality Act. BACKGROUND/DISCUSSION The subject property owner requests approval of a Variance application to demolish an existing and build a new one-story single-family home with a basement on a substandard lot in the R-2 zoning district. The parcel is only 1,500 square feet in area with a developable potential of about 180 square feet when taking into consideration required setbacks. The existing residence is about 834 square feet and currently encroaches into the required front, side and rear yard setbacks. The owner seeks to essentially replace the existing residence with a modest increase in parcel coverage and a new basement. In accordance with the municipal code, the resulting floor area for the new home is 673 square feet (not counting the 670 square foot basement). The proposed Variance application would allow building (including basement) encroachments into the required front, side and rear yard setback. Additionally, the Variance authorizes increases to lot coverage, parking, and below grade patio encroachments. The proposed setback encroachments are generally consistent with the existing residence's footprint. Item 6: Staff Report Pg. 1 Packet Pg. 78 of 341 Item 6 Item 6 Staff Report The Planning and Development Services director issued a tentative approval of the applicant's request on October 26, 2023. In accordance with the municipal code, a request for hearing before the Planning and Transportation Commission (PTC) was received and the hearing scheduled for December 13, 2023. The PTC considered the request, including public testimony, and unanimously supported the director's decision. The municipal code requires that the PTC's recommendation be forwarded to the City Council within 45 days. This item has been placed on the consent calendar and if accepted, the recommendation to approve the Variance application stands. However, if three or more City Councilmembers want to hold a public hearing to consider the application, action is needed to pull the item from the consent calendar. If pulled, staff would return at a future date for hearing on the application and expanded analysis. Additional background information is provided in the PTC staff report and video discussion posted online.' Variance applications are subject findings set forth in Section 18.76.030 of the zoning code. A Variance is intended to provide a way for a site with special physical constraints, resulting from natural or built features, to be used in ways similar to other sites in the same vicinity and zoning district; and provide a way to grant relief when strict application of the zoning regulations would subject development of a site to substantial hardships, constraints, or practical difficulties that do not normally arise on other sites in the same vicinity and zoning district. The parcel's small size generally supports the need for the variance request and staff's and the PTC's supporting evidence is provided in the attached record of land use action (Attachment D). Two neighbors have expressed concern with the proposal. The written comments have been provided as Attachment E to this staff report. One neighbor spoke at the public hearing, reiterating their shared concerns which were: 1. The number of variances requested by the application; 2. The aesthetic/visual design of the building; 3. Whether the structure will be used as a home or an extension of the neighbor's house; 4. Impacts to existing street trees 5. Impacts to parking/quality of life during construction 6. Consistency with General Plan/SB 330 Briefly, in response, the number of requested variances reflects the development constraints imposed by the size of the subject property. Visual and aesthetic design concerns are understood, but the City does not require design review for single family homes. The use of the house is designed as a single family home; the City does not regulate who occupies the residence. One 1 December 13, 2023 PTC Staff Report: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes- reports/agendas-minutes/planning-and-transportation-commission/2023/ptc-12.13-949-scott.pdf and video: https://midpenmedia.org/planning-and-transportation-commission-2-12132023/ Item 6: Staff Report Pg. 2 Packet Pg. 79 of 341 Item 6 Item 6 Staff Report existing street tree will be removed requiring a replacement with two trees; this request has been reviewed and is supported by the City's Urban Forestry program. Construction impacts are part of development activity and staff acknowledges the disruption this will have on neighbors. The City imposes construction -related constraints in terms of noise and hours that are intended to mitigate this short term impact. With respect to SB 330, staff is not able to substantiate any violation with state law or the intent purposes of the comprehensive plan. Accordingly, staff recommends the City Council uphold the director and PTC's recommendation to approve the Variance application on consent. FISCAL/RESOURCE IMPACT This project is an application affecting a private property where all the costs associated with it will be borne out by the applicant. While an existing City street tree will be removed to accommodate the proposed driveway, the applicant will be responsible for planting one tree in the public right of way immediately adjacent to the site, and another within a half -mile of the property to increase the City's tree canopy and achieve the No -Net -Loss Canopy replacement requirements noted in the City's Tree Technical Manual. POLICY IMPLICATIONS To minimize the potential precedent set by any variance application, staff analyzed comparable properties within the city limits. For this particular project, staff utilized the City's GIS mapping software to identify suitable comparisons based on factors like size and existing use. Initially, staff found 60 parcels measuring 2,000 square feet or less, excluding condominium projects. Further investigation revealed that only 14 of these parcels currently house single-family dwellings. Notably, among these 14 single-family homes, just three parcels — including the subject property — occupy an area of 1,500 square feet or less. Therefore, based on this analysis, staff believes the scope of potential precedent arising from this application is effectively limited to a maximum of three properties within the city. This approach allows the City to strike a balance between addressing individual needs and maintaining responsible urban planning principles that minimize unintended consequences. STAKEHOLDER ENGAGEMENT The Palo Alto Municipal Code requires notice of this public hearing be published in a local paper and mailed to owners and occupants of property within 600 feet of the subject property at least ten days in advance. Notice of a public hearing for this project was published in the Daily Post on January 5, 2024, which is 10 days in advance of the meeting. Postcard mailing occurred on January 2, 2024, which is 13 days in advance of the meeting. ENVIRONMENTAL REVIEW The subject project has been assessed in accordance with the authority and criteria contained in the California Environmental Quality Act (CEQA), the State CEQA Guidelines, and the environmental regulations of the City. The City's consultant, Page & Turnbull evaluated the existing building and found it ineligible for the California Register of Historic Resources Item 6: Staff Report Pg. 3 Packet Pg. 80 of 341 Item 6 Item 6 Staff Report (Attachment F). Specifically, the project is Exempt from the California Environmental Quality Act per Section 15303. ATTACHMENTS Attachment A — Location Map Attachment B — Applicant's Project Description Attachment C — Zoning Comparison Table Attachment D — Draft Record of Land Use Action Attachment E — Appeal & Public Comments Attachment F — Historic Evaluation Attachment G — Project Plans APPROVED BY: Jonathan Lait, Planning and Development Services Director Item 6: Staff Report Pg. 4 Packet Pg. 81 of 341 Architects City of Palo Alto Planning & Development Division 250 Hamilton Avenue Palo Alto, CA 94301 Attn: Amy French, Chief Planning Official Jodie Gerhardt, Manager of Current Planning Garret Sauls, Project Planner Re: Variance Findings for 949 Scott St. Item 6 Attachment B - Youn 'ci APPLICANT'S PROJECT 4962 DESCRIPTION 18 Los Altos, LatiTornia 650-688-1950 I YBarchitects.com July 6, 2023 The letter is to accompany our application for the proposed project at 949 Scott St. to build a new single-family residence on the property to replace the existing residence. The purpose of this letter is to address the findings and justifications to request a variance to encroach into the front, side, and rear yard setbacks with both first floor and basement. Additionally, we are requesting a variance to provide only one off-street covered parking space (where none currently exists), to exceed the maximum lot coverage, and the below grade patio allowance. Introduction: The lot is zoned as R-2 within a mixed residential R-2 district. The property is substandard in size is 30 feet wide by 50 feet deep for a total of 1,500 sf. The property appears to have been subdivided off the rear of 353 Addison Ave. at some point in the past when such actions where allowable. The context is a mixture of single-family homes of varying architectural style, size, and era of construction. The existing development on the property is a one-story single-family home of 835 sf. The existing residence encroaches within the setback distances on all sides. The existing front setback of the home is 10'-9 (6'-8" to the entry porch) where 20 feet would be required. The existing side setbacks are 2'-10 on the right side and 3'-0" on the left side, where 6 feet would be required. The existing rear setback is 3'-11", where 20 feet would be required. The home was designated as potentially eligible for the CRHR, however upon the research by Page & Turnbull it was not determined to be historically significant. For substandard lots in the R-2 districts, zoning section 18.10.150 provides allowance for replacing lawfully created structures with new structures without compliance with height and habitable floor area limitations, provided the new structure does not exceed 17 feet in height or create habitable area above the first floor level. This section provides an allowance for this proposed new home to replace the existing structure, however it would require a variance approval to keep the same location and setbacks. Item 6: Staff Report Pg. 6 Packet Pg. 83 of 341 Re: 949 Scott St. variance request July 7, 2022 Item 6 Attachment B - APPLICANT'S PROJECT DESCRIPTION We respectfully ask for granting of the variances for the success of this project, based on the four findings and conditions below. Findings: 1. The granting of the application will not be detrimental or injurious to property or improvements in the vicinity, and will not be detrimental to the public health, safety, general welfare, or convenience The proposed single-family home will maintain the existing use on the property, consistent with the current presence in the overall neighborhood. The placement of the proposed new residence will have side setbacks with greater distances than the existing setbacks to property lines, increasing separations between neighboring structures. The above ground footprint will be reduced from the existing conditions, creating additional distance and privacy between neighboring structures. At the proposed 4'-0 side and rear setbacks it would be equivalent to what is currently allowable for Accessory Dwelling Units on any single family lot in the city. To comply with current building codes, the new structure will be equipped with an automatic fire sprinkler system per NFPA-13D standards. With respect to the construction assembly, the exterior walls and eaves on the left and rear sides will comply with requirements when building less than 5 feet but at least 3 feet of the property line. For the right side it will comply with the additional requirements when building between 3 feet and 0 feet of the property line. The replacement of the existing residence will result in removal of a wood burning masonry fireplace, which is in line with the goals of the City of Palo Alto and the Bay Area Air Quality Management District. The new structure will also be more energy efficient and will rely on electricity for all appliances instead of natural gas, which is in line with the goals of the City's energy reach code. The proposed design will be providing one off-street parking spaces, where it currently does not provide any. This is particularly notable for such a narrow dead-end street with limited vehicular clearances. 2. The granting of the application is consistent with the Palo Alto Comprehensive Plan and the purposes of Title 18 (Zoning) The district is zoned R-2 to allow for one- and two-family development. Reconstructing the property with a new single-family residence will maintain the objectives of the zoning. The residence will be one story above grade, as is consistent with substandard lot limitations. Noise producing equipment will be situated in a location that complies with the minimum setbacks and decibel ratings. The proposed size of home would be comparable to many of the ADU projects being encouraged and approved to be built throughout Palo Alto under current State guidelines. Pg. 2 of 5 Item 6: Staff Report Pg. 7 Packet Pg. 84 of 341 Item 6 Attachment a - Re: 949 Scott St. variance request July 7, 2022 APPLICANT'S PROJECT DESCRIPTION Additionally regarding the lot size, this existing parcel could be equivalent to a parcel that would be created today under the State SB-9 guidelines. So neither the lot size or home size are outside the normal range of current scale under the overall zoning intent. 3. Because of special circumstances, including (but not limited to) size, shape, topography, location, or surroundings, the strict application of the requirements and regulations prescribed in Title 18 substantially deprives such property of privileges enjoyed by other property in the vicinity and in the same zoning district as the subject property. Special circumstances that are expressly excluded from consideration are: A) The personal circumstances of the property owner B) Any changes in the size or shape of the property made by the property owner or his predecessors in interest while the property was subject to the same zoning designation. If standard setbacks are applied, the resulting buildable area would only be 18 feet wide by 10 foot deep rectangle of 180 sf. This would not be feasible for any type of new residential structure to be built. A typical one car garage of 10 foot by 20 foot interior would not even fit within the required setback distances. As far as can be ascertained, there are no other properties in the neighborhood with such small property dimensions. From our study, there are no feasible home designs that would comply with all of the zoning without some kind of variance approval. 30.0' -I I o. L oL — SIDE I SIDE • IS -C" • SETBACK �m I° 30.0' Pg. 3 of 5 Item 6: Staff Report Pg. 8 Packet Pg. 85 of 341 Re: 949 Scott St. variance request July 7, 2022 Item 6 Attachment B - APPLICANT'S PROJECT DESCRIPTION Sketch 1: the allowable building area on this property if standard minimum setbacks where applied. 4. The granting of the application shall not affect substantial compliance with the regulations or constitute a grant of special privileges inconsistent with the limitations upon other properties in the vicinity and in the same zoning district as the subject property. The zoning ordinance for substandard lots zoned R-2 provides an allowance for grandfathered uses, allowing replacement lawfully created structures with new structures without compliance with height and floor limitations. 18.10.150 Grandfathered Uses (f) Existing Homes on Substandard Lots In the R-2 district, single-family and two-family homes on substandard lots, as defined in Section 18.10.040(b), and flag lots existing on August 1, 1991 and which prior to that date were lawful, complying structures, may remain and be remodeled, improved, or replaced without complying with the height and habitable floor limitations for substandard lots specified in Section 18.10.040, provided that: (1) any such remodeling, improvement, or replacement does not result in a height above seventeen feet or any additional habitable floor area above a first habitable floor, except that any structure damaged or destroyed by a natural disaster (such as fire, flood or earthquake) may be replaced to its previous size without regard to the height and habitable floor limitations imposed by this section; and (2) in the case of a conflict between the provisions of this section and the provisions of Chapter 18.70, this section shall control. With the combination of this zoning section and the variance approval, the proposed structure will replace a lawful pre-existing residence of equal size, and will not exceed 17 feet in height or contain a habitable floor above the first floor. With respect to parking: it was suggested that the property could/should be built without including any off-street parking. However that would mean this residence is solely reliant on street parking, which is very limited in this area. As a short narrow block, the street parking is typically full at most times of day. There is a nearby medical rehabilitation center which also regularly contributes to the competition for street parking. So without dedicated off-street parking access for this property, all daily activities of loading and unloading personal items between the home and transportation will be a continual challenge. With the limited width of the lot, we won't physically have enough width for a full two -car garage width, so an oversized one -car garage is all that can fit. Since there will be no options for driveway parking with the short front setback, the garage will be a critical amenity for this residence. Additionally, the extra garage width will allow for storage of other personal belongings that could typically be stored in yard space on a normal -sized property. With such limited space around the sides and rear, there isn't room for any items that could typically to be stored outside the residence, or be kept under a porch, or in a rear shed or elsewhere. Pg. 4 of 5 Item 6: Staff Report Pg. 9 Packet Pg. 86 of 341 Re: 949 Scott St. variance request July 7, 2022 Item 6 Attachment B - APPLICANT'S PROJECT DESCRIPTION With respect to the two existing Street Trees: With a narrower driveway, it could be possible to keep both street trees, though it would be extremely tight. There is only 14 feet distance between the two trees, so even with a 10 foot wide driveway it would still just barely clear the trunks. We are currently proposing to remove only one of the trees to facilitate the new driveway. For the remaining street tree in front of this property, we have adjusted the driveway dimensions to create 6 feet of separation between tree and the driveway. For the replacement of the other tree, we could propose moving it to the right side to create more separation. But there is a street light not far away on that side, and the neighbors driveway just beyond that, so it would not be a location with improved clearances for the tree to grow. So ultimately we are proposing to relocate the one street trees to the left of the remaining tree, just in front of the neighboring property, spaced equally to their current location in front of 949. There is a wide open section of the sidewalk planter that is not planted, so a replacement street tree would have ample room to grow, not affect any utilities, and be clearly away from any driveways. Summary: In weighing different design directions and options for this parcel, we have arrived at our current proposed development as submitted with this application. We feel this embodies the best use of the property, is the most compatible with the context of the surrounding neighborhood, and poses the least impacts to the overall neighborhood, environment, and public welfare, and will be consistent with the Title 18 zoning intentions. We appreciate your time in the review and consideration of our application and are available to answer any questions or to provide additional information. Sincerely, Daniel S. Rhoads, Architect Y&B Architects Inc. Pg. 5 of 5 Item 6: Staff Report Pg. 10 Packet Pg. 87 of 341 ATTACHMENT C ZONING COMPARISON TABLE 949 Scott Street — 22PLN-00410 Item 6 Attachment C - ZONING COMPARISON TABLE Table 1: COMPARISON WITH CHAPTER 18.10 (R-2 DISTRICT) Regulation Required Existing Proposed Minimum/Maximum Site 6,000-11,999 sf area, 1,500 sf 1,500 sf Area, Width and Depth 60 ft width, 100 ft depth Minimum Front Yard 20 ft 10 ft, 9.5 in 10 ft, 9.5 in Rear Yard 20 ft 3 ft, 11.5 in 4 ft Interior Side Yard 6 ft 3 ft, 0.5 in; 2 ft, 8 in 4 ft Street Side Yard 16 ft N/A N/A Special Setback 24 feet — see Chapter N/A N/A 20.08 & zoning maps Max. Building Height 17 ft due to 14 16 ft, 11 in substandard size Side Yard Daylight Plane 10 feet at interior side Complies Complies lot line then 45 degree angle (3) Front and Rear Yard 16 feet at rear setback Complies Complies Daylight Plane line then 60 degree angle (3) Max. Site Coverage 40% for single story, 57.3% (860 sf) 44.88% (673.3 sf) 35% for multi -story with an additional 5% for covered patio/ overhangs (600 sf) Max. Total Floor Area 45% for first 5,000 sf 55.66% (834.8 sf) 44.88% (673.3 sf) Ratio lot size and 30% for lot size in excess of 5,000 sf (675 sf) and additional 200 sf for one covered parking space (4) Max. House Size 6,000 sf 834.8 sf 673.3 Minimum site area 7,500 sf 1,500 sf 1,500 sf permitting two-family use Item 6: Staff Report Pg. 11 Packet Pg. 88 of 341 Item 6 Attachment C - ZONING (1) Minimum Lot Size: Any lot less than the minimum lot size may be used in accordance with the 4g. (2) R-2 Floodzone Heights: Provided, in a special flood hazard area as defined in Chapter 16.52, the COMPARISON TABLE increased by one-half of the increase in elevation required to reach base flood elevation, up to a maximum building height of 33 feet. (3) R-2 Floodzone Daylight Plane: Provided, if the site is in a special flood hazard area and is entitled to an increase in the maximum height, the heights for the daylight planes shall be adjusted by the same amount. (4) Exemption from Floor Area for Covered Parking Required for Two -Family Uses: In the R-2 and RMD districts, for two-family uses, floor area limits may be exceeded by a maximum of two hundred square feet, for purposes of providing one required covered parking space. (5) Maximum House Size: The gross floor area of attached garages and attached accessory dwelling units and junior accessory dwelling units are included in the calculation of maximum house size. If there is no garage attached to the house, then the square footage of one detached covered parking space shall be included in the calculation. This provision applies only to single-family residences, not to duplexes allowed in the R-2 and RMD districts. Table 2: CONFORMANCE WITH SECTION 18.10.060 and CHAPTER 18.52 (Off -Street Parking) for Single Family Residential Uses Type Required Existing Proposed Vehicle Parking 2 parking spaces per None One covered parking stall unit, of which one must in garage be covered Bicycle Parking None N/A N/A Item 6: Staff Report Pg. 12 Packet Pg. 89 of 341 Item 6 Attachment D - RECORD OF LAND USE ACTION APPROVAL NO. 2024 - RECORD OF THE COUNCIL OF THE CITY OF PALO ALTO LAND USE APPROVAL FOR 949 SCOTT STREET: VARIANCE (22PLN-00410) On January 22, 2024, the Council held a duly noticed public hearing and, after considering all of the evidence presented, approved the Variance application to encroach into the front, side, and rear setbacks for the first floor and basement of a new single story, single-family home. The Variance application also requested to deviate from the below grade patio side and rear setback, and number of parking stall requirements required by the R-2 Zoning District regulations. In approving the application, the Council could make the following findings, determination and declarations: SECTION 1. Background. A. A Variance to allow encroachments into the front, side, and rear setbacks for the first floor and basement of a new single story, single-family home. A Variance to allow deviations from the below grade patio side and rear setback, and number of parking stall requirements in the R-2 Zoning District regulations. ("The Project"). B. The project was reviewed by Staff and approved in a Director's Decision on October 26, 2023. C. The neighbor requested a PTC Hearing, pursuant to PAMC 18.77.060, on November 13, 2023. D. On December 13, 2023, the Planning and Transportation Commission held a duly noticed public hearing, at which evidence was presented and all person were afforded an opportunity to be heard in accordance with the Palo Alto Municipal Code and the Council's Policies and Procedures. E. On January 22, 2024, the City Council held a duly noticed public hearing, at which evidence was presented and all person were afforded an opportunity to be heard in accordance with the Palo Alto Municipal Code and the Council's Policies and Procedures. SECTION 2. Environmental Review. The proposed project has been determined to be Categorically Exempt per section 15303 (New Construction) of the California Environmental Quality Act Guidelines. SECTION 3. Variance Findin 1. Because of special circumstances applicable to the subject property, including (but not limited to) size, shape, topography, location, or surroundings, the strict application of the requirements and regulations prescribed in this title substantially deprives such property of privileges enjoyed by other property in the vicinity and in the same zoning district as the subject property. Special circumstances that are expressly excluded from consideration are: (A) The personal circumstances of the property owner, and (B) Any changes in the size or shape of the subject property made by the property owner Page 1 of 9 Item 6: Staff Report Pg. 13 Packet Pg. 90 of 341 Item 6 Attachment D - RECORD OF LAND USE ACTION or his predecessors in interest while the property was subject to the same zoning designation. The City's standard dimensions for a new R-2 lot are 60 feet wide by 100 feet deep while the property's dimensions are 30 feet wide by 50 feet deep as shown in the image below. When applying the standard setbacks to the property it leaves an area of 180 square feet to develop a new single-family home where a 675 square foot home is permitted to be developed based on the City's Floor Area Ratio (FAR) allowance of 45% of the first 5,000 square feet. The existing building is roughly 840 square feet and the applicant's proposal will replace it with a home that is below the City's allowed FAR — at 673 square feet. While the property at 362 Channing Avenue is similar in size, neither represent a predominant pattern in the neighborhood as most properties are wider and deeper than the subject property. Due to this uniqueness, strict application of the standard requirements would deprive the homeowner of their ability to build a home close to the size permitted by the City's zoning code. u-SI 2. The granting of the application affects substantial compliance with the regulations or constitutes a grant of special privileges inconsistent with the limitations upon other properties in the vicinity and in the same zoning district as the subject property, and The current building exists at a roughly 2'-8" rear setback, 3' to 3'-11" interior side setbacks, and 10'- 9" front setback. The proposed building will result in the rear and interior side setbacks being improved to a four foot setback, which is a consistent setback requirement for new ADUs and homes built through the Senate Bill 9 process, and the front yard setback will remain the same. The substantial changes made to the design of the building will be the inclusion of one on -site parking space, where there are currently none, and a basement underneath the footprint of the ground floor above it, which will not be visible to residents off -site. Per the Zoning Code, basements are not included in the floor area for the site and are not permitted in the setbacks for the property, outside of where the primary house can expand into. As noted in Finding 1, however, strict application of Page 2 of 9 Item 6: Staff Report Pg. 14 Packet Pg. 91 of 341 Item 6 Attachment D - RECORD OF LAND USE ACTION those rules would only permit a 180 square foot basement under the first floor of the structure which may lead to design challenges and functional limitations to a building meeting those standards. Due to the unique size of this parcel and physical limits of where a house can be built, allowing a basement under the proposed building would not grant this property owner a special privilege that other owners in the vicinity do not already enjoy. 3. The granting of the application is consistent with the Palo Alto Comprehensive Plan and the purposes of this title (Zoning), and The proposed development is consistent with the purposes of the Zoning Ordinance in that it replaces an existing single-family home with another single-family home and seeks to improve on legal, non -conforming conditions to the site related to FAR, parking, and setbacks. In addition, the application is consistent with the following Comprehensive Plan policies: Policy L-1.3: Infill development in the urban service area should be compatible with its surroundings and the overall scale and character of the city to ensure a compact, efficient development pattern. The proposed building will be compatible with its surroundings in that it is designed as a single- family home. The building will be designed as a single -story structure and the ground floor footprint will be reduced from the existing conditions on site, which will help to ensure the scale of the building is in keeping with the existing, surrounding buildings. Additionally, the new building is designed to meet the single-family daylight plane requirements in the R-2 zone district so there will be no added massing to the structure that will overly impact neighboring properties. Policy L-3.5: Avoid negative impacts of basement construction for single-family homes on adjacent properties, public resources, and the natural environment. The proposed basement will not impact adjacent properties as it will be contained within the boundaries of the property. The construction of the basement will not affect any adjacent trees on neighboring properties. The City has adopted a dewatering process for basement construction in the event the water table is high within this area to accommodate this construction. Policy N-2.8: Require new commercial, multi -unit and single-family housing projects to provide street trees and related irrigation systems. The proposed application will include two street trees: one as a replacement adjacent to the property in the right of way and another within a half mile from the property in the right of way. This will benefit public health by expanding tree canopy coverage within the public right of way where it does not currently exist. 4. The granting of the application will be detrimental or injurious to property or improvements in the vicinity, will not be detrimental to the public health, safety, general welfare, or convenience. The proposed structure would not be detrimental or injurious to property or negatively impact the Page 3 of 9 Item 6: Staff Report Pg. 15 Packet Pg. 92 of 341 Item 6 Attachment D - RECORD OF LAND USE ACTION public health, safety or general welfare of those in the nearby vicinity. All proposed construction would be located within the lot's area. While one existing street tree will be removed to accommodate the proposed driveway, the City will be receiving two replacement trees: one adjacent to the property and another placed within a half mile from the property, both in the public right of way. This will benefit public health by expanding tree canopy coverage within the public right of way where it does not currently exist. SECTION 4. Conditions of ADDroval. PLANNING 1. CONFORMANCE WITH PLANS: Construction and development shall conform to the approved plans entitled, "Tong Residence," stamped as received by the City on August 29, 2023 on file with the Planning Department, 250 Hamilton Avenue, Palo Alto, California except as modified by these conditions of approval. 2. BUILDING PERMIT. Apply for a building permit and meet any and all conditions of the Planning and Building Departments. 3. BUILDING PERMIT PLAN SET: A copy of this cover letter and conditions of approval shall be printed on the second page of the plans submitted for building permit. 4. PROJECT MODIFICATIONS: All modifications to the approved project shall be submitted for review and approval prior to construction. If during the Building Permit review and construction phase, the project is modified by the applicant, it is the responsibility of the applicant to contact the Planning Division/project planner directly to obtain approval of the project modification. It is the applicant's responsibility to highlight any proposed changes to the project and to bring it to the project planner's attention. 5. LANDSCAPE MAINTENANCE. All landscape material shall be well maintained and replaced if the plant material dies or if the irrigation equipment fails. Planters shall not drain onto sidewalk, ground, or public right of ways. 6. PROJECT EXPIRATION. The project approval shall automatically expire after two years from the original date of approval if, within such two year period, the proposed use of the site or the construction of buildings has not commenced pursuant to and in accordance with the provisions of the permit or approval. Application for a one-year extension of this entitlement may be made prior to the expiration. (PAMC 18.77.090(a)) 7. INDEMNITY: To the extent permitted by law, the Applicant shall indemnify and hold harmless the City, its City Council, its officers, employees and agents (the "indemnified parties") from and against any claim, action, or proceeding brought by a third party against the indemnified parties and the applicant to attack, set aside or void, any permit or approval authorized hereby for the Project, including (without limitation) reimbursing the City for its actual attorneys' fees and Page 4 of 9 Item 6: Staff Report Pg. 16 Packet Pg. 93 of 341 Item 6 Attachment D - RECORD OF LAND USE ACTION costs incurred in defense of the litigation. The City may, in its sole discretion, elect to defend any such action with attorneys of its own choice. 8. FINAL INSPECTION: A Planning Division Final inspection will be required to determine substantial compliance with the approved plans prior to the scheduling of a Building Division final. Any revisions during the building process must be approved by Planning, including but not limited to; materials, landscaping and hard surface locations. Contact your Project Planner, Garrett Sauls at Garrett.Sauls@CityofPaloalto.org to schedule this inspection. BUILDING 9. A building permit is required for the proposed structure. URBAN FORESTRY 10. The proposed removal of street tree #1, a six-inch Crepe Myrtle, to accommodate a new designated driveway for at 949 Scott Street is approved. The replacement requirement is two new 36 -inch box, drought tolerant trees. One tree will be planted near frontage of address in the public right of way and the other planted in the ROW within a half mile radius. The offsite replacement tree location is to be determined once work commences. The applicant must keep Urban Forestry updated on the time of proposed home demolition in order for a 14 -day Public notice to be posted to the street tree prior to its removal. A no -fee THE application will be applied to the building permit when submitted. ZERO WASTE 11. REQUIRED DECONSTRUCTION. In conformance with PAMC 5.24, deconstruction and source separation are required for all residential and commercial projects where structures (other than a garage or ADU) are being completely removed, demolition is no longer allowed. Deconstruction takes longer than traditional demolition, it is important to plan ahead. For more information, visit www.cityofpaloalto.org/deconstruction. 12. SALVAGE SURVEY FOR REUSE. A Salvage Survey is required for deconstruction permit applications. The survey shall be conducted by a City approved reuse vendor. The survey submittal shall include an itemized list of materials that are salvageable for reuse from the project. The applicant shall source separate and deliver materials for reuse. Certification is required indicating that all materials identified in the survey are properly salvaged. Contact The ReUse People to schedule this FREE survey by phone (888) 588-9490 or e-mail info@thereusepeople.org.Moreinformationcanbefoundatwww.TheReusePeople.org.Please upload a completed copy to the deconstruction permit. 13. SOURCE SEPARATION FOR RECYCLING. The applicant shall source separate deconstruction materials into specific categories for recycling. Additional staging areas for source separated materials will need to be considered. All materials shall be delivered to one of the City approved materials recovery facilities listed in Green Halo, all records shall be uploaded to www.greenhalosystems.com. For more information, refer to www.cityofpaloalto.org/deconstruction. Page 5 of 9 Item 6: Staff Report Pg. 17 Packet Pg. 94 of 341 Item 6 Attachment D - RECORD OF LAND USE ACTION FIRE 14. Install a NFPA 13-D fire sprinkler system with coverage throughout the house including closets and bathroom. PUBLIC WORKS ENGINEERING 15. PUBLIC WORKS STANDARD CONDITIONS SHEET: The Department of Public Work's full-sized "Standard Conditions" sheet shall be included in the improvement plans and the applicant shall comply with all conditions listed in the sheet. The sheet can be obtained at the following link under "Public Works Plan Review Documents": https://www.cityofpaloaIto.org/Departments/Public-Works/Engineering-Services/Forms-and- Permits 16. SIDEWALK, DRIVEWAY, CURB & GUTTER: The applicant shall meet with a Public Works inspector by calling 650-496-6929 to determine portions of sidewalk, curb, gutter, and driveway approaches that shall be replaced along the project frontage. These portions shall be indicated on the site improvement plans. In addition, a Site Inspection Directive sheet shall be completed, signed by the inspector, and scanned onto the plan set. The sheet can be obtained at the following link: https://www.cityofpaloaIto.org/files/assets/public/public-works/engineering- services/webpages/forms-and-permits/other-guidelines/pwe-siteinspection-directive rev- 2021.pdf 17. DRIVEWAY APPROACHES: The applicant shall comply with all regulations in PAMC Chapter 12.08 for driveway approaches. A summary of those regulations can be obtained at the following link: https://www.cityofpaloaIto.org/civicax/filebank/bIobdIoad.aspx?t=69580.09&BlobID=66035 18. STORM WATER POLLUTION PREVENTION SHEET: The City's full-sized "Pollution Prevention - It's Part of the Plan" sheet shall be included in the improvement plans. The sheet can be obtained at the following link under "Public Works Plan Review Documents": https://www.cityofpaloaIto.org/Departments/Public-Works/Engineering-Services/Forms-and- Permits 19. IMPERVIOUS SURFACE AREA WORKSHEET: The applicant shall fill out and include with the building permit submittal the Impervious Area Worksheet for Land Developments. The sheet can be obtained at the following link under "Public Works Plan Review Documents": https://www.cityofpaloaIto.org/Departments/Public-Works/Engineering-Services/Forms-and- Permits 20. GRADING & DRAINAGE PLAN: The plan set shall include a grading & drainage plan prepared by a licensed professional. See the Grading & Drainage Plan Guidelines for New Single Family Residences: https://www.cityofpaloalto.org/files/assets/public/public- works/engineeringservices/webpages/forms-and-permits/grading-drainage-residential- guidelines.pdf Page 6 of 9 Item 6: Staff Report Pg. 18 Packet Pg. 95 of 341 Item 6 Attachment D - RECORD OF LAND USE ACTION 21. C.3 STORM WATER REGULATIONS: This project creates or replaces over 2,500 square feet of impervious surface area. The applicant shall implement one or more of the following site design measures on improvement plans: a. Direct roof runoff into cisterns or rain barrels for reuse. b. Direct roof runoff onto vegetated areas. c. Direct runoff from sidewalks, walkways, and/or patios onto vegetated areas. d. Direct runoff from driveways and/or uncovered parking lots onto vegetated areas. e. Construct sidewalks, walkways, and/or patios with permeable surfaces. f. Construct driveways, and/or uncovered parking lots with permeable surfaces. 22. STREETWORK PERMIT: All improvement plans shall include the following note adjacent to proposed work in the public right-of-way. "Any construction within the public right-of-way requires an approved Street Work Permit from Public Works Engineering". 23. DEMOLITION PLAN: The following note shall be placed adjacent to all affected trees on the Demolition Plan: "Excavation and trenching is restricted within the Tree Protection Zone (refer to T-1 Tree Protection Sheet) or as approved by the Urban Forestry Division at 650-496-5953. Any changes shall be approved by the same". 24. CONSTRUCTION STAGING: All improvement plans shall include the following note on the Site Plan and the Grading & Drainage Plan. "All construction materials and equipment shall be staged, stored, and stockpiled onsite and not on any public street". 25. EXCAVATION & GRADING PERMIT: The site plan shall include an earthworks table showing the cut and fill volumes. If the total is more than 100 cubic yards, an Excavation and Grading Permit shall be obtained per PAMC Chapter 16.28 prior to building permit approval. The permit application and all required documents shall be submitted to Public Works Engineering. The application can be obtained at the following link: https://www.cityofpaloalto.org/Departments/Public-Works/Engineering-Services/Forms-and- Permits 26. CONSTRUCTION DEWATERING: This project may require dewatering during construction due to the groundwater level relative to the excavation. Refer to the following link and navigate to "Construction Dewatering Plan Design Guidelines" for more information: https://www.cityofpaloalto.org/Departments/Public-Works/Engineering-Services/Forms-and- Permits 27. BASEMENT DRAINAGE: A drainage system is required for all exterior basement -level spaces such as lightwells, patios, or stairwells. This system consists of a sump, a sump pump, a backflow preventer, and a closed pipe from the pump to a dissipation device onsite at least 10 feet from back of sidewalk and 3 feet from side and rear property lines, such as a bubbler box in a landscaped area. NOTE: Perforated pipe drainage systems at the exterior of the basement walls or under the slab are not allowed for sites on the bay side of Foothill Expressway. Page 7 of 9 Item 6: Staff Report Pg. 19 Packet Pg. 96 of 341 Item 6 Attachment D - RECORD OF LAND USE ACTION 28. EXCAVATION SHORING: Shoring Plans prepared by a licensed professional engineer shall be submitted with the Grading and Excavation Permit. Shoring and tiebacks shall not extend onto adjacent private property or into the City right-of-way without having first obtained written permission from the private property owner(s) and/or an encroachment permit from the Department of Public Works. a. LOGISTICS PLAN: A construction logistics plan shall be provided addressing all impacts to the public including, at a minimum: work hours, noticing of affected businesses, bus stop relocations, construction signage, dust control, noise control, storm water pollution prevention, job trailer, contractors' parking, truck routes, staging, concrete pours, crane lifts, scaffolding, materials storage, pedestrian safety, and traffic control. All truck routes shall conform to the City of Palo Alto's Trucks and Truck Route Ordinance, Chapter 10.48, and the route map. NOTE: Some items/tasks on the logistics plan may require an encroachment permit. Logistics Plan Preparation Guidelines can be found here: https://www.cityofpaloalto.org/files/assets/public/public-works/engineering- services/webpages/forms-and-permits/logistics-plan-preparation-guidelines-2021.pdf SECTION 5. Variance Approved. This Record finds that the project was approved. PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Senior Asst. City Attorney APPROVED: Director of Planning and Community Environment Page 8 of 9 Item 6: Staff Report Pg. 20 Packet Pg. 97 of 341 Item 6 Attachment D - RECORD OF LAND USE ACTION 1. Those plans prepared by Young and Borlik Architects titled "Tong Residence", consisting of 17 pages, and received August 29, 2023. Page 9 of 9 Item 6: Staff Report Pg. 21 Packet Pg. 98 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS TO: The Planning Department, City of Palo Alto From: Susie Richardson, 353 Addison, Palo Alto November 13, 2023 I live next door to the cottage at 949 Scott Street and I want to appeal a Plan Approval. File number 22PLN-00410.1 never thought it would be in danger because the lot is so small no one would be able to tear it down and build anything else. I was, obviously, wrong. It is surprising that someone who already lives on Scott Street would want to change anything about the property. It is perfect the way it is. The replacement plan I have seen takes a lovely building away and replaces it with a garage on the first floor. After the cottage has been scraped and a hole dug, a large room with living space underground will be built. There are many rules against allowing anyone to do such a thing, but our Planning Department has given it the okay. There are so many variances, they occur practically at every stage of the project. In addition. it violates the Palo Alto's General Housing Plan and the Senate Bill 330. Building a bunker or bomb shelter does not improve the amount of housing in the neighborhood. The existing building is charming with large windows looking out on a wonderful little garden from the living room and one of the bedrooms. It has a separate dining room and a fireplace in the living room. We bought the house next door in 1972 and several people have been very happy in the cottage. On the other hand, the replacement looks like an attachment to a tract house. There is no front yard. The entry is a small door that opens into the garage. The street no longer has space for 2 cars. The entry to the garage cuts away the curb. The tree in the parking strip has to be removed. The sidewalk merges with the driveway. The construction is a nightmare for Scott Street. Putting up with construction on a street with only one entrance is bad enough, but to add all the traffic and parking created by the park makes it a congested mess. I have to mention one part of the construction I find particularly disturbing is the installation of pillars being pounded or drilled every eighteen inches around the exterior of the basement. But there is also the major inconvenience for the neighbors of a dumpster parked for maybe a year. It really will be awful. I am asking you to please save the little house at 949 Addison. It has provided a nice home for many people and I am sure it would continue to do so if given the chance. Item 6: Staff Report Pg. 22 Packet Pg. 99 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS Andrew Martin 940 Scott St Palo Alto, CA 94301 Garrett Sauls Department of Planning City of Palo Alto 250 Hamilton Ave Palo Alto, CA 94301 23 March, 2023 Dear City Planning Staff, I am writing this letter to register concerns regarding the proposed redevelopment and variance for 949 Scott Street, File number 22PLN-00410. The plans for 949 Scott contain many of the rudimentary building blocks for a house on paper but are designed in a way that seem inconsistent with the intended zoning use. I am concerned that, in practice, this design may be less of a single-family home and more of a garage extension. As such, this may be reducing, not maintaining density and be in violation of the General Housing Plan and SB330. In our neighborhood most houses have "curb appeal" - that is, they have a front door or clear entry, they have windows or some visibility from the street, and they have a front yard and/or porch. If none of these are met, and if the primary living quarters, kitchen, living room, are all underground, is it still a viable family house? Is it consistent with the General plan? Would such a property be the future home of a new family? Or, is it possible such a development would become an extension to a nearby residence — a large, albeit very expensive, garage and bonus space? Senate Bill 330 expressly redefines "lower density" to include any action that has the effect of reducing housing density: "Lower density" includes any conditions that have the same effect or impact on the ability of the project to provide housing. One could assert, and the City of Palo Alto has argued similarly in the past, that designing a house that serves, in effect, to form a multi -lot compound violates SB330 in word or certainly in spirit. As designed, 949 Scott may no longer be a realistic home for a future family but, de facto, an accessory unit for the 935 property and thus further reduce density in the neighborhood. In 2008 there were three single-family homes adjacent on the odd side of Scott street numbered 935, 943, and 949. One buyer then purchased both 935 and 943, removed the existing houses, combined the two properties into a 10k sq ft lot, and built a 5,500 sq ft home. In 2019, a new Item 6: Staff Report Pg. 23 Packet Pg. 100 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS owner bought 935 Scott and the adjacent substandard lot of 949 Scott. The two homes sat unoccupied for four years until both properties were bought by the current applicants in 2022, where 935 is the primary residence and 949 is adjacent. Palo Alto has many residents who own multiple properties - which is certainly legal. However, if the properties are developed in such a way that they form a compound where residents are not occupying the properties, where neighbors have fewer neighbors, this should be of concern for the Council. Could it be that in a 15 year span we will go from 3 family housing units to just 1 on this stretch of Scott St? Furthermore, the proposed plans are not consistent with and will have a negative impact on the immediate neighborhood in other ways: • From the street, the proposed plans do not resemble a home, but rather a garage entry in San Francisco where the sidewalk blends into a door with little between. • If approved, this small property (less than 1498 sq ft) would be the only double -wide cutout on Scott - with almost the entire frontage of the lot as entrance to the garage. • Since the lot is so small, the front setback, as designed, does not leave space to park on what would be a driveway - you go from street to sidewalk to garage. • If approved, the double driveway would require the removal of two street trees - leaving that side of the block relatively barren. • If approved, the proposed two car garage would take 2-3 street parking spots. Parking is a challenge on the street during the day with the close proximity to Scott Park, the basketball hoop, and Palo Alto Sub -Acute visitors. I would welcome a revised design that has more features resembling a home and less impact on the existing neighborhood, such as a front door or entry way, perhaps a one -lane parklet or single garage, loss of only one parking space, loss of only one street tree, all provided off-street parking is really essential for such a small lot. If we were to grant a variance on this house, let it be to have NO parking as on -site parking isn't really compatible with such a small lot. The variance is an opportunity for the City to ensure the proposed plans are in the best interest of its residents and its larger plan. In the case of the currently proposed design for 949 Scott, struggle to see how the 2 -car garage concept is compatible and may be in violation of the General Plan and SB330 by effectively reducing density. Over 10 years ago, our family moved to downtown Palo Alto because we wanted our children to grow up in a neighborhood with a sidewalk and with neighbors. We are thrilled to have the applicants move in across the street, to have another home serving treats on Halloween and another family joining the annual block party for one more family in the future. Sincerely, -Andy Martin hold out hope that with 949 there is or will be space Item 6: Staff Report Pg. 24 Packet Pg. 101 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS From: Andrew Martin To: Sauls. Garrett Subject: 949 Scott Date: Friday, May 19, 2023 6:20:09 AM CAUTION: This email originated from outside of the organization. Be cautious of opening attachments and clicking on links. Hi Garrett, I recently found that there had been some updates with 949 Scott. I was able to view a rendering of the second version and view the plans. I wanted to share my feedback with you and the planning department. 1. The rendering and plans are not in -sync. The curb cut is larger in the rendering than plans - it is hard for people evaluate if not matching. (Or, perhaps I could have seen an incorrect rendering). 2. The proposed plans do not seem very residential in nature. A few examples: - there isn't a distinct pedestrian walkway from the sidewalk to the door - there is no roof element covering the front entrance. The existing structure has a small porch as do must other homes. - the wide driveway and excessive paving leave little space for any front yard. - the front door leads to the garage Zoning is meant to control use of land. Is this consistent with the zoning? 3. In addition to these points, the strongest challenge to the proposal is, once again, the intended use of the this property if these plans are approved. - a design that requires one to enter the garage and walk through it (so long as there isn't a car inside) and the go down to the basement seems suspect given the current home. - as the submitters of these plans are also the owners of the adjacent 10+M property, does it seem like these plans are an extension of their adjacent lot or a real attempt at building a better single family residence? How common is it for a neighbor to support a setback reduction when both properties lie on the shared setbacks? While the city may not be able to reject a set of plans based on an interpretation of intended use, they can certainly exercise the right to refuse any variances. The approval of variances for this design by the city effectively endorses a reduction in housing and is contrary to the intent, and perhaps actual word, of both city code and state law (SB330). If the result of this project were a new home that would enhance our neighborhood and provide a place for someone to realistically move into I would be supportive of granting variances. Unfortunately, I do not see that in these plans. Item 6: Staff Report Pg. 25 Packet Pg. 102 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS Sincerely, Andrew Martin 940 Scott 650-380-3405 Item 6: Staff Report Pg. 26 Packet Pg. 103 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS From: Andrew Martin To: Sauls Garrett Subject: Re: 949 Scott Street- 22PLN-00410 Date: Thursday, November 2, 2023 5:24:03 PM Attachments: imaaeto3.pre imaeett7. pro aae009 on Imaae034.era aae019. ono ae029era inlaoetlS.on aae001 on aae014. to imawe029. ono imaweS3t. ono aae027 on mmae02tvrm aae035. ono imaweSS2. era ono imaae0 aee10 024.ore m aae024.ono maae033 pro aae036 on Imaae020. on a00022. pro Thank you for the information. On Thu, Nov 2, 2023 at 1:18 PM Sauls, Garrett <GarrettSan1s@cityyofpaloaltoorg> wrote: Hi Andrew, The City issued a decision letter for the application on October 25 but notice cards didn't get sent out until October 26. As a result, the 14 day appeal period will continue through November 9. Should anyone wish to appeal the decision, they will need to fill out the attached form and send it to myself or those listed in the form, as well as pay the appeal fee prior to the end of business day on November 9 (5:00pm). If no appeal is received, then the decision will be final on November 10. Let me know if you have any questions. Best regards, Garrett Sauls Planner L Planning and Development Services Department CITY O F (650) 329-2471 1 Garrett Sauls@CitvofPaloAlto.org PALO ALTO N©�® e feedback on Planning Deoetwpesenhai Administration services From: Andrew Martin <124anrly gn ail com> Sent: Thursday, November 2, 2023 12:54 PM To: Sauls, Garrett <Garrett.Sauls@CityofPaloAlto.org> Subject: Re: 949 Scott Street - 22PLN-00410 Hello Garrett, Can you please provide me with an update of the approval timeline and variance process for the 949 Scott project along with relevant future dates / hearings / deadlines? Thank you. -Andy 650-380-3405 Item 6: Staff Report Pg. 27 Packet Pg. 104 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS On Thu, Mar 23, 2023 at 3:41 PM Sauls, Garrett <Garrett Sarnls@eivTfnalnaltn.mg> wrote: Sorry, Andrew. I think I read Scott in the title of the email and put that as the name instead. Garrett Sauls tiPlanner Planning and Development Services Department CITY OF (650) 329-2471 1 Garrett.Sauls(kCitvofPaloAlto.org_ PALO ALTO M © o Provide reedbraI on Planning Development —1 Administration services From: Sauls, Garrett Sent: Thursday, March 23, 2023 3:40 PM To: 'Andrew Martin' <1 an vmm�� _o it com> Subject: RE: 949 Scott Street - 22PLN-00410 Thanks Scott. I read through the letter and will add it to the record as comments against what has been submitted so far. Best regards, Garrett Sauls Planner Planning and Development Services Department CITY OF PALO (650) 329-2471 1 Garrett.Sauls@CitvofPaloAlto org ALTO Provide feedback on Planmag oe�elopment and Admirwcatbn sarvicea From: Andrew Martin <1 an y1 gmro�il comcom> Sent: Thursday, March 23, 2023 3:25 PM To: Sauls, Garrett <Garrett Sauls@CiityntPalnAlto oro> Subject: Re: 949 Scott Street - 22PLN-00410 Thanks Garrett, I reached out a few months ago and gave some feedback. They said they might take it to their architect, but I think this wasn't the case. Attached is my feedback. Thank you, Item 6: Staff Report Pg. 28 Packet Pg. 105 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS -Andy Martin 650-380-3405 On Thu, Mar 23, 2023 at 3:16 PM Sauls, Garrett <Garrett Sa,nls(¢citvyfpaloaltonrg> wrote: Hi Andrew, I have not received any resubmittal from the applicant. Best regards, Garrett Sauls Planner Planning and Development Services Department CITY OF PALO (650) 329-2471 Garrett.Sauls@CitvofPaloAlto.org CityofPaloAlto.org ALTO 1DJD From: Andrew Martin «v(o®gm�_o�il cnmenm> Sent: Thursday, March 23, 2023 3:16 PM To: Sauls, Garrett <Garrett. Sanls@CiIynfPaloA1tn. org> Subject: Re: 949 Scott Street - 22PLN-00410 Hi Garrett, Has there been any update on this proposal? If not, I have an official letter to send to register my issues. -Andy On Fri, Jan 27, 2023 at 1:45 PM Sauls, Garrett <Garrett. Sauls(¢�eitynfna1oaltn_nrg> wrote: Hi Andrew, Thanks for letting me know. If you have any questions, feel free to ask. At the moment, we provided comments to the applicant on January 13. I haven't heard back from them about those comments so I imagine they are working with the homeowner on it. Best regards, Garrett Sauls Planner Planning and Development Services Department CITY O F PALO (650) 329-2471 1 Garrett.Sauls CityofPaloAlto org ALTO Item 6: Staff Report Pg. 29 Packet Pg. 106 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS From: Andrew Martin <] 93andy(n�omail. nomnom> Sent: Wednesday, January 25, 2023 12:51 PM To: Sauls, Garrett <Garrett Sauls@CitynfPaloAltn org> Subject: Re: 949 Scott Street - 22PLN-00410 IYou don't often get email from 1 @gma�rnm. Learn wh; tho a nn rtanr Hi Garrett. Just FYI that I have reached out to the owners to talk about the project. I do have some concerns and will address them when we meet. Please keep me posted on the status of this project and any scheduled public meetings or deadlines. Thanks! -Andy Martin On Wed, Jan 4, 2023 at 8:39 AM Sauls, Garrett <Garrett San1s@ci ynfl,alooltn.org> wrote: I Hi Andrew, Due to new copyright laws that took effect on January I we can't provide unfiltered plan sets anymore unfortunately which is probably why you can't access the drawings on BuildingEye. I have modified the drawings to include information that we can share and attached it to this email. If you have any questions, please let me know. Best regards, Garrett Sauls Planner Planning and Development Services Department CITY OF (650) 329-2471 1 Garrett.Sauls@CitvofPaloAltoorg PALO ALTO In © o ® 1M. From: Andrew Martin <123andy(o(.gmail_anm> Sent: Tuesday, January 3, 2023 1:25 PM To: Sauls, Garrett <GarretfRanls@CityofPaloA to orgoro> Subject: Fwd: 949 Scott Street - 22PLN-00410 Item 6: Staff Report Pg. 30 Packet Pg. 107 of 341 Item 6 Attachment E - APPEAL & PUBLIC COMMENTS You don't often get email from I aad Hgmail .eau wl, thia imporunt CAUTION: This email originated from outside of the organization. Be cautious of opening attachments and clicking on links. Hello Garrett, I tried to view the application on the BuildingEye site but there was only reference to an electrical panel upgrade a few years ago. Can you please send me all the plans/information regarding the proposed development for 949 Scott St. I live across the street. Thank you, -Andy Martin 650-380-3405 Item 6: Staff Report Pg. 31 Packet Pg. 108 of 341 State of California —The Resources Agency Primary # DEPARTMENT OF PARKS AND RECREATION HRI # __________ PRIMARY RECORD Trinomial NRHP Status Code Other Listings Review Code Reviewer Date Page 1 of 11 Resource name(s) or number (assigned by recorder) 949 Scott Street Item 6 Attachment F - PAGE & TURNBULL HISTORIC EVALUATION P1. Other Identifier: *P2. Location: Not for Publication DUnrestricted *a. County Santa Clara *b. USGS 7.5' Quad Palo Alto, CA Date 2023 *c. Address 949 Scott Street City Palo Alto Zip 94301 d. UTM: (Give more than one for large and/or linear resources) Zone mE/ mN *e. Other Locational Data: Assessor's Parcel Number 120-17-074 *P3a. Description: (Describe resource and its major elements. Include design, materials, condition, alterations, size, setting, and boundaries.) 949 Scott Street is located on a 30' x 50' lot on the northeast side of Scott Street, between Addison and Channing avenues. Built in 1922, 949 Scott Street is a one-story residence designed in a simple Craftsman style. The rectangular -plan house, clad in stucco, sits on a concrete foundation, and is capped by an asphalt shingle hipped roof. The primary fagade faces southwest. Fenestration consists of multi-lite wood windows with wood sills. The primary facade terminates in a hipped roof with a slight overhang. The house is set back in a small yard with a stone walkway enclosed by a wood picket fence. The house appears to be in good condition. Southwest (Primary) Facade The southwest (primary) fagade fronts Scott Street. The fagade is symmetrical, containing a pair of fixed 12- lite wood windows on either side of the primary entrance (Figure 2 and Figure 3). At the center of the fagade is a glazed 12- lite wood door behind a wood storm door, under an extended roof overhang, supported by two paneled square wood columns and accessible by concrete steps. Above the front door within the roof line is a three -pane wood dormer window capped by a hipped roof. (Continued on page 2) *P3b. Resource Attributes: HP2: Single Family Residence *P4. Resources Present: OBuilding ❑Structure DObject DSite ❑District DElement of District ❑Other P5a. Photo 4l1 i 9, 'I lYnift rWw1 ThThT !IITtIEi1illci1I P5b. Photo: (view and date) Southwest (Primary) Fa�ade *P6. Date Constructed/Age and Sources:OHistoric Prehistoric Both January 1922. Permit Card *P7. Owner and Address: Simon and Shamim Tong 949 Scott Street Palo Alto, CA 94301 *P8. Recorded by: Page & Turnbull, Inc. 170 Maiden Lane, 5th Floor San Francisco, CA 94108 *P9. Date Recorded: March 13, 2023 *P10. Survey Type: Intensive *P11. Report Citation: None *Attachments: ❑None ❑Location Map ❑Sketch Map ❑x Continuation Sheet ❑O Building, Structure, and Object Record ❑Archaeological Record DDistrict Record ❑Linear Feature Record DMilling Station Record ❑Rock Art Record DArtifact Record ❑Photograph Record ❑ Other (list) DPR 523A (9/2013) *Repuired information Item 6: Staff Report Pg. 32 Packet Pg. 109 of 341 Item 6 Attachment F - PAGE & State of California —The Resources Agency Primary # TURNBULL HISTORIC DEPARTMENT OF PARKS AND RECREATION HRI # CONTINUATION SHEET Trinomial EVALUATION Page 2 of 11 Resource Name or # (Assigned by recorder) 949 Scott Street *Recorded by Page & Turnbull, Inc. *Date March 27, 2023 0 Continuation ❑ Update *P3a. Description (Continued) rv) F tM1 4 Figure 1: Aerial view of 949 Scott Street. Subject property outlined in red. Google Maps, 2023. Figure 2: North half of southwest facade. Figure 3: South half of southwest facade. Northwest Facade The northwest facade fronts a narrow gravel pathway and a concrete property wall, accessible by a wood picket gate to the south. The north (left) side includes two double -hung wood windows (Figure 4). At the center of the facade is a six -over -one double -hung wood window, slightly higher than the others on the facade plane. The south (right) side includes two double -hung wood windows (Figure 5). DPR 523L Item 6: Staff Report Pg. 33 Packet Pg. 110 of 341 Item 6 Attachment F - PAGE & State of California —The Resources Agency Primary # TURNBULL HISTORIC DEPARTMENT OF PARKS AND RECREATION HRI # CONTINUATION SHEET Trinomial EVALUATION Page 3 of 11 Resource Name or # (Assigned by recorder) 949 Scott Street *Recorded by Pape & Turnbull, Inc. *Date March 27, 2023 0 Continuation ❑ Update ,I ill 1 Figure 5: Northwest facade, looking northeast. Northeast Facade The northeast (rear) facade fronts a narrow graveled space next to a concrete property wall. The east (left) side has two concrete steps leading up a 10-lite wood door behind a screen door (Figure 6). A small rectangular wood vent sits west of the door. At the center of the facade is projecting vinyl garden window (Figure 7). The west (right) side has a projecting wood shed and a double - hung wood window (Figure 8). Figure 6: Northeast facade, looking west. Figure 7: Northeast facade, looking west. DPR 523L Item 6: Staff Report Pg. 34 Packet Pg. 111 of 341 State of California —The Resources Agency DEPARTMENT OF PARKS AND RECREATION CONTINUATION SHEET Item 6 Attachment F - PAGE & TURNBULL HISTORIC EVALUATION Primary # HRI # Trinomial Page 4 of 11 Resource Name or # (Assigned by recorder) 949 Scott Street *Recorded by Page & Turnbull, Inc. *Date March 27, 2023 0 Continuation ❑ Update Figure 8: Northeast facade, looking east. Southeast Facade The southeast facade fronts a gravel walkway and tall hedge, accessible by a wood picket gate to the south. The south (left) corner of the facade contains a square nine-lite fixed wood window (Figure 9). The center has a second square nine-lite fixed wood window. Two double -hung wood windows sit on either side of a square fixed wood window. The rest of the north (right) portion of the facade contains no fenestration (Figure 10). Figure 9: Southeast facade, looking northeast. Figure 10: Southeast facade, looking southwest. Surrounding Neighborhood The immediate surrounding area is primarily residential. Scott Street dead -ends at small public park called Scott Park, which contains picnic tables, a half -court basketball court, a bocce ball court, toddler swings, and lawn. The area showcases a mix of residential styles, including Craftsman, Contemporary, and Spanish Revival. The homes were built starting in 1902 to 2011 (Figure 11 -Figure 14). DPR 523L Item 6: Staff Report Pg. 35 Packet Pg. 112 of 341 State of California —The Resources Agency DEPARTMENT OF PARKS AND RECREATION CONTINUATION SHEET Page 5 of 11 *Recorded by Page & Turnbull, Inc. Figure 11: 353 Addison Avenue. Figure 13: 935 Scott Street. Item 6 Attachment F - PAGE & TURNBULL HISTORIC EVALUATION Primary # HRI # Trinomial Resource Name or # (Assigned by recorder) 949 Scott Street *Date March 27, 2023 0 Continuation ❑ Update Figure 12: 327 Addison Avenue. Figure 14: 943 and 936 Scott Street. DPR 523L Item 6: Staff Report Pg. 36 Packet Pg. 113 of 341 Item 6 Attachment F - PAGE & State of California —The Resources Agency Primary # TURNBULL HISTORIC DEPARTMENT OF PARKS AND RECREATION HRI# EVALUATION BUILDING, STRUCTURE, AND OBJECT RECORD Page 6 of 11 *NRHP Status Code 6Z *Resource Name or # 949 Scott Street B1. Historic name: B2. Common name: 949 Scott Street B3. Original Use: Residence B4. Present use: Residence *B5. Architectural Style: Craftsman *B6. Construction History: (Construction date, alterations, and date of alterations) Prior to construction in 1922, the site was previously undeveloped. (Refer to continuation sheet, page 7) *B7. Moved? t7No DYes ❑Unknown Date: Original Location: *B8. Related Features: None B9a. Architect: Unknown b. Builder: *B10. Significance: Theme N/A Period of Significance N/A Property Type Area University South, Palo Alto Residential Applicable Criteria mn Historic Context: Palo Alto History The earliest known settlement of the Palo Alto area was by the Ohlone people. The region was colonized in 1769 as part of Alta California. The Spanish and Mexican governments carved the area into large ranchos which contained portions of land that became Palo Alto including Rancho Corte Madera, Rancho Pastoria de las Borregas, Rancho Rincon de San Francisquito, and Rancho Riconada del Arroyo de San Francisquito.1 These land grants were honored in the cession of California to the United States, but parcels were subdivided and sold throughout the nineteenth century. The current city of Palo Alto contains the former township of Mayfield, which was located just southwest of Alma Street. In 1882, railroad magnate and California politician Leland Stanford purchased 1,000 acres adjacent to Mayfield to add to his larger estate. Stanford's vast holdings became known as the Palo Alto Stock Farm. On March 9, 1885, Stanford University was founded on land of the Palo Alto Stock Farm through an endowment act by the California Assembly and Senate. Originally looking to connect Stanford University as a part of the already established town of Mayfield, Stanford asked residents of Mayfield to make the town a temperance town. Their refusal in 1886 caused Stanford to found the town of Palo Alto with aid from his friend, Timothy Hopkins of the Southern Pacific Railroad. Hopkins purchased and subdivided 740 acres of private land, that was known initially as University Park (or the Hopkins Tract).2 This land was bounded by the San Francisquito Creek to the north and the railroad tracks and Stanford University campus to the south. A new train stop was created along University Avenue and the new town flourished in its close connection with the university. University Park, under its new name of Palo Alto, was incorporated in 1894. (Refer to continuation sheet, page 9) B11. Additional Resource Attributes: N/A *B12. References: Refer to footnotes B13. Remarks: N/A *B14. Evaluator: Page & Turnbull, Inc. *Date of Evaluation: March 29, 2023 (This space reserved for official comments.) Source: City of Palo Alto, Online Parcel Reports, 2023. Subject Parcel shown outlined in blue. I Ward Winslow and the Palo Alto Historical Association, Palo Alto: A Centennial History, (Palo Alto: Palo Alto Historical Association, 1993), 12-17. 2 City of Palo Alto, Comprehensive Plan 2030 (adopted by City Council, November 13, 2017), 16, accessed January 2, 2019, https://www.cityofpaloalto.org/civicax/fi lebank/documents/62915. DPR 523B (9/2013) Item 6: Staff Report Pg. 37 Packet Pg. 114 of 341 information State of California —The Resources Agency DEPARTMENT OF PARKS AND RECREATION CONTINUATION SHEET Page 7 of 11 *Recorded by Page & Turnbull, Inc. Item 6 Attachment F - PAGE & Primary # TURNBULL HISTORIC HRI # EVALUATION Trinomial Resource Name or # 949 Scott Street *Date March 27, 2023 I1 Continuation ❑ Update *B6. Construction History (continued): 949 Scott Street was constructed in 1922 as a residence in the University South Neighborhood. No known architect or contractor was identified in the course of historic research. The house is visible on a 1924 Sanborn Map then later in a 1941 aerial photo (Figure 15 and Figure 16). The footprint of the house has been the same from 1924 to present. The house was reroofed in 1979, first completed as an unpermitted project, but later corrected that same year. In 1983, a permit was issued to "rebuild fire damaged residence as was existing with new electrical service." It is not explicitly stated what portion of the residence suffered the damage, and no photos of the house were found from this period. Given that the aerial photos from 1941 and present show the same footprint, as well as wood windows throughout each facade, it could be presumed that the fire damage was on the interior, or the house did not suffer much damage. Other interior improvements were made in 1998, according to permit records. Upon visual inspection, there do not appear to be unpermitted changes to the house. �y 1222 9I�zI2rIH R� x _i / D I i x x J / X U h Ik 0 ;OTT so -P1 r d fl i1 O Figure 15: Sanborn Map Company Fire Insurance Map, 1924. 949 Scott Street outlined in red. Source Public Library. San Francisco O Figure 16: Aerial photograph of 949 Scott Street, 1941. Subject property outlined in red. Flight C-7065, Frame 43 University of Santa Barbara. Source: DPR 523L Item 6: Staff Report Pg. 38 Packet Pg. 115 of 341 State of California —The Resources Agency DEPARTMENT OF PARKS AND RECREATION CONTINUATION SHEET Item 6 Attachment F - PAGE & Primary # TURNBULL HISTORIC HRI # EVALUATION Trinomial Page 8 of 11 Resource Name or# 949 Scott Street *Recorded by Page & Turnbull, Inc. *Date March 27, 2023 S1 Continuation ❑ Update The following table includes known construction and alterations undertaken at the subject property based on the permits on file at Palo Alto Development Services. Permit # Date Owner Architect/Contractor Description Unknown 6/6/1979 Dennis Lovett Unknown Reroof (noted that the roof was replaced without a permit in May 1979) B-83-86 2/8/1983 Dennis Lovett Keith Ahhen Rebuild fire damaged residence as was existing with new electrical service 983815 12/17/1998 Jeanne Anne Breen Unknown Heater replaced. Built in shelves and mantel added on the interior *B10. Significance: Historic Context (continued) In its early years, Palo Alto was a temperance town where no alcohol could be served. The residents were mostly middle and working class, with a pocket of university professors clustered in the neighborhood deemed Professorville. The development of a local streetcar in 1906 and the interurban railway to San Jose in 1910 facilitated access to jobs outside the city. They also increased access to Stanford University and encouraged more people to move to Palo Alto.3 In July 1925, Mayfield was officially annexed and consolidated into the City of Palo Alto.4 Like the rest of the nation, Palo Alto suffered through the Great Depression in the 1930s and did not grow substantially. World War II brought an influx of military personnel and their families to the Peninsula; accordingly, Palo Alto saw rapid growth following the war as many families who had been stationed on the Peninsula by the military or who worked in associated industries chose to stay. Palo Alto's population more than doubled from 16,774 in 1940 to 33,753 in 1960.5 Palo Alto's city center greatly expanded in the late 1940s and 1950s, gathering parcels that would house new offices and light industrial uses and lead the city away from its "college town" reputation. Palo Alto annexed a vast area of mostly undeveloped land between 1959 and 1968. This area, west of the Foothill Expressway, has remained protected open space. Small annexations continued into the 1970s, contributing to the discontinuous footprint of the city today. Palo Alto remains closely tied to Stanford University; it is the largest employer in the city. The technology industry dominates other sectors of business, as is the case with most cities within Silicon Valley. Palo Alto consciously maintains its high proportion of open space to development and the suburban feeling and scale of its architecture.6 University South Neighborhood History The current University South neighborhood was located in the southern portion of the original University Park track platted by Timothy Hopkins. It was the core part of the early city, along with today's Downtown North neighborhood (located northwest of University Avenue, the main commercial corridor within the original core of Palo Alto). The neighborhood contains the residential and commercial areas that lay southeast of University Avenue, although does not encompass Professorville, the residential neighborhood closely associated with early Stanford faculty members and their families. As a result, the neighborhood is U- shaped, bounded by University Avenue at the northwest, Alma Street and the railroad tracks at the south, and Middlefield Road at the northeast. The southeast boundary follows Embarcadero Road but steps northwest to Addison Avenue, so as to exclude Professorville. The 1895 Sanborn Fire Insurance Company map illustrates that stores were located along University Avenue, and were particularly concentrated at its southwestern end, where a large lumberyard stood near the railroad. Residences were scattered along the street just east and west of University Avenue on Hamilton and Lytton Avenues. A few churches, hotels, and boarding houses also stood among many vacant lots. Contemporary newspapers called the homes that housed artisans and merchants in this area "neat cottages" —which stood in contrast to the houses occupied by Stanford faculty members, located to the southeast in what is today the Professorville neighborhood. Some grander homes for more affluent residents were sprinkled throughout the current -day University South neighborhood.' ' Dames & Moore (Michael Corbett and Denise Bradley), Final Survey Report - Palo Alto Historical Survey Update: August 1997 -August 2000 prepared for the City of Palo Alto Planning Division (February 2001), 1-4. 4 City of Palo Alto, Comprehensive Plan 2030, 16. ' "Depression, War, and the Population Boom," Palo Alto Medical Foundation - Sutter Health, accessed January 2, 2019, http://www. pamf.org/about/Damfhistorv/depression. html. 6 City of Palo Alto, Comprehensive Plan 2030, 11-20. Palo Alto AAUW, ...Gone Tomorrow? "Neat Cottages" and "Handsome Residences" (Palo Alto: American Association of University Women, 1971, revised 1986) 5. DPR 523L Item 6: Staff Report Pg. 39 Packet Pg. 116 of 341 State of California —The Resources Agency DEPARTMENT OF PARKS AND RECREATION CONTINUATION SHEET Item 6 Attachment F - PAGE & Primary # TURNBULL HISTORIC HRI # EVALUATION Trinomial Page 9 of 11 Resource Name or# 949 Scott Street *Recorded by Page & Turnbull, Inc. *Date March 27, 2023 S1 Continuation ❑ Update By 1901, Palo Alto had grown, and the Sanborn map showed more than just the original core. Houses were filling in the lots on the blocks around the railroad while scattered residential development extended up to and beyond Middlefield Road. Additional institutions had been built in the area, including a public school and high school. Ownership and Occupancy Summary The following table outlines the ownership and occupancy history of 949 Scott Street. This information was compiled from Palo Alto City Directories, Santa Clara Assessor records, building permit applications, newspaper articles, and public records available through Ancestry.com. Year of Occupancy Known Occupants (known owners in bold) Occupation 1924-1947 Elizabeth Fu Son Josephine Fu Son (1931-1947) Frances Sims (1924-1927) Teacher Christian Science Practitioner Pastry Maker/Christian Science 1950 Vacant 1953-1955 James H Swezy Isabel Swezy Salesman 1961 Charles E. Stollenwerk Carolyn Stollenwerk Engineer at Lockheed 1962 John J. Bosley Psychologist 1965 William W. Bromund Student 1969 Vacant 1972 No Return 1974 Cheryl Romner Unknown 1976 Andrea Burris Unknown 1979-1983 Dennis Lovett Unknown 1984 Alan L. Svec Jennifer M. Svec Unknown 1986 Robert Leon Baer Technician 1993-1998 Jeanne Anne Heilig Breen Patrick R. Heilig James L. Heilig Jr. David Breen Unknown 2012 Anita Coutts Unknown 2023 -Present Simon Tong Shamim Tong Unknown Elizabeth Fu Son, Owner and Occupant 1924-1947 If an owner or occupant resided at 949 Scott Street from its construction in 1922 to 1924, that person is not documented in city directories. Elizabeth Fu Son (spelled Fuson in the U.S. Census records of 1920, 1930, and 1940) lived at 949 Scott Street starting in 1924, according to Palo Alto city directories.8 Originally from Goshen, Indiana and born about 1871, she was a member of the Daughters of the American Revolution and the Presbyterian Church of Palo Alto.9 Elizabeth was a longtime teacher at Miss Harker's School and lived at the school (addressed 118 Greenwood Avenue) with Catherine Harker and other teacher/lodgers in 1920. She appears to have also owned a property in Goshen, Indiana, as she also appears in a 1920 U.S. Census there with her friend, Frances Sims.10 She lived at 949 Scott Street with Frances Sims from 1924 to 1927, then with her sister Josephine Fu Son from 1931 until 1947. Elizabeth Fu Son lived in the home until her death in 1947. Research did not find Elizabeth Fu Son significant to the overall development of Palo Alto. 8 Note: while the name Fu Son appears to potentially indicate an Asian surname, Ms. Fu Son was white according to U.S. Census records. 9 "Elizabeth Fu Son dies; funeral set for Monday," The Peninsula Times Tribune, July 5, 1947, Accessed March 7, 2023, https://www. newspapers.com/image/838649384/?article=0935b9d8-feb8-487d-8070- 029a999e1046&focus=0.3694026,0.65429586,0.48802704,0.76918787&xid=3355&_gl=1 *g9pkxt*_ga*MTU2MTA4MzQ1 OC4xNjUyODkxMzA5*_g a_4QT8FM EX30*MTY3ODIyNjE5Mi4xNjAuMS4xNjc4Mj l2NDMwLjYwLjAuMA..*_ga_B2YGR3SSMB*ODM4MzdkZTEtZGNjOC00MzZILWExY2ltZTI 4YTRmYTk1 MjFkLjgwLjEuMTY3ODIyNjQzMS42MC4wLjA.&_ga=2.115031559.1615584679.1678220685-1561083458.1652891309. 10 U.S. Federal Census, 1920 for Elizabeth Fuson. Accessed March 27, 2023 from ancestry.com. DPR 523L Item 6: Staff Report Pg. 40 Packet Pg. 117 of 341 State of California —The Resources Agency DEPARTMENT OF PARKS AND RECREATION CONTINUATION SHEET Page 10 of 11 *Recorded by Page & Turnbull, Inc. Item 6 Attachment F - PAGE & Primary # TURNBULL HISTORIC HRI # EVALUATION Trinomial Resource Name or # 949 Scott Street *Date March 27, 2023 11 Continuation ❑ Update All other owners and occupants lived at 949 Scott Street for a relatively short period of time. Design of 949 Scott Street 949 Scott Street is designed in a simple Craftsman style, which was popular in California from the 1900s to the 1930s. The Craftsman style was utilized predominantly in residential properties and evolved from the English Arts and Crafts Movement and later, the work of innovative American architects working in the Midwest and California, in particular Frank Lloyd Wright and Greene & Greene. The style was strongly associated with the graphic designs and furnishings of William Morris and the architecture of M.H. Baillie Scott and Charles F. A. Voysey. The Craftsman magazine, published in America from 1901 to 1917, further disseminated the ideals of the Movement, such as anti -industrialism and emphasis on handcrafted products in North America. The Craftsman style took off in California during the first decade of the twentieth century in response to the work of Greene & Greene in Southern California and the Bay Area. Additional influences included Japanese architecture and the native - grown Bay Region Tradition of Northern California. Ranging from the elaborate one-off homes of the wealthy in Pasadena and the Berkeley hills to the rows of bungalows of Oakland, Los Angeles and San Jose, Craftsman dwellings are typically characterized low-pitched gabled roofs with wide, unenclosed eave overhangs, decorative beams or braces, tapered square columns or pedestals and extending porch elements. In Palo Alto, as in many contemporary smaller California communities, the Craftsman style is the dominant residential style present within many neighborhoods in the city. 949 Scott Street characteristics of Craftsman style include overhanging eaves, a centered dormer window, and a projecting porch supported by square columns. Statement of Significance: In order for a property to be considered eligible for the California Register of Historical Resources (California Register), the property must possess significance and retain integrity to convey that significance. The criteria for significance are: Criterion I (Events): Associated with events that have made a significant contribution to the broad patterns of local or regional history or the cultural heritage of California or the United States. 949 Scott Street does not appear to be individually eligible for listing in the California Register under Criterion 1 (Events), as the subject building does not appear to have contributed to the broad patterns of history in Palo Alto, the state, or the nation. The property was constructed in 1922 in the University South neighborhood of Palo Alto. At the time of the subject building's construction, the subdivision was one of several in the area undergoing increasing development and infill, and the property is not significant to the development of University South neighborhood. No significant events were known to have occurred at 949 Scott Street, such that it would be individually eligible under Criterion 1. The house at 949 Scott Street does not appear to be individually eligible for listing in the California Register under Criterion 1. Criterion 2 (Persons): Associated with the lives of persons important to local, California or national history. 949 Scott Street does not appear to be individually eligible for listing in the California Register under Criterion 2 (Persons). Since its construction in 1922, the subject property has had one long term owner and many short-term owners and occupants. Elizabeth Fu Son owned and lived at 949 Scott Street from 1924 to 1947. Research was unable to uncover significant professional or personal achievements by Elizabeth Fu Son that would make the subject building individually eligible for listing on the California Register. Therefore, 949 Scott Street does not appear to be individually eligible for the California Register under Criterion 2 (Persons). Criterion 3 (Architecture): Embodies the distinctive characteristics of a type, period, region or method of construction or represents the work of a master or possesses high artistic values. 949 Scott Street does not appear to be individually eligible for listing in the California Register under Criterion 3 (Architecture). The residence was constructed in 1922 by an unknown architect or builder. The house was designed in a simple Craftsman style, which was common in the 1920s in Palo Alto. The design is without exposed rafters, patterned windowpanes, or other details often seen in the Craftsman style, and does not possess high artistic values. Therefore, 949 Scott Street does not appear to rise to a level of individual significance under Criterion 3. The property does not appear to be eligible as a contributor to a historic district, as the subject block features a variety of architectural styles. However, the evaluation of a potential district is outside the scope of this report. The house at 949 Scott Street does not appear to be individually eligible for listing in the California Register under Criterion 3. Criterion 4 (Information Potential): Has yielded, or has the potential to yield, information important to the prehistory or history of the local area, California or the nation. The property at 949 Scott Street does not appear to be individually eligible for listing in the California Register under Criterion 4 as a building or property that has the potential to provide information important to the prehistory or history of the City of Palo Alto, state, or nation. It does not feature construction or material types, or embody engineering practices that would, with additional study, provide important information. Evaluation of this property was limited to age -eligible resources above ground and did not involve survey or evaluation of the subject property for the purposes of archaeological information. DPR 523L Item 6: Staff Report Pg. 41 Packet Pg. 118 of 341 State of California —The Resources Agency DEPARTMENT OF PARKS AND RECREATION CONTINUATION SHEET Page 11 of 11 *Recorded by Page & Turnbull, Inc. Item 6 Attachment F - PAGE & Primary # TURNBULL HISTORIC HRI # EVALUATION Trinomial Resource Name or # 949 Scott Street *Date March 27, 2023 S1 Continuation ❑ Update Conclusion The property at 949 Scott Street does not appear to be individually eligible for listing in the California Register of Historical Resources under any criteria. The California Historical Resource Status Code (CHRSC) of "6Z" has been assigned to the property, meaning "Found ineligible for National Register, California Register, or Local Designation through survey evaluation."" Resources California State Office of Historic Preservation Department of Parks and Recreation. Technical Assistance Bulletin #8: User's Guide to the California Historical Resource Status Codes & Historical Resource Inventory Directory. Sacramento November 2004. City of Palo Alto. Comprehensive Plan 2030 (adopted by City Council, November 13, 2017). Accessed March 21, 2023. https://www.cityofpaloalto.org/civicax/filebank/documents/62915. Dames & Moore (Michael Corbett and Denise Bradley). Final Survey Report — Palo Alto Historical Survey Update: August 1997 - August 2000. Prepared for the City of Palo Alto Planning Division. February 2001. "Depression, War, and the Population Boom." Palo Alto Medical Foundation - Sutter Health. Accessed March 21, 2023. http://www.pamf.org/about/pamfhistory/depression. html. "Elizabeth Fu Son dies; funeral set for Monday." The Peninsula Times Tribune. July 5, 1947. Accessed March 7, 2023. https://www. newspapers.com/image/838649384/?article=0935b9d8-feb8-487d-8070- 029a999e1046&focus=0.3694026,0.65429586,0.48802704,0.76918787&xid=3355&_g1=1 *g9pkxt*_ga*MTU2MTA4MzQ1 OC4xNjUyODkxMzA5*_ga_4QT8FM EX30*MTY3ODIyNjE5Mi4xNjAuMS4xNjc4Mj 12N DMwLjYwLjAuMA..*_ga_B2YGR3S SMB*ODM4MzdkZTEtZGNjOC00MzZILWExY2ltZT14YTRmYTk1 MjFkLjgwLjEuMTY3ODIyNjQzMS42MC4wLjA.&_ga=2.1 15031559.1615584679.1678220685-1561083458.1652891309. Palo Alto AAUW....Gone Tomorrow? "Neat Cottages" and "Handsome Residences." Palo Alto: American Association of University Women.1971, revised 1986. Palo Alto City Directories. 1920-2002. Ancestry.com. Sanborn Fire Insurance Maps. San Francisco Public Library. The Peninsula Times Tribune. "Community Calendar." May 18, 1928. Accessed January 6, 2023. httos://www. newsoaoers.com/imaae/838344054/?terms=%22240%20Rinconada%20Avenue%22&match=1. United States Federal Census for 1920, 1930, 1940. Accessed March 27, 2023 from Ancestry.com. Winslow, Ward and the Palo Alto Historical Association. Palo Alto: A Centennial History. Palo Alto Historical Association. 1993 " California State Office of Historic Preservation Department of Parks and Recreation, Technical Assistance Bulletin #8: User's Guide to the California Historical Resource Status Codes & Historical Resource Inventory Directory, Sacramento, November 2004. DPR 523L Item 6: Staff Report Pg. 42 Packet Pg. 119 of 341 Item 6 Attachment G - PROJECT PLANS Attachment G Project Plans In order to reduce paper consumption, a limited number of hard copy project plans are provided to Council members for their review. The same plans are available to the public, at all hours of the day, via the following online resources. Directions to review project plans and environmental documents online: 1. Go to: bit.ly/PApendingprojects 2. Scroll down to find or search for "949 Scott" and click the address link 3. On this project -specific webpage you will find a link to the project plans and other important information Direct Link to Project Webpage: https://www.cityofpaloalto.org/Departments/Planning-Development-Services/Current- Planning/Protects/949 Scott Street If you need assistance reviewing the above documents, please contact the Project Planner or call the Planner -on -Duty at 650-617-3117 or email planner@cityofpaloalto.org Item 6: Staff Report Pg. 43 Packet Pg. 120 of 341 Item 7 Item 7 Staff Report City Council Staff Report From: City Manager CITY O F Report Type: CONSENT CALENDAR PALO Lead Department: Planning and Development Services ALTO Meeting Date: January 22, 2024 Report #:2312-2391 TITLE QUASI-JUDICIAL. 420 Acacia [23PLN-00059]: Request for Approval of a Vesting Tentative Map to Allow for a Condominium Subdivision to Create 16 Units on a Single 35,573 Square Foot Parcel. The Subdivision map Would Facilitate Construction of the Previously Approved 33,833 Square Foot Mixed -use Development Project (23PLN-00058). Environmental Assessment: Exempt from the Provisions of the California Environmental Quality Act in Accordance with CEQA Guidelines Section 15332 (In -fill Development) and 15315 (Minor land Divisions). Zoning District: Split Zoning Designation of RM-30 and R-1 (Multi -Family and Single -Family Residential). RECOMMENDATION Staff recommends that the City Council take the following action(s): 1. Find the project exempt from the California Environmental Quality Act (CEQA) in accordance with CEQA Guidelines Section 15332 (infill) and 15315 (Minor Land Divisions); and 2. Approve the Vesting Tentative Map based on findings and subject to conditions of approval in the Draft Record of Land Use Action (RLUA) in Attachment B. EXECUTIVE SUMMARY The applicant requests approval of a Vesting Tentative Map to allow 16 residential condominium units on a single, existing, 35,573 square foot (sf) parcel located at 420 Acacia Avenue. Through a separate, Streamlined Housing Development entitlement process, the applicant proposed, and the Director of Planning and Development Services approved, construction of a 16 -unit residential townhome project, two units of which would be provided at below market rate. This is the City's first approved Streamlined Housing Development entitlement. The Vesting Tentative Map also includes the necessary utility easements and dedication of private streets, in accordance with the City's Municipal Code and City of Palo Alto Utilities standards, which would be formally accepted by the City as part of the Final Map process. The project also includes a request for a waiver in accordance with State Density Bonus Law to Item 7: Staff Report Pg. 1 Packet Pg. 121 of 341 Item 7 Item 7 Staff Report reduce the private street width, as detailed further in this report. An identical waiver request was approved as part of the housing development entitlement. A location map is included in Attachment A. The proposed Vesting Tentative Map is linked in Attachment C. BACKGROUND On March 8, 2023, Acacia El Camino Investors, LLC filed a Vesting Tentative Map application concurrently with a Streamlined Housing Development review application. In accordance with the Vesting Tentative Map Code Sections 21.13, the map application was deferred until all other entitlements were approved. Here, the associated entitlements for the proposed improvements were previously approved on December 6, 2023 following a study session with the Architectural Review Board on October 5, 2023. The project includes a request for approval of a Vesting Tentative Map to create 16 condominium units (on a single parcel totaling 35,573 sf [0.8 acres]). Approval of the map also includes acceptance of proposed utility easements on the parcel, which are required per City of Palo Alto Utility standards, as well as a request for a waiver in accordance with State Density Bonus Law to reduce the private street width, as detailed further in this report. The process for evaluating this type of application is set forth in Title 21 of the Palo Alto Municipal Code (PAMC) and California Government Code 66474. The process for approval of a Vesting Tentative Map for a condominium subdivision is outlined in PAMC Sections 21.12.010 and 21.13.020. Vesting Tentative Maps require Planning and Transportation Commission (PTC) review. The PTC and Council review whether the amended subdivision is consistent with the Subdivision Map Act (in particular, Government Code 66474), Title 21 of the Palo Alto Municipal Code, the Palo Alto Comprehensive Plan, and other applicable provisions of the Palo Alto Municipal Code and State Law. The PTC's recommendation is forwarded to the City Council for final approval. The PTC reviewed the proposed project on December 13, 2023 and recommended approval of the proposed project (6-0; Reckdahl absent). Commissioners requested clarity on specific aspects of the improvements during the hearing, which are summarized in the analysis below. Following the completion of this Vesting Tentative Map, the applicant is required to file for a Vesting Final Map. This would be placed on the Council consent agenda and must be in substantial conformance with the Vesting Tentative Map. ANALYSIS The proposed project and relevant discussion and findings herein reflect the Vesting Tentative Map. The Director of Planning and Development Services previously approved the proposed site improvements associated with this condominium subdivision. Neiehborhood Setting and Character Item 7: Staff Report Pg. 2 Packet Pg. 122 of 341 Item 7 Item 7 Staff Report The project is located within the North Ventura neighborhood within 0.5 mile of the California Avenue Caltrain Station and adjacent a high -quality transit corridor on El Camino Real. The site abuts single-family residences to the north along Olive Avenue and commercial uses (e.g. retail and commercial recreation (Equinox gym) across Acacia Avenue. To the east, the Sobrato property (200-404 Portage) has been approved for redevelopment in accordance with a recently approved Development Agreement. Under the Development Agreement the portion of the former cannery building adjacent to 420 Acacia, part of which is currently occupied by Playground Global, would remain and continue to be occupied with the existing R&D tenants on the site. A parking structure would be developed adjacent to 420 Acacia, the ramp to which would connect to the shared driveway access at the east end of the site. To the west, a 129 -unit affordable housing project has been approved to replace the surface parking lot between the subject property and El Camino Real. Consistency with the Comprehensive Plan, Area Plans, and Guidelines' The proposed Vesting Tentative Map is consistent with the Comprehensive Plan, in that the site is designated primarily as "Multifamily" land use category and will be developed as a multifamily development on that portion of the site. The map facilitates the redevelopment of a parcel within the City's urban service area which is consistent Policy L-1.2 of the Comprehensive Plan. The associated development to be constructed on the lot would add new residential units that contribute to the housing inventory including two affordable housing units, consistent with Goal 2 of the Housing Element, which states "assist in the provision of safe, attainable, and sustainable housing, especially affordable housing, to meet the needs of all economic segments of the community." A Consistency analysis with other Comprehensive Plan policies are included in Attachment B of this report. Zoning Compliance2 The site is zoned primarily as RM-30 (multi -family residential) with a small portion of the parcel zoned as R-1 (single-family residential). The proposed units are all located within the area of the site zoned R-30, while private and common open space is located within the area zoned R-1. The proposed multi -family development is a permitted use within the RM-30 Zone. The size of the parcel would not change and is consistent with code requirements for the RM-30 Zone District, which has a minimum lot size of 8,500 sf and minimum dimensions of 70 feet in width by 100 feet in depth. Staff finds that the proposed Vesting Tentative Map complies with these code requirements for parcels. Private Street Width The proposed project includes new private streets that do not meet the minimum width of 32 feet set forth in PAMC 21.20.240. The applicant requested a waiver from this development standard in accordance with State Density Bonus Law to allow for a private street that is 22 feet in width. Approval of this waiver was granted as part of the approval of the proposed 1 The Palo Alto Comprehensive Plan is available online: bit.ly/PACompPlan203O 2 The Palo Alto Zoning Code is available online: bit.ly/PAZoningCode Item 7: Staff Report Pg. 3 Packet Pg. 123 of 341 Item 7 Item 7 Staff Report development under the Streamlined Housing Development Project review. The waiver also applies to the subdivision map process. The proposed improvements, including the street width, were reviewed by all departments as part of the Streamlined Housing Development review process. Reviewers included, but were not limited to, City of Palo Alto Fire Department, Public Works Engineering, Office of Transportation and the Building Department. The proposed project, with the proposed 22 -foot street width, meets all safety requirements, including, but not limited to, fire safety and traffic safety. Findings for Approval The necessary findings for approval of the Vesting Tentative Map are contained in State law and incorporated into Title 21 of the Municipal Code. Under the Subdivision Map Act, Council must make a series of "reverse" findings to justify approval. If the findings cannot be made, the subdivision must be approved. In particular, under Government Code Section 66474, Council shall recommend denying a Tentative Map if it makes any of the following findings: a) That the proposed map is not consistent with applicable general and specific plans. b) That the design or improvement of the proposed subdivision is not consistent with applicable general and specific plans. c) That the site is not physically suitable for the type of development. d) That the site is not physically suitable for the proposed density of development. e) That the designs of the subdivision or the proposed improvements are likely to cause substantial environmental damage or substantially and avoidably injure fish or wildlife or their habitat. f) That the design of the subdivision or type of improvements is likely to cause serious public health problems. g) That the design of the subdivision or the type of improvements will conflict with easements, acquired by the public at large, for access through or use of, property within the proposed subdivision. A detailed review of the proposed project's consistency with applicable Title 21/Subdivision Map Act findings is included in Attachment B. FISCAL/RESOURCE IMPACT The developer would be required to pay all applicable development impact fees, currently estimated to total $1,093,305 for the subdivision and the proposed improvements, plus the applicable public art fees, as documented in Condition of Approval #6 in Attachment B and detailed further in Condition of Approval #15 in the Approval Letter for the Streamlined Housing Development Project Review Approval. STAKEHOLDER ENGAGEMENT The Palo Alto Municipal Code requires notice of this public hearing be published in a local paper and mailed to owners and occupants of property within 600 feet of the subject property at least ten days in advance. Notice of a public hearing for this project was published in the Daily Item 7: Staff Report Pg. 4 Packet Pg. 124 of 341 Item 7 Item 7 Staff Report Post on January 12, 2023, which is 10 days in advance of the meeting. Postcard mailing occurred on January 9, 2023. Public Comments One member of the public provided a comment during the PTC hearing. The resident, whose family owns several of the lots along Olive Avenue, expressed that the project generally fits into the neighborhood and they appreciated the developer's efforts to reach out to residents during the process. Comments received on the proposed Streamlined Housing Review application are outlined in the Architectural Review staff report.3 Key comments from nearby residents included: • Concerns about the placement of the trash enclosure due to noise/smell • Request from one resident to meet directly with the landscape architect to discuss plantings along the rear of the property • Request to resolve the drainage issue on neighboring properties and to remove the soil berm along the rear of the property for drainage and security • Request to extend the 8 -foot -high concrete block wall from the Sobrato property along the rear of this property as well Modifications were made based on feedback from the ARB as well as neighboring residents to improve the design and address these comments. The landscape architect made several attempts to connect with the adjacent resident who requested a meeting but did not receive a response. However, modifications to the final landscaping along the rear of the property were made in response to general feedback from adjacent residents in order to provide better screening of the trash enclosure. The soil berm is being removed as part of the proposed project and the drainage is designed to ensure that the historic drainage pattern is maintained. ENVIRONMENTAL REVIEW The subject project has been assessed in accordance with the authority and criteria contained in the California Environmental Quality Act (CEQA), the State CEQA Guidelines, and the environmental regulations of the City. Specifically, the proposed Vesting Tentative Map is exempt from CEQA in accordance with CEQA Guidelines Section 15315 (Minor Lands Division) and 15332 (in -fill development). A link to the relevant documentation to support the findings for this exemption are included in Attachment C. 3 The staff report for the October 5, 2023 hearing is available online at: https://www.cityofpaloalto.org/files/assets/public/v/3/agendas-minutes-reports/agendas-minutes/architectural- review-board/2023/arb-10.05-public-agenda-2.pdf Item 7: Staff Report Pg. 5 Packet Pg. 125 of 341 Item 7 Item 7 Staff Report ATTACHMENTS Attachment A: Location Map Attachment B: Draft Record of Land Use Action Attachment C: Project Plans and Environmental APPROVED BY: Jonathan Lait, Planning and Development Services Director Item 7: Staff Report Pg. 6 Packet Pg. 126 of 341 chodgki, 2023-09-25 10:33:15 1 8910 2016 City of Palo Nlo my of best available Sources. (\\cc -maps 23-09- passW3min\Personal\Planning.mdb) Item 7: Staff Report Pg. 7 J Packet Pg. 127 of 341 Item 7 Attachment B - Draft Record of Land Use Action ATTACHMENT B ACTION NO. 2024-_ RECORD OF THE COUNCIL OF THE CITY OF PALO ALTO LAND USE ACTION FOR 420 ACACIA AVENUE: VESTING TENTATIVE MAP, 23PLN-00059 At its meeting on , 2024, the City Council of the City of Palo Alto ("City Council") approved the Vesting Tentative Map for the development of a one -lot subdivision to create 16 residential condominium units, including a density bonus waiver from street width requirements making the following findings, determinations and declarations: SECTION 1. Background. A. On March 8, 2023, Dividend Homes applied for a Vesting Tentative Map for the development of a one (1) parcel, 16 -unit condominium subdivision project, including a density bonus waiver from street width requirements to permit a 22 -foot wide private street. ("The Project"). B. The project site is comprised of one existing lot (APN No. 132-38-042) of approximately 35,573 square feet. The site contains an existing paved surface level parking lot. Single family residential uses abut the site to the north. Commercial land uses are located adjacent to the lot to the east and south. A five -story 129 -unit affordable housing project has been approved to the west, replacing a surface level parking lot along El Camino Real. C. Following staff review, the Planning and Transportation Commission reviewed the project and recommended approval on December 13, 2023, subject to conditions of approval. D. On the City Council held a duly noticed public hearing, at which evidence was considered and all persons were afforded an opportunity to be heard in accordance with the City Council's policies and procedures. SECTION 2. Environmental Review. The City, as the lead agency for the Project, has determined that the project is exempt from the California Environmental Quality Act (CEQA) in accordance with CEQA Guideline section 15132, which provides an exemption for infill development projects. Documentation to support the exemption is available as part of the public record on file with the Planning and Development Services Division. SECTION 3. Vesting Tentative Map Findings. A legislative body of a city shall deny approval of a Parcel Map, if it makes any of the following findings (California Government Code Section 66474). The City Council cannot make these findings for the following reasons: Item 7: Staff Report Pg. 8 Packet Pg. 128 of 341 Item 7 Attachment B - Draft Record of Land Use Action 1. That the proposed map is not consistent with applicable general and specific plans as specified in Section 65451: The site is consistent with the Comprehensive Plan as described below. 2. That the design or improvement of the proposed subdivision is not consistent with applicable general and specific plans: There is no adopted specific plan for this project site. The proposed vesting tentative map and related improvements is consistent with the Comprehensive Plan in that it facilitates housing development on a site designated for multi -family use and in a transit -oriented location within the urban services area, consistent with Goal 2 of the Housing Element and Goal L1.2 of the Land Use Element. The proposed density (20 DU/AC) is consistent with the allowable density (16 to 30 DU/AC) in the multi -family land use designation as outlined in the Land Use Element. The project replaces paved surface level parking with housing in a transit -oriented area and improves the city's jobs housing imbalance consistent with the Transportation Element's goals and policies to reduce vehicle miles traveled. 3. That the site is not physically suitable for the type of development: The Project site is suitable for multi -family residential development in that it's located within the multi -family zone district on a site designated on the City's Land Use Map for multi -family use. The existing parcel meets the minimum code requirements for the RM-30 zone district with respect to lot area, width and depth. The parcel would not change with approval of this condominium subdivision. The proposed number of condominium units complies with the applicable densities set forth in the land use element and zone district. 4. That the site is not physically suitable for the proposed density of development: The project would create a total of sixteen multi -family residential units which is 20 dwelling units (DU) per acre. This density complies with the maximum allowable residential density as calculated for the total site area (30 DU/acre = 24 DU). Building, Palo Alto Fire Department, Planning, Transportation, and Public Works Engineering have reviewed the requested density bonus waiver to permit a 22 -foot street width to ensure that all necessary requirements for safety, including but not limited to, fire safety and traffic safety (e.g. curb cut location, back-up space, turning radius, etc.) have been met. 5. That the design of the subdivision or the proposed improvements are likely to cause substantial environmental damage or substantially and avoidably injure fish or wildlife or their habitat: Item 7: Staff Report Pg. 9 Packet Pg. 129 of 341 Item 7 Attachment B - Draft Record of Land Use Action The project is located within the built environment that does not contain quality habitat for fish or other wildlife on the site or within the vicinity of the site. The nearest stream is approximately 700 feet south east from the project site. The adopted Palo Alto 2030 Comprehensive Plan includes Map N-1, which identified sensitive animal and plant species within the Palo Alto quadrangle, a large geographic area that includes the urban portions along the bay and within the foothills, based on information in the California natural Diversity Database (CNDDB). Based on this map, and the urban nature of the site, the subject property does not contain any habitat for endangered, rare, or threatened species and has not historically supported any of these species. 6. That the design of the subdivision or type of improvements is likely to cause serious public health problems: The subdivision of this parcel and associated improvements would not have the potential to result in serious health problems. The proposed multi -family use would not include use or storage of hazardous materials and the use is located within the urban environment adjacent to other residential uses. The site is not located on a hazardous waste site pursuant to government code 65962.5. 7. That the design of the subdivision or the type of improvements will conflict with easements, acquired by the public at large, for access through or use of, property within the proposed subdivision. In this connection, the governing body may approve a map if it finds that alternate easements, for access or for use, will be provided, and that these will be substantially equivalent to ones previously acquired by the public. This subsection shall apply only to easements of record or to easements established by judgment of a court of competent jurisdiction and no authority is hereby granted to a legislative body to determine that the public at large has acquired easements for access through or use of property within the proposed subdivision. There are no public access easements over the property currently. Therefore, the design of the subdivision will not conflict with any public easements for access through, or use of, the property. An existing shared private access easement with the neighboring property to the east is maintained. New public utility easements will be provided to existing and proposed electrical utilities as part of this subdivision map as required in accordance with City of Palo Alto Utilities standards. SECTION 4. Vesting Tentative Map Approval Granted. Vesting Tentative Map Approval is filed and processed in accordance to PAMC Section 21.13.020 and granted by the City Council under PAMC Sections 21.12 and 21.20 and the California Government Code Section 66474, subject to the conditions of approval in Section 6 of this Record of Land Use Action. 3 Item 7: Staff Report Pg. 10 Packet Pg. 130 of 341 Item 7 Attachment B - Draft Record of Land Use Action SECTION 5. Final Map. The Final Map submitted for review and approval by the City Council shall be in substantial conformance with the Vesting Tentative Map prepared by BKF Engineers titled "Vesting Tentative Map Acacia Avenue at El Camino Real For Condominium Purposes City of Palo Alto, California," consisting of seven (7) pages, stamped as received November 16, 2023, except as modified to incorporate the conditions of approval in Section 6. A copy of the Vesting Tentative Map is on file in the Department of Planning and Development Services, Current Planning Division. Prior to the expiration of the Vesting Tentative Map approval, the subdivider shall cause the subdivision or any part thereof to be surveyed, and a Final Map, as specified in Chapter 21.08, to be prepared in conformance with the Vesting Tentative Map as conditionally approved, and in compliance with the provisions of the Subdivision Map Act and PAMC Title 21 and submitted to the City Engineer (PAMC Section 21.16.010[a]). SECTION 6. Conditions of Approval. Planning 1. PROJECT PLANS. The Vesting Tentative Map submitted for review and approval by the City Council shall be in substantial conformance with the Vesting Tentative Map titled "Vesting Tentative Map Acacia Avenue at El Camino Real for Condominium Purposes, City of Palo Alto, California", prepared by BKF Engineers and submitted November 16, 2023, except as modified to incorporate the conditions of this approval. 2. DENSITY BONUS UNITS. The project seeks a waiver of the minimum street width requirements to permit a 22 -foot wide private street. In order to qualify for a waiver from this development standard the project shall provide a minimum of two (2) dwelling units at rates affordable to moderate -income households, as defined in Section 50093 of the Health and Safety Code. 3. FINAL MAP COVER PAGE. At such time as the Final Map is filed, the cover page shall include the name and title of the Director of Planning and Development Services. 4. STANDARD CC&R REQUIREMENTS. Section 16.38 of Palo Alto's Municipal Code provides that all condominium and other "community housing projects" shall submit Covenants, Conditions and Restrictions (CC&R's) to the City Attorney for approval before issuance of the Final Map. The City Attorney has developed the following standard covenants which shall be included in all CC&R's. a. PROPERTY SHALL COMPLY WITH CITY ZONING ORDINANCES. The property, including all common areas, private streets and, parks within the property, shall at all times comply with the City's Zoning Code and shall not be used for any purpose other than as permitted in the City Zoning Code. MODIFICATIONS TO PROPERTY. Any alterations, modifications, or other improvements to the property shall comply with all applicable City Codes Item 7: Staff Report Pg. 11 Packet Pg. 131 of 341 Item 7 Attachment B - Draft Record of Land Use Action c. MAINTENANACE AND LANDSCAPING OF COMMON AREAS. The Association is responsible for maintenance and landscaping of all parts of the community housing project which are held in common and such maintenance shall be performed to the standard of maintenance prevalent in the neighborhood. (See PAMC Section 16.38.030(a)). d. TERMINATION OF MANAGER OR MAINTENANCE CONTRACTS. The association may terminate the contract of any person or organization engaged by the developer to perform management or maintenance duties three months after the association assumes control of the community housing project or any time thereafter. (See PAMC Section 16.38.030(b).) e. PROTECTION OF STORM WATER FACILITIES. Neither the association, its residents, nor their agents, employees, representatives, invitees, licensees, customers, or contractors shall alter or modify any storm water facilities in any way including but not limited to placing, maintaining, constructing, or planting any improvements, landscaping or other items, including without limitation decks, stairs, walls, irrigation systems, trees, or any vegetation on any storm water facilities. f. TRASH DISPOSAL AND RECYCLING AREAS SHALL COMPLY WITH CITY ORDINANCES. All trash disposal and recycling areas shall be kept in a clean and sanitary condition and shall comply with all applicable City Ordinances. g. PROHIBITION AGAINST AIR AND WATER POLLUTION. Neither the association, its residents, nor their agents, employees, representatives, invitees, licensees, customers, or contractors shall use the property in any way which emits pollution into the atmosphere in excess of environmental standards set forth by City, State, and Federal laws, ordinances, and regulations. Neither the association, its residents, nor their agents, employees, representatives, invitees, licensees, customers, or contractors shall discharge garbage, trash, waste, or any other substance or materials of any kind into any private or public sewer or waterway on the property in violation of any regulations of any private or public body having jurisdiction over such matters. AMENDMENTS TO ORGANIZATION DOCUMENTS REQUIRE CITY APPROVAL. Any amendments or modifications to the organizational documents shall be submitted to the city attorney for approval. No amendment or modification to the organizational documents shall be effective without prior written consent of the city attorney. CITY'S RIGHT TO ENFORCE COVENANTS AND RESTRICTIONS. The City is hereby granted the right, but in no event the duty, to enforce the covenants and restrictions set forth in this section of the organizational documents. The association shall recognize that it has the primary responsibility for enforcement 5 Item 7: Staff Report Pg. 12 Packet Pg. 132 of 341 Item 7 Attachment B - Draft Record of Land Use Action of the organizational documents and unequivocally guarantees to institute and expeditiously prosecute any required legal action to obtain compliance with all provisions set forth in the organizational documents. NO WAIVER OF CITY'S RIGHTS. No failure of the City to enforce any of the covenants or restrictions contained in the organizational documents will in any event render them ineffective. k. CITY'S REMEDIES TO CURE A BREACH OR VIOLATION. Remedies available to the City to cure any breach or violation of the organizational documents shall be cumulative to any other provisions of law. The City's failure to exercise any remedy provided for in the organizational documents shall not, under any circumstances, be construed as a waiver of the remedy. SEVERABILITY. Invalidation of any one of the City's required covenants or restrictions by judgment or court order shall in no way affect any other provisions which shall remain in full force and effect. 5. ADDITIONAL CC&R REQUIREMENT. The CC&Rs shall also include a provision that dictates the responsibilities of tenants and maintenance staff for the trash pickup for the townhomes as shown in the approved plan set. 6. FINAL MAP EXPIRATION. A Final Map, in conformance with the approved Vesting Tentative Map, all requirements of the Subdivision Ordinance (PAMC Section 21.16), and to the satisfaction of the City of Palo Alto and its representatives, shall be filed with the Planning Division and the Public Works Engineering Division within two years of the Vesting Tentative Map approval date or this approval will expire. A one-year extension may be granted in accordance with the allowances set forth in the municipal code. 7. DEVELOPMENT IMPACT FEES. The Property Owner or their designee shall pay all applicable development impact fees associated with the proposed development and subdivision prior to issuance of the building permit(s), as detailed in the Streamlined Housing Development Review Approval. 8. INDEMNITY. To the extent permitted by law, the Applicant shall indemnify and hold harmless the City, its City Council, its officers, employees and agents (the "indemnified parties") from and against any claim, action, or proceeding brought by a third party against the indemnified parties and the applicant to attack, set aside or void, any permit or approval authorized hereby for the Project, including (without limitation) reimbursing the City for its actual attorneys' fees and costs incurred in defense of the litigation. The City may, in its sole discretion, elect to defend any such action with attorneys of its own choice. Public Works Engineering 9. PUBLIC WORKS APPLICATIONS, FORMS, AND DOCUMENTS. Applicant shall be advised 6 Item 7: Staff Report Pg. 13 Packet Pg. 133 of 341 Item 7 Attachment B - Draft Record of Land Use Action that most forms, applications, and informational documents related to Public Works Engineering conditions can be found at the following link: https://www.cityofpaloalto.org/Departments/Public-Works/Engineering-Services/Forms-and- Permits 10. MAP THIRD -PARTY REVIEW. The City contracts with a third -party surveyor that will review and provide approval of the map's technical correctness as the City Surveyor, as permitted by the Subdivision Map Act. The Public Works Department will forward a Scope & Fee Letter from the third -party surveyor and the applicant will be responsible for payment of the fee's indicated therein, which is based on the complexity of the map. 11. STREETWORK PERMIT. The applicant shall obtain a Streetwork Permit from the Department of Public Works for all public improvements. 12. GRADING AND EXCAVATION PERMIT. A Grading Permit is required per PAMC Chapter 16.28. The permit application and all applicable documents (see Section H of application) shall be submitted to Public Works Engineering. Add the following note: "THIS GRADING PERMIT WILL ONLY AUTHORIZE GENERAL GRADING AND INSTALLATION OF THE STORM DRAIN SYSTEM. OTHER BUILDING AND UTILITY IMPROVEMENTS ARE SHOWN FOR REFERENCE INFORMATION ONLY AND ARE SUBJECT TO SEPARATE BUILDING PERMIT APPROVAL." 13. ENCROACHMENT PERMIT. Prior to any work in the public right-of-way, the applicant shall obtain an encroachment permit from the Public Works Department for any work that encroaches onto the City right-of-way. 14. STORMWATER POLLUTION PREVENTION. All improvement plan sets shall include the "Pollution Prevention — It's Part of the Plan" sheet. 15. C.3 THIRD -PARTY CERTIFICATION. Applicant shall provide certification from a qualified third -party reviewer that the proposed permanent storm water pollution prevention measures comply with the requirements of Provision C.3 and Palo Alto Municipal Code Chapter 16.11. 16. Submit the following: a. Stamped and signed C.3 data form (April 2023 version) from SCVURPPP. https://scvurppp.org/wp-content/uploads/2023/04/SCVURPPP-C.3-Data-Form- - uodated 4-12-2023 clean fillable.Ddf b. Final stamped and signed letter confirming which documents were reviewed and that the project complies with Provision C.3 and PAMC 16.11. 17. C.3 STORMWATER AGREEMENT. The applicant shall enter into a Stormwater Maintenance Agreement with the City to guarantee the ongoing maintenance of the Item 7: Staff Report Pg. 14 Packet Pg. 134 of 341 Item 7 Attachment B - Draft Record of Land Use Action permanent storm water pollution prevention measures. The City will inspect the treatment measures yearly and charge an inspection fee. The agreement shall be executed by the applicant team prior to building permit final. 18. C.3 FINAL THIRD -PARTY CERTIFICATION PRIOR TO OCCUPANCY. Within 45 days of the installation of the required storm water treatment measures and prior to the issuance of an occupancy permit for the building, the third -party reviewer shall submit to the City a certification verifying that all the Utilities Electric Engineering 19. Overhead lines along the project frontage on Acacia shall be undergrounded as shown in the approved plans. 20. Public Utility Easements to proposed transformers, as shown on the Vesting Tentative Map and in conformance with city of Palo Alto standards, shall be dedicated to the City prior to final occupancy. Waste -gas -water Engineering 21. METER LAYOUT. Domestic water meter layout: The applicant needs to provide an estimated domestic water load in G.P.M. to design the water service and meter size. A 3" or 4" water meter will require a 4'x8' water meter set with a 2" by-pass per DWG. NO. WD -04. The vault shall be located on private property inside a public utility easement. The applicant's engineer shall obtain, prepare, and record with the county of Santa Clara, and provide the utility engineering section with copies of the public utilities easement on the front of the property adjacent to the City right of way at the water point of service if a 3" or 4" water meter is provided. SECTION 7. Term of Approval. Vesting Tentative Map. All conditions of approval of the Vesting Tentative Map shall be fulfilled prior to approval of a Final Map (PAMC Section 21.16.010[c]). Unless a Final Map is filed, and all conditions of approval are fulfilled within a two-year period from the date of Vesting Tentative Map approval, the Vesting Tentative Map shall expire and all proceedings shall terminate. An extension of time may be granted by the city council after recommendation of the planning commission, upon the written application of the subdivider, prior to the expiration of the Vesting Tentative Map approval, or any previous extension granted. Such extension(s) shall be subject to the maximum limitations set forth in the Subdivision Map Act. PASSED: AYES: 8 Item 7: Staff Report Pg. 15 Packet Pg. 135 of 341 Item 7 Attachment B - Draft Record of Land Use Action NOES: ABSENT: ABSTENTIONS: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: Deputy City Attorney PLANS AND DRAWINGS REFERENCED: Those plans prepared by BKF Engineers titled "Vesting Tentative Map Acacia Avenue at El Camino Real for Condominium Purposes, City of Palo Alto, California," consisting of sever pages, dated November 8, 2023 and submitted November 16, 2023. 9 Item 7: Staff Report Pg. 16 Packet Pg. 136 of 341 Item 7 Attachment C - Project Plans and Environmental Attachment C Project Plans Project plans are only available to the public online. Hardcopies of the plans have been provided to Board members. Environmental Document The City, acting as the lead agency, prepared documentation to support a Class 32 (infill development) categorical exemption for the proposed project. Directions to review Project plans online: 1. Go to: bit.ly/PApendingproiects 2. Scroll down to find "420 Acacia Avenue" and click the address link 3. On this project specific webpage you will find a link to the project plans, the documented exemption and other important information Direct Link to Project Webpage: https://www.cityofpaloaIto.org/Departments/Planning-Development-Services/Current- Planning/Projects/420-Acacia-Avenue Item 7: Staff Report Pg. 17 Packet Pg. 137 of 341 Item 8 Item 8 Staff Report City Council Staff Report From: City Manager CITY O F Report Type: CONSENT CALENDAR PALO Lead Department: City Auditor ALTO Meeting Date: January 22, 2024 Report #:2312-2401 TITLE Approval of the Office of the City Auditor's Wastewater Treatment Plant Agreement Audit Report as Recommended by Policy & Services Committee (CEQA Status - Not a Project) RECOMMENDATION The Policy and Services Committee and the City Auditor recommend that the City Council approve the Wastewater Treatment Plant Agreement Report. BACKGROUND Baker Tilly, in its capacity serving as the Office of the City Auditor (OCA), performed a citywide risk assessment that assessed a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputation risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan. During the FY2022 risk assessment (CMR #13914)1, the OCA identified risks associated with wastewater treatment plant operations. The committee members approved the attached Wastewater Treatment Plant Agreement Audit Report at the Policy and Services Committee meeting on December 12, 20232. MOTION: Mayor Kou moved, seconded by Chair Tanaka, to approve the Wastewater Treatment Plant Agreement Audit Report and recommend the City Council accept the report. MOTION PASSED: 2-0 1 City Council, April 4, 2022; Agenda Item #7; SR #13914, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=81749 2 Policy & Services Committee, December 12, 2023, Agenda Item #4, SR #2310-2182, https://cityofpaloaIto.primegov.com/meetings/ItemWithTemplateType?id=3774&meetingTemplateType=2&comp iledMeetingDocumentld=8676 Item 8: Staff Report Pg. 1 Packet Pg. 138 of 341 Item 8 Item 8 Staff Report ANALYSIS The objectives of this review were to: 1) Determine whether adequate controls are in place and working effectively to ensure that costs related to the wastewater treatment plant are properly accounted for and allocated. 2) Determine whether adequate controls are in place and working effectively to ensure the compliance with contracts and regulations. The OCA interviewed City employees and reviewed 39 Regional Water Quality Control Plant (RWQCP) contracts and amendments the City manages. The OCA also reviewed the transactions and documents in the audit period (from July 1, 2020, to May 30, 2022) for control testing, such as billing and compliance monitoring activities. The attached report summarizes the analysis, audit findings, and recommendations. FISCAL/RESOURCE IMPACT The timeline and resource needs for implementation of management's corrective action plans are identified by management within the attached report. STAKEHOLDER ENGAGEMENT The OCA worked primarily with the Public Works Department and the Administrative Services Department and engaged with additional stakeholders, including the City Manager's Office and the City Attorney's Office, as necessary. ENVIRONMENTAL REVIEW Environmental review is not applicable to this activity. ATTACHMENTS Attachment A: OCA - Wastewater Treatment Plant Agreement APPROVED BY: Adriane D. McCoy, City Auditor Item 8: Staff Report Pg. 2 Packet Pg. 139 of 341 December 12, 21 City of Palo Alto Office of the City Auditor Wastewater Treatment Plant Agreement Audit Item 8: Staff Report Pg. 3 Packet Pg. 140 of 341 Contents EXECUTIVESUMMARY.................................................................................................1 INTRODUCTION.............................................................................................................3 DETAILEDANALYSIS...................................................................................................6 r AUDITRESULTS............................................................................................................8 APPENDICES...............................................................................................................12 Li A CG bakertitty Baker Tilly US, LLP, trading as Baker Tilly, is an independent member of Baker Tilly International. Baker Tilly International Limited is an English company. Baker Tilly International provides no professional services to clients. Each member firm is a separate and independent legal entity, and each describes itself as such. Baker Tilly US, LLP is not Baker Tilly International's agent and does not have the authority to bind Baker Tilly International or act on Baker Tilly International's behalf. None of Baker Tilly International, Baker Tilly US, LLP nor any of the other member firms of Baker Tilly International has any liability for each other's acts or omissions. The name Baker Tilly and its associated logo is used under license from Baker Tilly International Limited. Item 8 Attachment A- OCA - WasteWaterTreatment [ty Plant Agreement Executive Summary Purpose of the Audit Baker Tilly US, LLP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City), conducted a Wastewater Treatment Plant Agreement Audit based on the approved Task Order 4.15. The objectives of this review were to: 1) Determine whether adequate controls are in place and working effectively to ensure that costs related to the wastewater treatment plant are properly accounted for and allocated. 2) Determine whether adequate controls are in place and working effectively to ensure the compliance with contracts and regulations. Report Highlights Finding 1: Invoice and Payment Due Dates (Page 8) The OCA judgmentally selected eight invoices from the FY21 and FY22 quarterly/annual invoices sent to five partner agencies to include diverse samples and reconciled the invoices and supporting documents as well as the payment information against the billing and payment requirements in the agreements. Six invoices were sent to the partner agencies eight days to two and a half months late, and one payment was received more than 100 days late due to incomplete supporting documents sent to the partner agency. Each agreement with a partner agency includes billing and payment requirements as summarized in Table 1 in the Detailed Analysis section. The languages and requirements differ among the Regional Water Quality Control Plant (RWQCP) agreements, especially for amendments including additional capital project costs. The variety and inconsistency of billing and payment requirements among multiple agreements may cause the agencies to be susceptible to noncompliance, errors, slower cash inflows, and inefficiency. Key Recommendations The City's management should evaluate all billing and payment requirements in the existing contracts to determine whether there is any reason preventing the agencies from making the requirements and language in the RWQCP contracts more consistent. . If there is no reason, management should standardize billing and payment requirements for all RWQCP contracts in order to improve the efficiency of billing and monitoring of payments and ensure compliance with the requirements. Additionally, the City's management should formalize the internal controls and processes to ensure timely submission of invoices with adequate supporting documents and partner agencies' compliance with payment requirements. Finding 2: Industrial Waste Surveys (Page 9) The City has the Industrial Waste Pretreatment Program (IWPP) in which the City's staff members perform permitting, monitoring, and enforcing Industrial Waste Discharge Permits for the entire RWQCP service area (except for the City of Mountain View operating portion of the IWPP). The agreements require the partner agencies to update the industrial waste survey (IWS) and provide the update annually to the City. However, the City currently does not receive the surveys. The surveys are updated informally by discussing new facilities during quarterly coordination meetings or receiving e-mail Item 8: Staff Report Pg. 5 Packet Pg. 142 of 341 Item 8 Attachment A - OCA - EXEC U Wastewater Treatment Plant Agreement updates on auto and dental facility lists. For some partner agencies, the IWS is not routinely requested or required in the agreement. As the City's RWQCP management meets with partner agencies periodically to discuss the IWS-related items, this process is being used in place of requiring formal IWS updates from each partner agency. Without submitting annual IWS updates to the City, the partner agencies are non- compliant with this requirement in the agreements. Key Recommendations The City's Public Works management should obtain the necessary IWS updates from all partner agencies to ensure compliance with pretreatment laws, regulations, and discharge permits until the contracts are amended. Management should evaluate the adequacy of the current informal survey update practice for effective administration and operation of the IWPP and either enforce the current agreement requirements or amend the language in the contract as necessary to refine the partner agencies' responsibilities. Finding 3: Compliance Monitoring (Page 10) The OCA noted that the timeliness of payments from the partner agencies is not being monitored even though some contracts include a delinquent payment clause that requires interest to be accrued on the unpaid balance. For other requirements in contracts, individual requirements are monitored and performed by different individuals. However, there are currently no policies and procedures to formalize the compliance monitoring processes for RWQCP contracts and no centralized monitoring mechanism to ensure all contract requirements are executed as intended. As listed in the Scope section of this report, RWQCP has 39 contracts and amendments with several partner agencies. Keeping track of agreement requirements and monitoring compliance with them are necessary for successful construction, operation, and maintenance of RWQCP due to various reasons such as: • The billing and payment requirements differing among agreements and vary based on the type of costs. • An addendum being added for a new project with different debt service billing and payment requirements. • Compliance with regulations and permits that is essential to carry out RWQCP's mission. • Cost allocation depending on capacity rights, certain cost and wastewater data, debt service schedules, and other allocation methods that are described and updated in the contracts for each type of cost and revenue. It is important to identify compliance issues and resolve them in a timely manner. Without policies and procedures and a formal monitoring mechanism, the City cannot ensure that all contract requirements are met to successfully construct, operate, and maintain RWQCP or collect interest penalties that are due to the City. Key Recommendations The City's management should establish RWQCP policies and procedures to implement a formal monitoring mechanism that will ensure contract requirements are met. Roles and responsibilities and the expectations of various City departments should be clearly defined. When an issue or a potential issue is identified, appropriate actions should be taken in a timely manner. The policies and procedures should provide guidelines for appropriate actions such as communication/escalation and contract amendments. Item 8: Staff Report Pg. 6 Packet Pg. 143 of 341 Item 8 Attachment A- OCA - WasteWaterTreatment [ty Plant Agreement Introduction Objective The objectives of this review were to: 1) Determine whether adequate controls are in place and working effectively to ensure that costs related to the wastewater treatment plant are properly accounted for and allocated. 2) Determine whether adequate controls are in place and working effectively to ensure the compliance with contracts and regulations. Background The "Basic Agreement Between the City of Palo Alto, the City of Mountain View and the City of Los Altos for Acquisition, Construction and Maintenance of a Joint Sewer System" (Basic Agreement) was executed in 1968. As the City of Palo Alto (the City) is the owner of the joint sewer system and the Administrator of the Basic Agreement, its Public Works department is responsible for operations and capital projects of the Regional Water Quality Control Plant (RWQCP) that treats wastewater before it is discharged to San Francisco Bay. The Basic Agreement has been amended in the following years, which included the Addendum No. Eight to the Basic Agreement that extended the contract term to December 31, 2060. These three communities are entitled to use the proportion of the capacity of the joint sewer system based on the capacity rights defined in the contracts. The costs of acquisition, construction, maintenance, and operations as well as revenue from services and sales are shared in proportion as specifically described for each cost category and each project in the contracts. The City also entered into separate agreements with the East Palo Alto Sanitary District, the Town of Los Altos Hills, and Stanford to share the City's proportionate share of the cost and use. The costs of operating and maintenance and major capital improvement projects are paid by each community based on allocation formula and schedules described in the contracts. As the Administrator of the Basic Agreement as well as three separate agreements, the City sends bills to the five communities noted above in advance on a quarterly basis. The billing amount is based on the estimated annual costs of the operation and maintenance. The City adjusts one of the quarterly bills in the subsequent year to offset the difference between the billed amounts and actual costs. The Basic Agreement requires that the City's independent auditor conduct an audit of the RWQCP financial statements each year to express an opinion on the fair presentation of the net expenditures and quarterly billings in accordance with the financial reporting provisions of the Basic Agreement. The audited RWQCP Financial Statements for the year ended June 30, 20221, shows the following percentages used to allocate costs and revenues: 1 https://www.citVofpaloalto.org/files/assets/public/agendas-minutes-reports/aqendas-minutes/finance- comm ittee/2022/20221129/20221129pfcsm-I in ked. pdf 8: Staff Report Pg. 7 Packet Pg. 144 of 341 Item 8 Attachment A - OCA - WasteWater Treatment Plant Agreement Maintenance and Operation Costs & Joint System Revenue City of Mountain View City of Los Altos City of Palo Alto East Palo Alto Sanitary District Stanford University Town of Los Altos Hills 40.22% 11.58% 32.37% 48.20% 7.29% 6.19% 2.35% Source: Note 2- Summary of Significant Accounting Policies City of Palo Alto Regional Water Quality Control Plant Independent Auditor's Report and Financial Statements For the Year Ended June 30, 2022 The agreements and subsequent amendments include the following to be used for allocation of the costs of capital improvement projects: City of Mountain View City of Los Altos City of Palo Alto East Palo Alto Sanitary District Stanford University Town of Los Altos Hills Debt Services Expenditures 37.89% 9.47% 38.16% 52.64% 7.64% 5.26% 1.58% This table does not apply to the Refunding 1990 Series A Bonds Source: EXHIBIT H -Annual Average Flow Capacity Rights Second Restated and Amended Agreement Between the City of Palo Alto and the East Palo Alto Sanitary District for Wastewater Treatment and District Outfall Scope The OCA reviewed the following 39 RWQCP contracts and amendments the City manages: • Basic Agreement, Supplementals, and subsequent Addendums No. One through No. Ten • First Amended and Restated Contract No. C059999 Between the City of Palo Alto and the City of Mountain View for Implementation and Operation of the SWRCB Water Recycling Project (June 18, 2007) and subsequent Amendment No. 1 • Agreement Between the City of Palo Alto and the Town of Los Altos Hills for Sewage Transportation, Treatment and Disposal (March 18, 1968) and subsequent Amendments No. 1 through No. 7 • Contract No. C869 Between the City of Palo Alto and the Board of Trustees of the Leland Stanford Junior University (November 30, 1956) and subsequent Amendments No. One through No. Seven • Second Amended and Restated Agreement Between the City of Palo Alto and the East Palo Alto Sanitary District for Wastewater Treatment and District Outfall (May 17, 2021) 4 Item 8: Staff Report Pg. 8 Packet Pg. 145 of 341 Item 8 Attachment A - OCA - WasteWater Treatment Plant Agreement • Partnership Agreement to Advance Resilient Water Reuse Programs in Santa Clara County between the City of Palo Alto, the City of Mountain View, and the Santa Clara Valley Water District (Valley Water Agreement) (December 10, 2019) • Effluent Transfer Agreement Between the City of Palo Alto and City of Los Altos (June 7, 2021) The OCA reviewed the transactions and documents in our audit period (from July 1, 2020, to May 30, 2022) for control testing. Methodology To achieve the audit objectives, the OCA performed the following procedures: • Interviewed the appropriate City employees to understand the roles and responsibilities and processes related to the contract administration. • Reviewed the contracts to identify the contract requirements to be tested for the City's compliance monitoring activities. • Reviewed the documents (such as supporting documents for billing, reports, and meeting minutes) showing cost allocations and compliance monitoring activities. Compliance This audit activity was conducted from June 2022 to October 2022 in accordance Statement with generally accepted government auditing standards, except for the requirement of an external peer review2. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Organizational During this audit activity, we observed that invoices to partner agencies are Strengths itemized and accompanied by cost allocation calculations based on a flow report and schedules, which makes it easier for each partner agency to confirm the rates. The Office of the City Auditor greatly appreciates the support of the Public Works Department and Administrative Services Department in conducting this audit activity. Thank you! 2 Government auditing standards require an external peer review at least once every three (3) years. The last peer review of the Palo Alto Office of the City Auditor was conducted in 2017. The Palo Alto City Council approved a contract from October 2020 through June 2022 with Baker Tilly US, LLP (Baker Tilly) and appointed Kyle O'Rourke, Senior Consulting Manager in Baker Tilly's Public Sector practice, as City Auditor. Given the transition in the City Audit office, a peer review was not conducted in 2020 and will be conducted after the third year of Baker Tilly's contract. Item 8: Staff Report Pg. 9 Packet Pg. 146 of 341 Item 8 Attachment A- OCA - WastewaterTreatment [ty Plant Agreement Detailed Analysis RWQCP The Basic Agreement was Contracts originally signed in October 1968 and has been amended 10 times (as of June 2022). It requires that the City act as the Administrator to administer the contract. The significant sections of the Basic Agreement include: • Design, ownership, and capacity rights of the joint system • Acquisition and construction of the joint system • Sharing of the costs of acquisition and construction, reconstruction, and maintenance and operation • Payment of the costs Power and Duties of the Administrator* a) Supervise and administer the contract between the parties for the operation and maintenance of the Joint System. b) Maintain and operate the Joint System and preserve it is good repair and working order, all in accordance with recognized sound engineering practice. c) Maintain records of all revenues and expenditures incurred in connection with operation and maintenance of the Joint System. The accounting system shall be based on "Uniform System of Accounts for Waste Water Utilities" as published by the Water Pollution Control Federation. d) Arrange for an independent annual audit of the accounts of the Joint System. e) Measure and keep accurate records of the measurements of sewage flow. * Paragraph 11, "Basic Agreement Between the City of Palo Alto, the City of Mountain View and the City of Los Altos for Acquisition, Construction and Maintenance of a Joint Sewer System" executed October 10, 1968 • Revenue from services and sales of wastewater for reuse The Supplementals to the Basic Agreement and separate agreements with other partner agencies include the requirements pertaining to: • Pretreatment program to comply with federal, state, or local regulations and applicable discharge permits • Capital projects and financing (The major projects planned are listed in Appendix A.) The audited RWQCP Financial Statements for the year ended June 30, 20221, lists the following bonds and loans financing RWQCP capital projects: o 1999 Utility Revenue Refunding Bonds (1999 Wastewater Treatment New Project & Refunding of 1990 Series A Bonds) o 2009 State Water Resource Loan o 2017 State Water Resource Loan The OCA reviewed the requirements in 39 RWQCP agreements and amendments within the audit scope (see the Scope section of this report) and summarized the various requirements related to billings and payments in Table 1 in the following page. Item 8: Staff Report Pg. 10 Packet Pg. 147 of 341 Item 8 Attachment A - OCA - DEl-Al Wastewater Treatment Plant Agreement Table 1: Requirements for Billing and Payments Contract Requirements Ture-up* Billing Interest on Partner (*Offset of the the Interest Agency Bill Amount Billing Due Date Payment Due De difference between the excess/deficit payments on delinquent billed amounts and over/under payments actual costs actual costs Maintenance and Operation One-fourth of • August 15 proportionate July • November 15 share of the October (debt payment) • Feb14 Cit o y cost of January yFebruary • Ma y Mountain maintenance April (debt payment) Proiect Costs October Yes No View and operation • 30 business days of receipt of as estimated by [Dates are not specified] the quarterly billing statement February 15th • 10 business days of receipt of the quarterly billing statement for Ultra -Violet Treatment Project Maintenance and Operation One-fourth of • August 15 proportionate July • November 15 share of the October (debt payment) • February 15 • May 15 City of cost of January Proiect Costs October Yes No Los Altos maintenance April (debt payment) • 30 business days of receipt of a and operation quarterly billing statement as estimated by [Dates are not specified] • 10 business days of receipt of a February 15th quarterly billing statement for Ultra -Violet Treatment Project Maintenance and Operation July 31 Later of: • October to reflect the One-fourth of October 31 • August 15 /November 15 actual costs for proportionate January 31 /February 15 /May 16, or immediately prior fiscal East Palo share of the May 1 • 25 business days of receipt of a year Alto cost of quarterly billing statement • April to reflect the Sanitary maintenance ["Not later than thirty Proiect Costs estimated costs to be Yes Yes District and operation (30) days after July 1, • 30 business days of receipt of a incurred between April 1 as estimated by October 1, January 1, quarterly billing statement and July adjusted the July 1 and April 1, of each • 10 business days of receipt of actual costs for the first year"] the quarterly billing statement for three quarters of fiscal Ultraviolet Disinfection Facility year prior to April 1 Project Bond • December 1 Proiect Costs • 30 business days of receipt of Stan or Based on the an annual billing statement for Upon completion of the University schedule of August 1st Ultra -Violet Treatment Project project and certification of No Yes payments and Outfall Project and the the costs Primary Sedimentation Tank Rehabilitation Project • 10 business days of receipt of an annual billing statement Bond • December 1 Proiect Costs • 30 business days of receipt of Town of Based on the an annual billing statement for Upon completion of the Los Altos schedule of August 1st Ultra -Violet Treatment Project project and certification of No Yes Hills payments and Outfall Project and the the costs Primary Sedimentation Tank Rehabilitation Project • 10 business days of receipt of an annual billing statement Item 8: Staff Report Pg. 11 Packet Pg. 148 of 341 Item 8 Attachment A- OCA - WasteWaterTreatment [ty Plant Agreement Audit Results Finding 1: The City sends invoices on a quarterly basis to three partner agencies (City Invoice and of Mountain View, City of Los Altos, and the East Palo Alto Sanitary District) Payment Due and on an annual basis to two partner agencies (Stanford University and Dates Town of Los Altos Hills). Out of 26 invoices the City sent to these five partner agencies, The OCA judgmentally selected eight invoices to include at least one invoice prepared for each quarter in our audit period and at least one invoice for each partner agency and reviewed the invoices and supporting documents as well as the payment information against the billing and payment requirements in the agreements. The review of eight invoices revealed the following: • Two invoices that are required to be sent annually on or before August 1st were dated October 15, 2021, and October 16, 2022, respectively. • Two quarterly invoices were sent in January and another two quarterly invoices were sent in July as required by the Basic Agreement. However, they were dated about eight to nineteen days later than management's intended invoice dates, January 1St and July 1st respectively. The agreements require payments by February 14th and August 15th for a January invoice and a July invoice, respectively. • One payment that was required to be deposited by August 15th was received on October 28th, which was over 100 days late due to incomplete supporting documents sent to the partner agency. Each agreement with a partner agency includes billing and payment requirements as summarized in Table 1 in the Detailed Analysis section. The languages and requirements differ among RWQCP's agreements, especially for amendments including additional capital project costs. Some agreements require a payment within 30 business days of receipt of an invoice while others require a payment within 10 business days. Billing due dates also differ among the agreements. Billing for three partner agencies is due quarterly in January, April, July, and October while billing for two partner agencies is due once a year in August. The variety and inconsistency of billing and payment requirements among multiple agreements may cause the agencies to be susceptible to noncompliance, errors, slower cash inflows, and inefficiency. Recommendation The City's management should evaluate all billing and payment requirements in the existing contracts to determine whether there is any reason preventing the agencies from making the requirements and language in the RWQCP contracts more consistent. If there is no reason, management should standardize billing and payment requirements for all RWQCP contracts in order to improve the efficiency of billing and monitoring of payments and ensure compliance with the requirements. Item 8: Staff Report Pg. 12 Packet Pg. 149 of 341 Item 8 Attachment A - OCA - WasteWaterTreatment Plant Agreement Additionally, the City's management should formalize the internal controls and processes to ensure timely submission of invoices with adequate supporting documents and partner agencies' compliance with payment requirements. Management Responsible Department(s): Public Works Department; Administrative Response Services Department Concurrence: Agree Target Date: July 25, 2025 Action Plan: The City agrees that it would be beneficial to make billing practices consistent between agencies. The City has made changes to improve the clarity of quarterly and annual bills by including the due date and potential late fees. The City will modify existing partner agreements as other updates are made to clarify the billing frequency and ensure standardization amongst all the partners, with a target date of July 2025 based on current capital project schedules. Finding 2: The City has the Industrial Waste Pretreatment Program (IWPP) in which Industrial Waste the City's staff members perform permitting, monitoring, and enforcing Surveys Industrial Waste Discharge Permits for the entire RWQCP service area (except for the City of Mountain View operating portion of the IWPP). The contracts with partner agencies describe the Sewer Use Ordinance that is as stringent as the Federal Pretreatment Regulations and enforced via permits. The costs of the program are shared among the partner agencies and included in their quarterly or annual invoices. The contracts require the partner agencies to update the industrial waste survey (IWS) and provide the update annually to the City. However, the City currently does not receive the surveys. The RWQCP management explains that the City does not have all FY21 survey updates because the Pretreatment Program Manager in the beginning of FY21 who would have requested and received the survey updates via email is no longer employed by the City. Currently, the surveys are updated informally as follows: • For two partner agencies, new facilities are discussed during quarterly coordination meetings. • For one partner agency, e-mail updates on auto and dental facility lists are received. • For one partner agency, the IWS is not currently routinely requested although the staff is working on improving the practice. • One partner agency is not required to update the IWS in the agreement. As the City's RWQCP management meets with partner agencies periodically to discuss the IWS-related items, this process is being used in place of requiring formal IWS updates from each partner agency. Item 8: Staff Report Pg. 13 Packet Pg. 150 of 341 Item 8 Attachment A - OCA - WasteWater Treatment Plant Agreement Without submitting annual IWS updates to the City, the partner agencies are non -compliant with this requirement in the agreements. Recommendation. The City's Public Works management should obtain the necessary IWS updates from all partner agencies to ensure compliance with pretreatment laws, regulations, and discharge permits until the contracts are amended. Management should evaluate the adequacy of the current informal survey update practice for effective administration and operation of the IWPP and either enforce the current agreement requirements or amend the language in the contract as necessary to refine the partner agencies' responsibilities. Management Responsible Department(s): Public Works Department Response Concurrence: Agree Target Date: September 2024 Action Plan: The City agrees that the City should obtain necessary Industrial Waste Survey updates from all partner agencies in a more formalized way. Starting in FY25, the City will send out formal requests to all Partner Agencies to review and approve/edit the Industrial Waste Surveys for their jurisdictions. This requirement will be evaluated for any needed revisions whenever as the Partner Agreements are reopened for other reasons. Finding 3: The OCA noted that the timeliness of payments from the partner Compliance agencies is not being monitored even though some contracts include a Monitoring delinquent payment clause that requires interest to be accrued on the unpaid balance. For other requirements in contracts, individual requirements are monitored and performed by different individuals. However, there are currently no policies and procedures to formalize the compliance monitoring processes for RWQCP contracts and no centralized monitoring mechanism to ensure all contract requirements are executed as intended. The RWQCP operations, finances, and staff (over 55 staff members) are overseen by the Water Quality Control Plant Manager in the Water Quality Control Plant group of the City's Public Works Department who also works with the Industrial Waste Pretreatment Program (IWPP) staff members and the accounting team of the Administrative Services Department. As listed in the Scope section of this report, RWQCP has 39 contracts and amendments with several partner agencies. Keeping track of agreement requirements and monitoring compliance with them are necessary for successful construction, operation, and maintenance of RWQCP due to the following: • Some contracts are old and have multiple amendments. 10 Item 8: Staff Report Pg. 14 Packet Pg. 151 of 341 Item 8 Attachment A - OCA - ,A Wastewater Treatment Plant Agreement • The billing and payment requirements differ among agreements and vary based on the type of costs. • An addendum continues to be added for a new project with different debt service billing and payment requirements. • Compliance with regulations and permits as described in the agreements is essential to carry out RWQCP's mission3. • Cost allocation depends on capacity rights, certain cost and wastewater data, debt service schedules, and other allocation methods described and updated in the agreements for each type of costs and revenue. It is important to identify compliance issues and resolve them in a timely manner. Without policies and procedure and a formal monitoring mechanism, the City cannot ensure that all contract requirements are met to successfully construct, operate, and maintain RWQCP or collect interest penalties that are due to the City. Recommendation The City's management should establish RWQCP policies and procedures to implement a formal monitoring mechanism that will ensure contract requirements are met. Roles and responsibilities of various City departments, functions, and employees and the expectations should be clearly defined. To implement a monitoring mechanism, the City's Public Works management should assign specific requirements to be monitored or performed to the appropriate staff members or teams, if necessary, and have an individual responsible for overall compliance verify compliance with all requirements periodically. When an issue or a potential issue is identified, appropriate actions should be taken in a timely manner. The policies and procedures should provide guidelines for appropriate actions such as communication/escalation and contract amendments. Management Responsible Department(s): Public Works Department Response Concurrence: Agree Target Date: December 31, 2023 Action Plan: The City has drafted an internal Standard Operating Procedure to formally monitor tracking and receipt of payments from partner agencies and will complete reviews and distribution. 3 "The mission of the Regional Water Quality Control Plant (RWQCP) is to protect San Francisco Bay by cleaning and treating wastewater before it is discharged to San Francisco Bay." https://cleanbay.org/our-programs/regional-water-quality- control-plant/#RWQL 11 Item 8: Staff Report Pg. 15 Packet Pg. 152 of 341 Appendices Item 8 Attachment A - OCA - WasteWater Treatment Plant Agreement Appendix A: Summary of FY23-FY27 Capital Budget in Wastewater Treatment Fund According to the City of Palo Alto Fiscal Year 2023 Adopted Capital Budget4, • Six agencies using RWQCP serve 250,000 residents. • Expenditures of approximately $289.0M are programmed for the Wastewater Treatment Fund, which is 53 % of the City's 2023-2027 Capital Improvement Program Projects ($193.2M are allocated in FY2023). • The costs are recovered from the Palo Alto Wastewater Collection Fund and five partner agencies. • Total ten projects are programmed: A. Buildings and Facilities 1. New Laboratory and Environmental Services Building (Fiscal Year 2023: $2.6 million; 5 - Year CIP: $23.7 million). 2. Plant Master Plan (Fiscal Year 2023: $0.2 million; 5 -Year CIP: $2.1 million) B. System Improvements 1. Plant Repair, Retrofit, and Equipment Replacement (Fiscal Year 2023: $ 10.5million; 5 - Year CIP: $26.2 million) 2. Advanced Water Purification Facility (Fiscal Year 2023: $17.1 million; 5 -Year CIP: $17.1 million) 3. Headworks Facility Replacement (Fiscal Year 2023: $4.8 million; 5 -Year CIP: $48.8 million) 4. Horizontal Levee Pilot (Fiscal Year 2023: $0.2 million; 5 -Year CIP $0.7 million) 5. Joint Intercepting Sewer Rehabilitation (5 -year CIP $12.6 million) 6. Outfall Line Construction (Fiscal Year 2023: $10.6 million; 5 -Year CIP: $10.6 million) 7. Primary Sedimentation Tank Rehabilitation (Fiscal Year 2023: $2.6 million; 5 -Year CIP: $2.6 million) 8. Secondary Treatment Upgrades (Fiscal Year 2023: $144.7 million; 5 -Year CIP: $144.7 million) 4 https://www.cityofpaloaIto.org/files/assets/public/administrative-services/city-budgets/fV2023-city-budget/adopted- fy23/capital-budget final-4-online-version.pdf 13 Item 8: Staff Report Pg. 17 Packet Pg. 154 of 341 Item 8 Attachment A - OCA - WasteWater Treatment Plant Agreement Appendix B: Management Response Findings and Recommendation Responsible Agree, Partially Agree, or Do Not Agree and Target Date and Corrective Action Department(s) Plan Finding 1: Invoice and Payment Due Dates The City's management should evaluate all billing and payment Public Works / Concurrence: Agree requirements in the existing contracts to determine whether there is Administrative Target Date: July 2025 any reason preventing the agencies from making the requirements Services and language in the RWQCP contracts more consistent. If there is Action Plan: no reason, management should standardize billing and payment requirements for all RWQCP contracts in order to improve the The City agrees that it would be beneficial to make billing practices efficiency of billing and monitoring of payments and ensure consistent between agencies. The City has made changes to improve compliance with the requirements. the clarity of quarterly and annual bills by including the due date and potential late fees. The City will modify existing partner agreements Additionally, the City's management should formalize the internal as other updates are made to clarify the billing frequency and ensure controls and processes to ensure timely submission of invoices with standardization amongst all the partners, with a target date of July adequate supporting documents and partner agencies' compliance 2025 based on current capital project schedules. with payment requirements Finding 2: Industrial Waste Surveys The City's Public Works management should obtain the necessary Public Works Concurrence: Agree IWS updates from all partner agencies to ensure compliance with Target Date: September 2024 pretreatment laws, regulations, and discharge permits until the contracts are amended. Management should evaluate the adequacy Action Plan: of the current informal survey update practice for effective The City agrees that the City should obtain necessary Industrial administration and operation of the IWPP and either enforce the Waste Survey updates from all partner agencies in a more formalized current agreement requirements or amend the language in the way. Starting in FY25, the City will send out formal requests to all contract as necessary to refine the partner agencies' responsibilities. Partner Agencies to review and approve/edit the Industrial Waste Surveys for their jurisdictions. Finding 3: Compliance Monitoring The City's management should establish RWQCP policies and Public Works Concurrence: Agree procedures to implement a formal monitoring mechanism that will Target Date: December 31, 2023 ensure contract requirements are met. Roles and responsibilities of various City departments, functions, and employees and the Action Plan: expectations should be clearly defined. To implement a monitoring mechanism, the City's Public Works management should assign specific requirements to be monitored or 14 Item 8: Staff Report Pg. 18 Packet Pg. 155 of 341 Item 8 Attachment A - OCA - WasteWater Treatment Plant Agreement I . I Findings and Recommendation ' performed to the appropriate staff members or teams, if necessary, and have an individual responsible for overall compliance verify compliance with all requirements periodically. When an issue or a potential issue is identified, appropriate actions should be taken in a timely manner. The policies and procedures should provide guidelines for appropriate actions such as communication/escalation and contract amendments. Responsible Agree, Partially Agree, or Do Not Agree and Target Date and Corrective Action Department(s) Plan The City has drafted an internal Standard Operating Procedure to formally monitor tracking and receipt of payments from partner agencies and will complete reviews and distribution. 15 Item 8: Staff Report Pg. 19 Packet Pg. 156 of 341 Item 9 Item 9 Staff Report City Council Staff Report From: City Manager CITY O F Report Type: CONSENT CALENDAR PALO Lead Department: City Auditor ALTO Meeting Date: January 22, 2024 Report #:2311-2304 TITLE Approval of Office of City Auditor Risk Assessment and Audit Plan (CEQA Status - Not a Project) RECOMMENDATION The Policy and Services Committee and City Auditor recommend that City Council approve the following reports: 1) Fiscal Year 2023/24 Risk Assessment Report 2) Fiscal Year 2023/24 Audit Plan Report 3) Task Orders identified in the Audit Plan Report o TASK ORDER FY24-4.21 Purchasing Card Program o TASK ORDER FY24-4.22 ADA Compliance Review o TASK ORDER FY24-5 Various Reporting & City Hotline (Modified) EXECUTIVE SUMMARY Baker Tilly interviewed City Council members and executive leadership across 14 departments within the City. In addition, selected directors and managers were asked to complete a survey that provided their view of top risk areas to their departments and the City as a whole. Baker Tilly analyzed the results of the survey and other data and information gathered. The risk assessment involved scoring and ranking the 97 auditable units to identify the audit areas with high to moderate risks. The FY2023/24 Audit Plan was prepared based on the results of the risk assessment, conversations with leadership, and other matters. BACKGROUND The Palo Alto Municipal Code (Section 2.08.1301) requires the City Auditor to prepare and submit an annual audit plan to the City Council for review and approval. In its capacity serving 1 https://codeIibrary.amlegaI.com/codes/paloaIto/latest/paIoaIto_ca/0-0-0-60361 Item 9: Staff Report Pg. 1 Packet Pg. 157 of 341 Item 9 Item 9 Staff Report as the City Auditor function, and in accordance with Baker Tilly's agreement with the City', Baker Tilly performed a citywide risk assessment (Task 2 of the agreement). The purpose of the assessment was to identify and prioritize risks in order to develop the annual audit plan (Task 1). During the risk assessment, Baker Tilly assessed a wide range of risk areas, including strategic, financial, technology, human capital, operational, reputational, economic, and compliance risk categories. During the Policy and Services Committee meeting on December 12, 20233, the council members approved the attached Risk Assessment Report and Audit Plan Report. MOTION: Chair Tanaka moved, seconded by Mayor Kou, to approve the Office of the City Auditor Risk Assessment Report and FY2024 Audit Plan Report and recommend the City Council accept the following reports: 1) Fiscal Year 2023/24 Risk Assessment Report 2) Fiscal Year 2023/24 Audit Plan Report 3) Task Orders identified in the Audit Plan Report o TASK ORDER FY24-4.21 Purchasing Card Program o TASK ORDER FY24-4.22 ADA Compliance Review o TASK ORDER FY24-5 Various Reporting & City Hotline (Modified) MOTION PASSED: 2-0 ANALYSIS For Baker Tilly to execute the approved audit plan, the Task Orders will need to be signed by the Policy & Services Committee Chair upon approval of the audit plan by City Council. Per the contract with Baker Tilly, the P&S Chair is authorized to sign task orders that follow the approved annual audit workplan. Furthermore, one of the OCA's responsibilities is to follow up on management's corrective actions. The follow-up activities require periodic inquiries with management on outstanding corrective actions and verifying implementation of the corrective actions as well as testing of the effectiveness of the implemented controls. As Task 5 of Baker Tilly's agreement with the City includes the OCA's annual report on the status of recommendations made in completed audits, the estimated costs for the follow-up activities on recommendations need to be allocated to the Task 5 budget. Therefore, modified TASK ORDER FY24-5 Various Reporting & City Hotline has been prepared to transfer the amount for the estimated costs of $30,592 for the follow-up activities (as shown as a line item in the Proposed Audit Plan for FY2024) from Task 4 to Task 5. 2 https://www.cityofpaloa Ito.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- c m rs/year-archive/2020-2/i d-11624. pd f?t=64761.15 3 https://cityofpaloaIto.primegov.com/Portal/Meeting?meetingTemplateld=12186 Item 9: Staff Report Pg. 2 Packet Pg. 158 of 341 Item 9 Item 9 Staff Report FISCAL/RESOURCE IMPACT The timeline for risk assessment and the audit plan is to complete within FY2024. The proposed audits in the audit plan are within the contract amount for FY2024. Specifically, below is a summary of the task orders seeking approval financial impacts, all estimated to be completed by June 30, 2024: • TASK ORDER FY24-4.21 Purchasing Card Program in the amount of $76,540 • TASK ORDER FY24-4.22 ADA Compliance Review in the amount of $73,110 • TASK ORDER FY24-5 Various Reporting & City Hotline (Modified) revise from $90,000 to a total not to exceed of $120,592 STAKEHOLDER ENGAGEMENT The Office of the City Auditor worked with Executive Leaders from 14 departments across the City and engaged the City Council. ENVIRONMENTAL REVIEW Environmental review is not applicable to this activity. ATTACHMENTS Attachment A: OCA - FY2023/24 Risk Assessment Report Attachment B: OCA - FY2023/24 Annual Audit Plan Report APPROVED BY: Adriane D. McCoy, City Auditor Item 9: Staff Report Pg. 3 Packet Pg. 159 of 341 Item 9 Attachment A - OCA - FY2023 Risk Assessment � • Report iiiiriwiuri Item 9: Staff Report Pg. 4 1 1 Packet Pg. 160 of 341 Contents INTRODUCTION.............................................................................................................1 RISK ASSESSMENT APPROACH .................................................................................2 SURVEYRESULTS........................................................................................................3 RISK ASSESSMENT RESULTS.....................................................................................5 APPENDICES.................................................................................................................9 Li A CG bakertitty Baker Tilly US, LLP, trading as Baker Tilly, is an independent member of Baker Tilly International. Baker Tilly International Limited is an English company. Baker Tilly International provides no professional services to clients. Each member firm is a separate and independent legal entity, and each describes itself as such. Baker Tilly US, LLP is not Baker Tilly International's agent and does not have the authority to bind Baker Tilly International or act on Baker Tilly International's behalf. None of Baker Tilly International, Baker Tilly US, LLP nor any of the other member firms of Baker Tilly International has any liability for each other's acts or omissions. The name Baker Tilly and its associated logo is used under license from Baker Tilly International Limited. Item 9 Attachment A- OCA - FY2023Risk Assessment IReport L y Introduction Overview According to City Ordinance of the City of Palo Alto (the City), the mission of the Office of the City Auditor (OCA) is to promote honest, efficient, effective, economical, and fully accountable and transparent city government. To fulfill this mission, the OCA conducts performance audits and performs financial/operational analyses of city departments, programs, services, or activities as approved by the City Council. (Section 2.08.130). In its capacity serving as the City Auditor function, and in accordance with Baker Tilly's agreement with the City (Task #1 of the agreement), Baker Tilly US, LLP (Baker Tilly) conducted the fiscal year(FY) 2023 citywide risk assessment in order to develop the FY2024 annual audit plan (Task #2). The California Government Code Section 1236 requires all cities that conduct audit activities to conduct their work under the general and specified standards prescribed by the Institute of Internal Auditors (IIA) or the Government Auditing Standards (GAO) issued by the Comptroller General of the United States, as appropriate. According to the IIA Standard 2010, the head of internal audit function "must establish a risk -based plan to determine the priorities of the internal audit activity, consistent with the organization's goals" and consider the input of senior management and a governing board. The purpose of the risk assessment is to develop an internal audit plan that assigns internal audit resources to the activities that add the most value to the City. The risk assessment process involves identifying, measuring, and prioritizing risks associated with the audit universe (list of specific departments, functions, processes, programs, etc. that can be subject to an audit). Risk is defined as "the possibility of an event or condition occurring that will have an impact on the ability of an organization to achieve its objectives."' Our risk assessment involved collaboration with City Council and executive leadership from 14 main departments across the organization. This report summarizes our risk assessment methodology, analysis, and results. The FY2024 annual audit plan is based on the results of this risk assessment. Through the risk assessment, we observed certain strengths of the City. Key strengths include: - Commitment to public service - High value on efficient and effective government - Focus on long term strategy - Dedicated and highly professional management and staff - Demonstrated history of innovation and commitment to sustainability Risk Assessment Process Considerations The starting point of the internal auditing is to conduct a risk assessment that is the basis for determining the internal audit activities. However, it is not a one -size -fits -all process. The scope and complexity of risk assessment are affected by various factors such as the maturity level of the internal audit function's products and services, the organization's enterprise risk management efforts, coordination with other monitoring and risk management functions, and the stakeholders' expectations. As every organization is subject to changing environment, the results of the annual risk assessment represent the information considered at the time of the assessment. In addition to the annual macro -level risk assessment, the internal audit function is required to perform an engagement -level risk assessment when starting each audit listed in the approved audit plan. The IIA Standard 2200 states, "Internal auditors must develop and document a plan for each engagement, including the engagement's objectives, scope, timing, and resource allocations. The plan must consider the organization's strategies, objectives, and risks relevant to the engagement." 1 Rick A. Wright Jr., CIA, "The Internal Auditor's Guide to Risk Assessment" The Institute of Internal Auditors Research Foundation (IIARF), 2018 Item 9: Staff Report Pg. 6 Packet Pg. 162 of 341 Item 9 Attachment A- OCA - FY2023Risk Assessment IReport L y Risk Assessment Approach Baker Tilly's risk assessment approach consisted of four phases as illustrated in the graphic below. Phase I Phase II Planning Information gathering L� Phase III Analysis Phase IV Reporting gi Ongoing project management and collaboration • Prepared risk assessment survey questions and the online survey tool. Planning • Scheduled the interviews with City Council members and Executive Leadership Team (ELT) members. • Reviewed the key documents such as City Council Priorities and the progress report, the budget documents, the annual comprehensive financial report, departmental strategic plans, employee turnover, the information on the City's website and other relevant documents. Information • Distributed a link to the online survey to the selected 51 managers. The survey responses Gathering were downloaded in Excel spreadsheet. • Interviewed all City Council Members and ELT members (25 individuals) to identify the events and conditions that may affect the achievement of objectives. • Updated the risk assessment matrix with the information gathered. • Analyzed the survey responses. • Scored the auditable units (listed in Appendix A) in the risk assessment matrix based on the likelihood and the impact2 of potential adverse events. Analysis o Each of the auditable units received scores for various risk factors related to the likelihood or impact (defined in Appendix B). o Risk factor scores were summed to create a single score for the auditable unit. • Identified potential internal audit activities for the auditable units with high risk scores. Reporting • Summarized the approach and results of the risk assessment Baker Tilly conducted an initial comprehensive risk assessment in FY2021 by interviewing all Council Members and Executive Leadership Team (ELT) members to create a risk assessment matrix. For the FY2022 risk assessment, surveyed all ELT members and some additional members of management and conducted interviews with available Council Members as well as key ELT members representing areas of perceived high risk (e.g., Information Technology, Human Resources). For the third year risk assessment, all Council Members and ELT members were interviewed, the selected 51 managers were surveyed, and the risk assessment matrix was redeveloped for a comprehensive picture of the risk landscape, which will be continuously improved. Our risk assessment primarily measured inherent risk (the risk without mitigating controls/factors) for each risk factor although we also considered specific risks based on the City's processes, controls, and other factors we learned through internal audit activities. Using the information gathered, we identified risks and determined the likelihood and impact of the risks. 2 Likelihood is the possibility that an event will occur. Impact is the extent to which an event might affect an organization. Item 9: Staff Report Pg. 7 Packet Pg. 163 of 341 Item 9 Attachment A- OCA - FY2023Risk Assessment IReport L y Survey Results Baker Tilly team conducted an online risk assessment survey to gather management's insights for all City departments and received 47 responses (92% response rate). The survey questions are listed in Appendix C. Changes over the past 12 months All organizations are subject to changing environments that can influence risk to organizations. The COSO3 Internal Control — Integrated Framework4 highlights the influence of change in one of the 17 principles. Principle 9 states, "the organization identifies and assesses changes that could significantly impact the system of internal control." The survey participants were asked to select all significant changes for their team or department during last 12 months. New/additional staff 33 Unfilled positions 28 Change in workload 23 New software 19 Change in organizational structure 17 New workflows or business processes 13 New or significant changes in information technology systems 13 Change in compliance requirements (due to changes in policies/contracts/laws/regulations) 11 New vendors and contractors 11 Significant changes in processes or controls 7 Workforce reduction 7 Increased undesirable performance or instances (such as injuries/complaints/customer dissatisfaction/etc.) 6 Change in goals/objectives/performance measures 6 Change in culture 3 Other 4 Policies and Procedures Policies and procedures provide a roadmap for daily operations to ensure compliance with laws and regulations, give guidance for decision -making, and establish the standards and internal controls. The survey participants were also asked to select the current state of the policies and procedures necessary to perform their job responsibilities. e P&P are adequate and up-to-date 36% P&P are adequate but not updated regularly 38% 3 The Committee of Sponsoring Organizations of the Treadway Commission (COSO) is sponsored jointly by five major professional associations headquartered in the United States: the American Accounting Association (AAA), the American Institute of Certified Public Accountants (AICPA), Financial Executives International (FEI), the Institute of Internal Auditors (IIA), and Institute of Management Accountants (IMA). https://www.coso.org/ 4 Internal Control — Integrated Framework provides principles -based guidance for designing and implementing effective internal controls. This framework has become the most widely used internal control framework in the U.S. https://www.coso.org/guidance-on-ic Item 9: Staff Report Pg. 8 Packet Pg. 164 of 341 Item 9 Attachment A - OCA - S U FY2023 Risk Assessment Report Barriers to meeting goals and objectives in FY2024 The COSO Enterprise Risk Management —Integrating with Strategy and PERFORMANCE MONITORING Performances provides insight into the links between strategy, risk, and — performance through 20 principles. Principle 10 states, "the organization Ameth1ism identifies risk that impacts the performance of strategy and business for Monitoring 6% objectives." The survey participants were asked about their team/department's periodic Periodic Periodic reporting on significant goals and compliance requirements to monitor the Reporting for Reporting for performance. The pie chart shows the results. Some Goals All Goals 41% 53% The survey participants were also asked what can possibly prevent their team/department from meeting its goals and objectives in 2024. The results are summarized below. Staffing constraints Limited skills/knowledge/experience/training Financial constraints F Inefficiency in process and/or communication Community pressure Technology issue State/Federal regulations Ambiguity in roles and responsibilities Other Lack of or ineffective internal controls 0 5 10 15 20 25 30 35 L0 45 Top risk areas selected by the survey participants The survey participants were asked to select and rank the top five 1 Citizen Demands risk areas from 31 risk areas listed in the survey. Based on the 2 Succession Planning number of selection and the ranking given by them, the top 15 risk 3 Economy areas were identified. 4 Human Capital Management For the risks they selected: 5 Human Resources 6 Procurement/Sourcing • 59.6% of the participants think the City management is aware 7 Security of the risk, but more efforts are needed to help mitigate the risks. 8 Regulatory • 34.0% of the participants think the City management is aware 9 Reputation of the risks and has implemented activities to help mitigate the 10 Resource Allocation risks. 11 Efficiency • 6.4% of the participants think the City management is either not aware of the risks or have not developed sufficient activities to help 12 Document Retention mitigate the risks. 13 Leadership and Authority 14 Technologies 15 Strategic Change 5 Enterprise Risk Management —Integrating with Strategy and Performance addresses the need for organizations to improve their approach to managing risk to meet the demands of an evolving business environment. https://www.coso.org/guidance-erm 4 Item 9: Staff Report Pg. 9 Packet Pg. 165 of 341 Item 9 Attachment A - OCA - RISK FY2023RiskAssessment ASSESS Report Risk Assessment Results Department Descriptions and Key Risk Areas When identifying risk areas throughout the City, Baker Tilly considered each department and associated risks. Based on the concerns described by interviewees and survey respondents, departments' functions, and their inherent risks, Baker Tilly identified the auditable risk areas for each department. Below is an overview of the City's departments and their key risk areas. Administrative Services The Administrative Services Department provides financial and analytical support to the City. Departmental functions include finance and accounting, purchasing, administration, budget, real estate, and others. City Attorney's Office The City Attorney's Office provides legal services to the City, including providing legal advice and training to City leaders, negotiating on behalf of the City, drafting contracts and other legal documents, investigating claims, and defending the City in litigation City Clerk's Office The City Clerk serves as a liaison between the public and City Council. Office functions include Public Records Act requests, public hearings, local elections, board and commission recruitments, record management, and others. City Manager's Office The City Manager's Office provides leadership to the City departments and is responsible for facilitating City Council legislative actions, managing special interdepartmental projects, and more. The Communications Office is housed under the City Manager's Office and is the primary correspondent between the City and the public. Office of Transportation The Office of Transportation works to enhance quality of life and improve the safety of the users of all modes of transportation. The Office is responsible for sustainable transportation systems, manage parking, and oversees the City's traffic and transportation capital improvement projects. Community Services Department Key Risk Areas - Purchasing card program - Vendor master file - Property management - Grant management Key Risk Areas - Identification of legal risks - Contracts and legal documents Key Risk Areas Election administration Record management Council meeting management Key Risk Areas Citywide risk management Economic development Key Risk Areas Intersection safety improvements Federal Railroad Administration (FRA) Quiet Zone - Parking permit revenue The Community Services Departments offers a variety of Key Risk Areas services administered through the following three divisions and - Human Services Resource Allocation the Office of Human Services: Arts and Sciences; Open Spaces, Process (HSRAP) Parks, and Golf; and Recreation. - Junior Museum and Zoo (JMZ) Operation - Contract management 5 Item 9: Staff Report Pg. 10 Packet Pg. 166 of 341 Item 9 Attachment A - OCA - RISK ASSESS FY2023 Risk Assessment Report The Fire Department oversees emergency response such as ambulance transports and fire response/rescue, emergency protection services such as fire prevention, and hazardous materials planning. The department highlights safeguarding the community and compassionate care. Human Resources The Human Resources Department is responsible for recruiting, developing, and retaining a well -qualified and professional workforce. The Department ensures compliance with relevant labor laws, adheres to record keeping practices, and serves as a strategic partner for executive decision making. Information Technology The Information Technology Department's provides innovative technology solutions that support City departments. The department oversees IT project management, operations, enterprise systems, and security services. The Library Department operates five libraries throughout the City, each offering unique resources. The Library provides educational programming, multi -cultural events, and large and diverse book, information and technology resources. Office of Emergency Services The Office of Emergency Services is designed to prevent, prepare for, and recover from various hazards. The Office is responsible for overseeing various risk management programs. Planning and Development Services The Planning Department supports the City in land use development, planning, transportation, housing and environmental policies, and plans and programs that "maintain and enhance the City as a safe, vital, and attractive community" Police Palo Alto's Police Department oversees technical services such as dispatch and record management, field services such as patrol and emergency response, and animal control. The Police Department also places a high value on community relations. Public Works Key Risk Areas - Emergency Preparedness (Foothills Fire Master Plan) - Safety and Wellness Key Risk Areas - Recruitment - Succession Planning - HR Strategy & Risk Management - Workplace Safety Key Risk Areas PCl/DSS Compliance AMI Implementation ERP Upgrade Key Risk Areas - Operations Events and Programming Key Risk Areas Emergency preparedness (Foothills Fire Mitigation Program) Key Risk Areas - Building Permit & Inspection - Zoning Ordinance - Code Enforcement - Long Range Planning Key Risk Areas - Crime Reduction - Psychiatric Emergency Response Team (PERT) Program - Safety and Wellness - Training The Public Works Department is broken into four divisions: Key Risk Areas Engineering, Airport, Public Services, and Environmental - Wastewater treatment capital program Services. The Divisions are responsible for a variety of tasks 6 Item 9: Staff Report Pg. 11 Packet Pg. 167 of 341 Item 9 Attachment A - OCA - RISK ASSESS FY2023 Risk Assessment Report including design and implementation of capital projects, maintenance of City -owned and leased structures, and management of the solid waste programs. The Utilities Department owns and operates electric, gas, water, wastewater and fiber optic services to the City. The City purchases all their power from external sources. The mission of the Department is to "provide safe, reliable, environmentally sustainable and cost effective services." Overall Risk Scoring Distribution - The Americans with Disabilities Act (ADA) compliance - Flood protection capital project - Airport Operations Key Risk Areas - Power Purchase Agreements - Utility Billing - Rate Setting and Adjustment - Utility Asset Management Baker Tilly structured the audit universe based on the department/division/program from the budget document and management's feedback, which resulted in 96 auditable units (Appendix A). We scored them based on the information gathered for each risk factor related to the likelihood, impact, or fraud. Appendix B lists the risk factors, definitions, and scoring method. The maximum score for an auditable unit is 30. The following chart shows the distribution of overall risk scoring. SCORE ≤ 5 5-10 10-15 15-20 > 20 Baker Tilly rated the auditable units as follows: • High Risk — Scores 14 and above • Moderate Risk — Scores more than 9 and less than 14 • Low Risk — Scores below 9 Listed in the following page are the auditable units with a score over 13 (out of 30) based on our scoring. The list includes 27 functions rated as high risk (with a score between 14 and 30) and 13 functions rated as moderate risk (with a score between 13 and 14). In determining the audit activities to be performed in FY2024, we further review specific risks and functional areas and consider risk -based priorities as well as other factors such as requirements by law or regulation, timing of activities, special projects, and requests from City Council and management. The proposed audit plan will be included in a separate FY2024 Annual Audit Plan Report. Item 9: Staff Report Pg. 12 Packet Pg. 168 of 341 Item 9 Attachment A - OCA - FY2023 Risk Assessment Report S lil y Department Planning and Development Services Public Works Planning and Development Services Public Works Administrative Services Police Utilities Community Services Community Services Community Services Police Community Services Fire City Manager Fire Planning and Development Services Office of Transportation Utilities Public Works Human Resources Police Administrative Services Administrative Services Public Works Community Services Information Technology Administrative Services Office of Emergency Services Utilities Information Technology Library Human Resources Police Utilities City Manager Human Resources Utilities Public Works Utilities Utilities Building Wastewater Treatment Development Services Structures and Grounds Purchasing Field Services Electric Administration Administration and Human Services Arts and Sciences Recreation and Cubberley Technical Services Animal Shelter Emergency Response Administration and City Management Administration Planning and Transportation Programs Electric Engineering (Operating) Airport Administration, Employee Org Development and HR Systems Police Personnel Selection Treasury / Revenue Collection / Warehouse Real Estate Engineering Services Open Space, Parks and Golf Operations Accounting Emergency Services Electric Customer Service Project Services Administration Risk Mgmt., Safety, Workers' Compensation Law Enforcement Services Water Customer Service Economic Development Recruitment Electric Resource Management Administration Gas Customer Service Fiber Optics Customer Service I ■ Risk Area Building Permit & Inspection Process Wasterwater Treatment Capital Program Building Permit & Inspection Process ADA Compliance / Flood protection capital project Purchasing Card Program / Vendor Master File Psychiatric Emergency Response Team (PERT) Program Power Purchase Agreement Human Services Resource Allocation Process (HSRAP) Junior Museum and Zoo (JMZ) Operation Contract Management 911 Operations Contract Management Emergency Preparedness (Foothills Fire Master Plan) Citywide Risk Management Safety and Wellness Code Enforcement Intersection safety improvements Utility Asset Management Airport Operations HR Strategy / Succession Planning Recruitment and retention Investment Management Property Management Animal Shelter Renovation Emergency Preparedness (Foothills Fire Master Plan) PCl/DSS Compliance Grant Management Emergency preparedness (Foothills Fire Mitigation Program) Utility Billing AMI Implementation Business Operations (Donations and grants; Inventory Management; Fines, Purchasing, etc.) HR Risk Management / Workplace Safety Evidence Utility Billing Economic Development Recruitment Process Rate setting and adjustments Safety and Wellness Utility Billing Utility Billing Total Risk Score 22.8 22.4 20.5 20.0 18.6 18.2 18.2 18.0 18.0 18.0 17.2 16.9 15.8 15.6 15.6 15.4 15.4 15.3 15.1 15.1 14.9 14.9 14.7 14.3 14.1 14.1 14.0 13.9 13.9 13.8 13.8 13.8 13.8 13.6 13.4 13.3 13.2 13.0 13.0 13.0 8 Item 9: Staff Report Pg. 13 Packet Pg. 169 of 341 Appendices Item 9 Attachment A - OCA - FY2023 Risk Assessment Appendix A: Audit Universe Report City Attorney's Office Administration Consultation and Advisory Litigation and Dispute Resolution Official and Administration Duties City Clerk's Office Administration Administrative Citations Council Support Services Election/Conflict of Interest Legislative Records Management City Manager's Office Administration and City Management Economic Development Public Communication Administrative Services Department Accounting Administration Office of Management and Budget Printing and Mailing Purchasing Real Estate Treasury/Revenue Collection/Warehouse Community Services Department Administration and Human Services Animal Shelter Aquatics Arts and Sciences Open Space, Parks and Golf Recreation and Cubberley Fire Department Administration Emergency Response Environmental Safety Management Records and Information Management Training and Personnel Human Resources Department Administration, Employee Org Development and HR Systems Benefits and Compensation Employee and Labor Relations Recruitment Risk Management, Safety, Workers' Compensation Information Technology Department Enterprise Systems Office of the CIO Operations Project Services Library Department Administration Collection and Technical Services Public Services Office of Emergency Services Emergency Services Office of Transportation Administration Parking Districts Programs Special Revenue Funds Planning and Development Services Department Administration 10 Item 9: Staff Report Pg. 15 Packet Pg. 171 of 341 Item 9 Attachment A - OCA - FY2023 Risk Assessment Report Building Development Services Planning and Transportation Special Districts Police Department Administration Animal Control Field Services Investigations and Crime Prevention Services Law Enforcement Services Parking Services Police Personnel Selection Technical Services Traffic Services Department of Public Works Administration Airport Engineering Services Refuse Storm Drainage Streets Structures and Grounds Sustainability Trees Vehicle Replacement and Maintenance Wastewater Treatment Utilities Department Electric Administration Electric Customer Service Electric Demand Side Management Electric Engineering (Operating) Electric Operations and Maintenance Electric Resource Management Fiber Optics Administration Fiber Optics Customer Service Fiber Optic Operations and Maintenance Gas Administration Gas Customer Service Gas Demand Side Management Gas Engineering (Operating) Gas Operations and Maintenance Gas Resource Management Wastewater Collection Administration Wastewater Collection Customer Service Wastewater Collection Engineering (Operating) Wastewater Collection Operations and Maintenance Water Administration Water Customer Service Water Engineering (Operating) Water Operations and Maintenance Water Resource Management 11 Item 9: Staff Report Pg. 16 Packet Pg. 172 of 341 Item 9 Attachment A - 0CA - FY2023 Risk Assessment Report Appendix B: Risk Factor Definition .- Impact Factors (the effect on the organization) A measure of materiality based on pervasiveness or volume of dollars or transactions; Scores based on the budgeted expenditure amount Magnitude Extreme - 5: $50M or more 30% Material - 4: $10M or more; Less than $50M Significant - 3: $3M or more; Less than $10M Moderate - 2: $1 M or more; Less than 3M Negative experience by customers and residents, such as perceived or actual safety concerns and unsatisfactory services, impacts negatively on the reputation / credibility of the organization Customer / Extreme - 5: Direct impact on health and safety Resident Material - 4: Direct impact on transparency 35% Experience Significant - 3: Direct impact on customer satisfaction/City's reputation Moderate - 2: Indirect impact on customer satisfaction/City's reputation Inconsequential - 1: Immaterial impact on reputation / credibility The greater the effect that a department or process has on the organization meeting strategic objectives and goals, the greater the related risks Achievement of Extreme - 5: Directly relates to the City Council Priorities Organizational Material - 4: Supports the function/process directly related to the City Council Priorities 35% Goals Significant - 3: Has performance/workload measures related to City Council Priorities Moderate - 2: Somewhat relates to the City Council Priorities HIGHEST TOTAL SCORE FOR IMPACT: 5 100% Likelihood Factors (the probability of the risk occurring) A measure of the difficulty in performing a process or function. As a process or function becomes more complex, the greater the opportunity for errors 5 - Very high complexity Complexity 4 - High complexity 25% 3 - Medium complexity 2 - Low complexity 1 - Very low complexity Policies and Procedures are a complete set of written instructions that guide personnel in the successful execution of their duties and the duties of the office for which they work. If the policies and procedures are adequate and up -to - Policies and date, a risk is lower Procedures 5- No or little written P&P 10% 4 - Some written P&P 3 - Basic P&P requiring improvements 2 - Adequate but outdated P&P Measures the existence of and potential noncompliance with, government regulations and other applicable laws, Regulatory standards, and policies/procedures 25% Compliance 5 - Requirements to meet more than a few laws/regulations and professional standards specific to the division's responsibilities Consider the existence of monitoring activities, including the results of last audits by Internal Auditor, External Auditor, Regulators, etc. and other known deficiencies 5 - Overall, there is no mechanism to monitor the status of performance goals/compliance requirements Monitoring 3- For only some of significant performance goals/compliance requirements, there is a periodic reporting process to 10% ensure performance goals/compliance requirements are met 1 - For all significant performance goals/compliance requirements, there is a periodic reporting process to ensure performance goals/compliance requirements are met Consider the existence of specific risk events/conditions and their significance Specific Risks 5 - Identified risk event(s)/condition(s) seem to significantly affect the likelihood 30% 3 - Identified risk event(s)/condition(s) seem to have some impact on the likelihood 1 - No or very minor risk event(s)/condition(s) have been identified HIGHEST TOTAL SCORE FOR LIKELIHOOD: 5 100% Other Risk Factor Consider the susceptibility to fraud, which is the opportunity for employees/vendors/customers/fraudsters to misappropriate resources or defraud the organization* Fraud Schemes 5- High Risk 100% 3 - Moderate Risk 1 - Low Risk HIGHEST TOTAL SCORE FOR OTHER: 5 100% HIGHEST TOTAL SCORE 30 * Considered fraud schemes listed in the Fraud Tree provided in the "Occupational Fraud 2022: A report to the Nations" by Association of Certified Fraud Examiners. Also considered are cyber fraud schemes. 12 Item 9: Staff Report Pg. 17 Packet Pg. 173 of 341 Item 9 Attachment A - OCA - FY2023 Risk Assessment Report Appendix C: Survey Questions The Office of City Auditor is conducting the 2023 Risk Assessment to identify and prioritize risks in order to update the annual audit plan. As part of our 2023 Risk Assessment, we are conducting a survey. This survey is used primarily to collect information related to changes in operations, emerging issues and risks the City faces, and to gather your perspective on key risks faced by your department. Your candid responses would be greatly appreciated to assess the risks that prevent the City of Palo Alto from achieving its mission, goals, and objectives. Questions 1-7 remain the same for both options. 1. Please provide your name, title, department, and email address: • Name • Title • Department o City Council o City Attorney o City Manager's Office — Other than Transportation o City Manager's Office — Transportation o Administrative Services o City Clerk's Office o Community Services o Emergency Services o Fire o Human Resources o Information Technology o Library o Planning o Police o Public works o Utilities • Email address 2. Describe any significant changes for your team or department during last 12 months. Select all that apply. • New software • New workflows or business processes • Significant changes in processes or controls • New or significant changes in information technology systems • Change in organizational structure • Change in culture • Workforce reduction • Unfilled positions • New/additional staff • New vendors and contractors • Change in workload • Change in compliance requirements (due to changes in policies, contracts, laws, or regulations) • Change in goals, objectives, or performance measures • Increased undesirable performance or instances (such as injuries, complaints, customer dissatisfaction, etc.) • Change in any risks previously identified for your team/department 13 Item 9: Staff Report Pg. 18 Packet Pg. 174 of 341 Item 9 Attachment A - OCA - FY2023 Risk Assessment Report • Other (please specify) 3. Describe the complexity of the key processes in your team or department: Complexity is a measure of the difficulty in performing a process or function. As a process or function becomes more complex, the greater the opportunity for errors. • Very high complexity • High complexity • Medium complexity • Low complexity • Very low complexity Please provide any comment related to complexity, if any. 4. Are there adequate and up-to-date documented policies and procedures to perform your job responsibilities? • Yes, documented policies and procedures are adequate and up-to-date • Documented policies and procedures are adequate but not updated regularly Documented policies and procedures need improvement No — Please describe how the responsibilities and requirements are communicated in a clear and consistent manner. 5. Please select the compliance requirements with applicable Federal/State/Local laws and regulations and professional standards (e.g. CEQA, NERC, OSHA, EMT licensure/certification) for each of divisions/functions of your department listed below: • More than a few laws/regulations and/or professional standards specific to the division's responsibilities need to be met • One or two laws/regulations and/or professional standards specific to the division's responsibilities need to be met No requirement to meet any laws/regulations or professional standards specific to the division's responsibilities 6. Describe what can possibly prevent your team/department from meeting its goals and objectives in 2024. Select all that apply. • Financial constraints • Staffing constraints • Limited skills, knowledge, experience, training • Technology issue • Inefficiency in process and/or communication • Ambiguity in roles and responsibilities • Lack of, or ineffective, internal controls • Community pressure • State/Federal regulations • Other (please specify) 7. Describe the activities to monitor the achievement of the goals in your team or department: Example — Periodic reporting, periodic meetings, spot checks by management, periodic audits by external organizations such as consultants and the Federal government, etc. • For all significant performance goals/compliance requirements, there is a periodic reporting process to ensure performance goals/compliance requirements are met • For only some of significant performance goals/compliance requirements, there is a periodic reporting process to ensure performance goals/compliance requirements are met • Overall, there is no mechanism to monitor the status of performance goals/compliance requirements 14 Item 9: Staff Report Pg. 19 Packet Pg. 175 of 341 Item 9 Attachment A - OCA - FY2023 Risk Assessment Report Please provide comments related to monitoring the achievement of your department's goals, if any. To help us identify potential risks, please list your team/department's Strengths, Weaknesses, Opportunities, and Threats (SWOT) for achieving its missions, goals, and objectives. Typically, strengths and weaknesses are internal aspects of team/department/organization, while opportunities and threats are found externally. 8. Describe up to three STRENGTHS of your team or department: Strengths refer to the resources or capabilities that help the team/department accomplish its mission and serve the public. These can be things like competitive advantages, available resources, engaged community, strong balance sheet, utilized technology and so on. 9. Describe up to three WEAKNESSES of your team or department: Weaknesses refer to the areas where the team/department needs to improve to accomplish its mission. These can include things like deficiencies in resources and capabilities, inefficient use of available technologies, barriers or inability to collaborate among different departments, lack of effective communication, mission or direction, high levels of debt, financial or human resources constraints and so on. 10. Describe up to three OPPORTUNITIES for your team or department: Opportunities are any area where the team/department can grow. They are often related to the organization's strengths. Outside factors that affect the organization in a favorable way can include things like; offering more products or services to citizens, lower costs through new technology and so on. 11. Describe up to three THREATS for your team or department: Threats include the local or national economy, laws and regulations and any other external issue that can harm or affect the team/department successfully meeting goals. Common threats include things like rising costs for housing/living, increasing competition, tight labor supply, billing rates and so on. 12. Using the bulleted list within the risk framework below, please select what you consider to be the top five enterprise risks to the City of Palo Alto. Pnvironmental (factors external to the organization) • Reputation - The opinions and perceptions of the public and customers toward the organization. • Regulatory - Laws and standards, which the organization must comply with in its operations. • Citizen Demands - The effect that current citizens demands have on the decisions made by management for aligning tactical plans with the business strategy and the allocation of resources. • Economy - The effect that current external conditions have on the decisions made by management for aligning tactical plans with the business strategy and the allocation of resources. • Legal - The potential for an unforeseen event to cause civil or criminal litigation for the organization or its elected leaders, directors, officers, and employees. • Technologies - The evolution of technology both within and outside of the organization's industry. Strategy (planning and decision-makin • Strategic Change - The ability of the organization to modify its processes in order to either align with its current strategy and business model or to achieve a different strategic goal. • Investments - The portfolio of both intangible and tangible investments held by the organization, and the implications of these assets on the resources, financial viability, and operations of the organization. The effect on liquidity the ability of current assets to meet current liabilities when due. • Planning and Budgeting - Details of the organization's goals and the financial management necessary to achieving those goals. • Financial - The goals of the organization in terms of the structure of its assets and liabilities, including the financing capability based on its credit worthiness, the ability to receive credit and the use of credit lines to achieve its business objectives. • Inter -government Relations - The relationship of the organization with other government agencies that have regulatory and oversight responsibilities and shared services or citizens. 15 Item 9: Staff Report Pg. 20 Packet Pg. 176 of 341 Item 9 Attachment A - OCA - FY2023 Risk Assessment Report Compliance Management - The continuous monitoring of the organization's ability to operate within regulatory requirements and community standards. Resource Allocation — The process for assigning and managing assets that support the organizations strategic goals. raanization (attributes of department • Governance - The role, composition, and major activities of the governing body of the organization in providing direction and oversight for the organization • Empowerment and Values - The ability of senior members of the organization to effectively delegate power or authority to other members of the organization. • Communication - The methods of communication commonly used in the organization and the effectiveness of this communication on the operations of the organization. • Ethics and Code of Conduct - The set of rules outlining the ethical practices expected of management and employees of the organization. • Leadership and Authority - The members of the organization who hold power and their ability to exercise this power effectively. • Organizational Structure - The configuration of units and workflows to align the behavior of the units to the higher -level goals of the organization. • Succession Planning - The planning and processes to ensure that there are highly qualified people in key leadership positions today and in the future. • Human Capital Management - The set of practices an organization uses for recruiting, managing, developing, and optimizing employees, including performance management (The process of creating expectations for performance, monitoring progress, and measuring the results) and training (The ability for employees to gain and develop necessary tools to ensure effective operations). • Safety - The organization strives to provide a safe working environment by effectively mitigating the risks to the safety of its employees. Process and Operations (functional effectiveness and policies and procedures) Externa Contracts - Contracts are adequately structured to address and mitigate risks. Efficiency - Processes are up-to-date and efficient, resulting in efficient operations and output • Accounting - The timely and accurate tracking of the financial position of the organization. • Payroll - The policies, processes, and systems in place to ensure that employee compensation is reliable, timely, and accurate. • Fraud - The organization uses internal controls to prevent and/or detect fraud. • Procurement/Sourcing — The ability to acquire the necessary goods and services for operation and the process of vetting, selecting and managing supplier, vendors and contractors. • Human Resources - The knowledge, skills and experiences, and resources among personnel, which allow for the execution of the organization's business plan and achievement of its critical success factors. • Information Systems - The facilities, systems, and connectivity in place to support data processing. • Vendor Management - The need for the organization to continuously monitor the quality and reliability of vendors it uses in the course of its business. • Change Management - Management adapts appropriately to the evolution of the processes and operations of the organization. Information (data governance) • Data Integrity - Data used for making management decisions, recording information, and reporting financial activity is accurate, complete, and reliable. • Access - The right to view or manipulate data is carefully granted and monitored to prevent the mishandling of data • Retention - The policies used by the organization to determine document retention in terms of the form of documents, how these documents are stored, and for how long these should be maintained. • Availability - Relevant critical information is available when needed in order to maintain the organization's critical operations and processes, including when a disaster or unplanned disruption occurs • Privacy - Organization policies are in place to ensure the correct treatment of sensitive information held by the organization. • Security — Any event that could result in the compromise of organizational data. (I.e. unauthorized use, loss, damage, disclosure or modification of organizational data). 16 Item 9: Staff Report Pg. 21 Packet Pg. 177 of 341 Item 9 Attachment A - OCA - FY2023 Risk Assessment Report 13. Please use the click and drag feature to rank the five enterprise risks that you selected into a priority order, with #1 being the highest. 14. Please describe why you selected them as the top five risks. 15. How well does the City of Palo Alto manage activities to mitigate these risks? • Well — the City management is aware of the risk and has implemented activities to help mitigate this risk • Somewhat well — the City management is aware of this risk, but more effort/activities are needed to help mitigate this risk • Not well — the City management is either not aware of this risk or hasn't developed sufficient activities to help mitigate this risk 16. Are there any other risks that could affect operations that were not included in the risk framework? 17. Please list any potential internal audit activities you recommend based on the risks you identified. The projects can be consultative/advisory in nature, or provide assurance: • Internal Audit — an objective examination of evidence for the purpose of providing an independent assessment on governance, risk management, and control processes for the organization. • Advisory and related client service activities, the nature and scope of which are intended to add value and improve an organization's governance, risk management, and control processes without the internal auditor assuming management responsibility. 17 Item 9: Staff Report Pg. 22 Packet Pg. 178 of 341 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla rt i lly iiiiriwiuri Item 9: Staff Report Pg. 23 1 1I Packet Pg. 179 of 341 Contents INTRODUCTION.............................................................................................................1 RISK ASSESSMENT RESULTS.....................................................................................3 PROPOSED AUDIT PROJECTS FOR FY2024..............................................................4 APPENDICES.................................................................................................................6 Li A (GbakertiLLy Baker Tilly US, LLP, trading as Baker Tilly, is an independent member of Baker Tilly International. Baker Tilly International Limited is an English company. Baker Tilly International provides no professional services to clients. Each member firm is a separate and independent legal entity, and each describes itself as such. Baker Tilly US, LLP is not Baker Tilly International's agent and does not have the authority to bind Baker Tilly International or act on Baker Tilly International's behalf. None of Baker Tilly International, Baker Tilly US, LLP nor any of the other member firms of Baker Tilly International has any liability for each other's acts or omissions. The name Baker Tilly and its associated logo is used under license from Baker Tilly International Limited. Item 9 Attachment B - OCA (jaIuditPa y Introduction Introduction The purpose of the audit activities performed by the Office of the City Auditor (OCA) for the City of Palo Alto (the City) is "to ensure that city management is using its financial, physical, and informational resources effectively, efficiently, economically, ethically, and equitably, and in compliance with laws, regulations, contract and grant requirements, and city policies and procedures", according to the Palo Alto Municipal Code (Section 2.08.130). It requires the City Auditor prepare an annual audit plan for the City Council's approval at the beginning of each fiscal year. In accordance with the Task #1 and Task #2 of the Baker Tilly agreement (City of Palo Alto Contract No, C21179340), Baker Tilly US, LLP (Baker Tilly) performed the initial risk assessment after having started to serve as the OCA in October 2020 and submitted in early 2021 the FY21-FY22 annual audit plan. For the second year, the OCA updated the initial risk assessment and submitted the FY22-FY23 audit plan. This report includes the proposed FY23-FY24 audit plan. The Task #4 of the agreement requires execution of the approved annual audit plans and preparation of a task order for each project listed in the plan. The OCA will seek approval of contract task orders iteratively during FY24 in order to remain agile and accommodate changes to the plan as time passes. Conformance with Local Ordinances and Standards Section 2.08.130 of the Palo Alto Municipal Code defines that the mission of the OCA is to promote honest, efficient, effective, economical, and fully accountable and transparent city government. Audits are to be conducted and nonaudit services provided in accordance with Government Auditing Standards, as established by the Comptroller General of the United States, Governmental Accountability Office. The following duties of the City Auditor exist regarding the plan and scope of internal audits. Palo Alto City Charter Article IV Sec. 12 requires the City Auditor to perform the following: — Conduct audits in accordance with a schedule approved by the City Council and may conduct unscheduled audits from time to time. — Conducts internal audits of all the fiscal transactions of the City. Title 2 Administrative Code Section 2.08.130 requires the City Auditor to perform the following: — Prepare an annual audit plan for city council approval. — Identify the preliminary objectives of each audit to be performed, reflecting the purpose of the engagement and a preliminary description of the areas that may be addressed. — Conduct performance audits and perform nonaudit services of any city department, program, service, or activity as approved by the city council. California Government Code Section 1236 requires all cities that conduct audit activities to conduct their work under the general and specified standards prescribed by the Institute of Internal Auditors (IIA) or the Government Auditing Standards (GAO) issued by the Comptroller General of the United States, as appropriate. Item 9: Staff Report Pg. 25 Packet Pg. 181 of 341 Item 9 Attachment B - OCA - 1lfY2024 Annual Audit Pla Audit Activity Type The OCA will conduct performance audits and perform financial/operational analyses of any City department, program, service, or activity as approved by the City Council in accordance with the Baker Tilly agreement. Performance Audits According to the Government Auditing Standards (GAO -18-568G, Section 1.21 and 1.22, page 10-12), performance audits provide objective analysis, findings, and conclusions to assist management and those charged with governance and oversight with, among other things, improving program performance and operations, reducing costs, facilitating decision making by parties responsible for overseeing or initiating corrective action, and contributing to public accountability. Performance audits may include the following four (4) audit objectives: — Program effectiveness and results — Internal control design and effectiveness — Compliance with laws, regulations, and policies — Prospective analysis Audit Planning Considerations While maintaining its independence and objectivity in accordance with standards, the City Auditor considers a variety of matters when developing the Annual Audit Plan, including but not limited to: — Risk assessment — the OCA performed a risk assessment and summarized the results in a separate report (Task #2). Generally speaking, audit activities target high(er) risk areas. The results are shown the following page. — Ability to add value — audit seeks to add value through independent and objective analysis. — City Council — the City Auditor reports to the City Council and seeks input on audit priorities. — Coverage and Prior Audits — the City Auditor considers prior audits conducted by the OCA, the financial audit, and other audit and consulting reports recently issued. — "Ripeness" and On -Going Initiatives — certain risk areas may be addressed through operational activities, which could mean they are not be ripe for audit to add value. — Scheduling — the City Auditor takes into consideration the timing of an audit and other on -going initiatives that directly relate. Putting an undue burden on City staff may exacerbate the risk at hand or other interrelated risks. Item 9: Staff Report Pg. 26 Packet Pg. 182 of 341 Item 9 Attachment B - OCA (jaIuditPa y Risk Assessment Results The OCA performed a citywide risk assessment to plan for FY2024 audit activities and documented the methodology and the detailed results in a separate Risk Assessment Report. In summary, we identified the following areas rated as High or Moderate risks. In determining the audit activities to be performed in FY2024, we further reviewed these risks and functional areas and considered the matters listed in the previous page. Department Am Function Risk Area Planning and Development Building Building Permit & Inspection Process Services Public Works Wastewater Treatment Wasterwater Treatment Capital Program Planning and Development Development Services Building Permit & Inspection Process 20. Services Public Works Structures and Grounds ADA Compliance / Flood protection capital project 1 20.0 Administrative Services Purchasing Purchasing Card Program / Vendor Master File 18.6 Police Field Services Psychiatric Emergency Response Team (PERT) Program 18.2 Utilities Electric Administration Power Purchase Agreement 18.2 Community Services Administration and Human Services Human Services Resource Allocation Process (HSRAP) 18.0 Community Services Arts and Sciences Junior Museum and Zoo (JMZ) Operation 18.0 Community Services Recreation and Cubberley Contract Management 18.0 Police Technical Services 911 Operations • 17.2 Community Services Animal Shelter Contract Management 16.9 Fire Emergency Response Emergency Preparedness (Foothills Fire Master Plan) I 15.8 City Manager Administration and City Management Citywide Risk Management I 15.6 Fire Administration Safety and Wellness 15.6 Planning and Development Planning and Transportation Code Enforcement 15.4 Services Office of Transportation Programs Intersection safety improvements 15.4 Utilities Electric Engineering (Operating) Utility Asset Management 15.3 Public Works Airport Airport Operations 15.1 Human Resources Administration, Employee Org HR Strategy / Succession Planning 15.1 Development and HR Systems Police Police Personnel Selection Recruitment and retention 14.9 Administrative Services Treasury / Revenue Collection / Investment Management 14.9 Warehouse Administrative Services Real Estate Property Management 14.7 Public Works Engineering Services Animal Shelter Renovation 14.3 Community Services Open Space, Parks and Golf Emergency Preparedness (Foothills Fire Master Plan) 14.1 Information Technology Operations PCl/DSS Compliance 14.1 Administrative Services Accounting Grant Management 14.0 Office of Emergency Services Emergency Services Emergency preparedness (Foothills Fire Mitigation Program) 13.9 Utilities Electric Customer Service Utility Billing 13.9 Information Technology Project Services AMI Implementation 13.8 Library Administration Business Operations (Donations and grants; Inventory 13.8 Management; Fines, Purchasing, etc.) Human Resources Risk Mgmt., Safety, Workers' HR Risk Management / Workplace Safety 13.8 Compensation Police Law Enforcement Services Evidence 13.8 Utilities Water Customer Service Utility Billing 13.6 City Manager Economic Development Economic Development 13.4 Human Resources Recruitment Recruitment Process 13.3 Utilities Electric Resource Management Rate setting and adjustments 13.2 Public Works Administration Safety and Wellness 13.0 Utilities Gas Customer Service Utility Billing 13.0 Utilities Fiber Optics Customer Service Utility Billing 13.0 3 Item 9: Staff Report Pg. 27 Packet Pg. 183 of 341 Item 9 Attachment B - OCA - PROPOSED AUDIT PROJEC Y2024AnnualAuditPla Proposed Audit Projects for FY2024 Summary The proposed audits and follow-up project for FY2024 are listed in the next page. The projects were selected from the auditable units that were rated as High or Moderate in the results of our risk assessment and selected based on some factors such as risk rating, the pervasiveness of the process or control, the audit coverage, the timing of projects, and the value -adding activities that help the City enhance the ability to manage risks, strengthen accountability, and improve efficiency and effectiveness. The preliminary audit objectives are described for each audit listed. These objectives and scope will be further defined based on the result of the engagement level risk assessment performed at the beginning of each audit. Amendments to this audit plans may need to be proposed during FY2024 in response to changes in the City's environment such as organizational structure, operations, risks, systems, and controls. For each audit, a task order is submitted to the City Council for approval before an audit is commenced. We prepared three task orders which are included in Appendix. The OCA is seeking approval from the City Council for three project that are projected to start in January 2024. Those audits are marked "X" in the Seeking Approval column. 4 Item 9: Staff Report Pg. 28 Packet Pg. 184 of 341 Item 9 Attachment B - 0CA - FY2024 Annual Proposed Audit Plan for FY2024 Audit Plan FY24 Seeking unction Approval Project Title Audit Objectives Timeline Estimated FY24 Cost Hours ? Monthly invoice review ? Change order testing Public Safety Building - ? Contingency and allowance testing Public Works Construction Audit ? Lien waiver control March 2021 - 87 $19,734 (Task Order 4.8) ? Compliance with insurance requirements March 2024 ? Closeout testing ? Verify the City's implementation and adherence to documented project controls ? Determine whether procurement cards are used appropriately in Administrative compliance with the City's policy and pertinent laws and regulations January -June X Services Purchasing Card Program ? Evaluate the administration of the Purchasing Card Program for 2024 415 $76,540 adequate internal controls to safeguard the City from fraud, waste, and abuse Determine whether improvements have been made to make facilities, X Public Works ADA Compliance programs, and services accessible in accordance with the Transition Plan January - June 385 $73,110 and Self -Evaluation Final Study to ensure compliance with the Americans 2024 with Disabilities Act (ADA) of 1990 ? Determine the efficiency and effectiveness of the recruitment and hiring Human Resources Recruitment and Succession process January - June 290 $58,890 Planning ? Determine whether a formal succession plan and related policies 2024 proceudres are in place Citywide Grant Management Determine whether the City has adequate interal controls to efficiently and January - June 315 $60,330 effectively manage the grant lifecycle 2024 Multiple departments Emergency Preparedness Determine whether the City if working to prevent wildfire and adequately January - June 385 $73,110 prepared to respond to wildfire 2024 ? Determine whether the internal controls over the utility billing process are adequate and working effectively to ensure billing is accurate and in January -June Utilities Utility Billing compliance with the City's policy and regulations. 2024 385 $72,010 ? Determine whether billing adjustments are properly supported and approved Information Payment Card Industry Data Determine whether the internal controls over the payment card processing January -June Technology Security Standard (PCI DSS) are adequate and working effectively for the City and anythrid party service 2024 370 $69,680 providor Follow up on previous OCA audit reports to ensure corrective actions X Citywide Follow-up on Corrective included in management responses in each audit report are completed December 2023 140 $30,592 Actions [This activity will be performed under Task 5 (an annual report on the status - June 2024 of recommendations made in completed audits)] TBD Ad Hoc Requests TBD TBD TBD $0 FY24 2,772 $533,996 FY23 - FY24 Budget $534,250 FY24 Ad Hoc / Contingency $254 Item 9: Staff Report Pg. 29 Packet Pg. 185 of 341 5 Appendices Item 9 Attachment B - OCA - Y2024 Annual Audit Pla PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY24-4.21 Purchasing Card Program Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referencedFY24 in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. C21179340 OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) IA. MASTER AGREEMENT NO. (MAYBE SAME AS CONTRACT /P.O. NO. ABOVE): C21179340 1B. TASK ORDER NO.: FY23-4.22 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: January 1, 2024 COMPLETION: June 30, 2024 4 TOTAL TASK ORDER PRICE: $69,940 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT TBD 5. BUDGET CODE COST CENTER COST ELEMENT WBS/CIP PHASE 6. CITY PROJECT MANAGER'S NAME & DEPARTMENT: Greg Tanaka, Chair of the City Council's Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE: • SERVICES AND DELIVERABLES TO BE PROVIDED • SCHEDULE OF PERFORMANCE • MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable) • REIMBURSABLE EXPENSES, if any (with "not to exceed" amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the I hereby acknowledge receipt and acceptance of work described in this Task Order. this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: APPROVED: CITY OF PALO ALTO COMPANY NAME: BY: Name Title Date BY: Name Title Date Item 9: Staff Report Pg. 31 Packet Pg. 187 of 341 7 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements: • Services and Deliverables To Be Provided • Schedule of Performance • Maximum Compensation Amount and Rate Schedule (As Applicable) • Reimbursable Expenses, if any (With "Not To Exceed" Amount) Services & Deliverables Baker Tilly's approach to conducting an internal audit of Purchasing Card Program involves three (3) primary steps: • Step 1: Audit Planning • Step 2: Control Review and Testing • Step 3: Reporting Step 1— Audit Planning This step consists of the tasks performed to adequately plan the work necessary to address the overall audit objective and to solidify mutual understanding of the audit scope, objectives, audit process, and timing between stakeholders and auditors. Tasks include: • Gather information to understand the environment under review o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit results, as applicable o Review additional documentation and conduct interviews as necessary • Assess the audit risk • Write an audit planning memo and audit program o Refine audit objectives and scope o Identify the audit procedures to be performed and the evidence to be obtained and examined • Announce the initiation of the audit and conduct kick-off meeting with key stakeholders o Discuss audit objectives, scope, audit process, timing, resources, and expectations o Discuss documentation and interview requests for the audit •3 Item 9: Staff Report Pg. 32 Packet Pg. 188 of 341 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla Step 2 — Control Review and Testing This step involves executing the procedures in the audit program to gather information, interview individuals, and analyze the data and information to obtain sufficient evidence to address the audit objectives. The preliminary audit objective is to determine whether (1) Determine whether procurement cards are used appropriately in compliance with the City's policy and pertinent laws and regulations; (2) Evaluate the administration of the Purchasing Card Program for adequate internal controls to safeguard the City from fraud, waste, and abuse. Procedures include, but not limited to: • Interview the appropriate individuals to gain an understanding of the organizational structure, processes, and controls related to the Purchasing Card Program. • Review policies and procedures as well as the legislative and regulatory requirements to identify the criteria to be used for evaluation of control design and effectiveness. • Select a sample of the P -Card transactions • Compare the process and controls against the best practices. Step 3 — Reporting In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include: • Develop findings, conclusions, and recommendations based on the supporting evidence gathered • Validate findings with the appropriate individuals and discuss the root cause of the identified findings • Complete supervisory review of working papers and a draft audit report • Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses • Obtain written management responses and finalize a report • Review report with members of City Council and/or the appropriate Council Committee Deliverables: The following deliverable will be prepared as part of this engagement: • Audit Report Schedule of Performance Anticipated Start Date: January 1, 2024 Anticipated End Date: June 30, 2024 Item 9: Staff Report Pg. 33 Packet Pg. 189 of 341 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla Maximum Compensation Amount and Rate Schedule The not -to -exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $69,940. The not -to -exceed budget is based on an estimate of 375 total project hours, of which 15 are estimated to be completed by the City Auditor. Reimbursable Expenses We plan to complete all work remote including all interviews and documentation review. However, during the planning and fieldwork phases of this audit, the City and Baker Tilly may mutually determine it will be beneficial to perform a portion of the work on -site. Given this possibility, Baker Tilly could incur reimbursable expenses for this Task. The not -to -exceed maximum for reimbursable expenses for this Task is $6,500. The following summarizes anticipated reimbursable expenses: • Round-trip Airfare — $2,000 (1 round trip flights x 2 auditors) • Ground Transportation (car rental or Uber/taxi) - $800 • Hotel accommodation - $3,000 (2 rooms x 4 nights) • Food and incidentals — $2,100 10 Item 9: Staff Report Pg. 34 Packet Pg. 190 of 341 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY24-4.22 ADA Compliance Review Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item lA below. All exhibits referenced FY24 in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. C21179340 OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) IA. MASTER AGREEMENT NO. (MAYBE SAME AS CONTRACT /P.O. NO. ABOVE): C21179340 1B. TASK ORDER NO.: FY23-4.23 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: January 1, 2024 COMPLETION: June 30, 2024 4 TOTAL TASK ORDER PRICE: $73,110 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT TBD 5. BUDGET CODE COST CENTER COST ELEMENT WBS/CIP PHASE 6. CITY PROJECT MANAGER'S NAME & DEPARTMENT: Greg Tanaka, Chair of the City Council's Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE: • SERVICES AND DELIVERABLES TO BE PROVIDED • SCHEDULE OF PERFORMANCE • MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable) • REIMBURSABLE EXPENSES, if any (with "not to exceed" amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work described in this Task Order. APPROVED: CITY OF PALO ALTO BY: Name Title Date I hereby acknowledge receipt and acceptance of this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: COMPANY NAME: BY: Name Title Date Item 9: Staff Report Pg. 35 Packet Pg. 191 of 341 11 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements: • Services and Deliverables To Be Provided • Schedule of Performance • Maximum Compensation Amount and Rate Schedule (As Applicable) • Reimbursable Expenses, if any (With "Not To Exceed" Amount) Services & Deliverables Baker Tilly's approach to conducting an internal audit of ADA (Americans Disabilities Act) Compliance involves three (3) primary steps: • Step 1: Audit Planning • Step 2: Control Review and Testing • Step 3: Reporting Step 1— Audit Planning This step consists of the tasks performed to adequately plan the work necessary to address the overall audit objective and to solidify mutual understanding of the audit scope, objectives, audit process, and timing between stakeholders and auditors. Tasks include: • Gather information to understand the environment under review o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit results, as applicable o Review additional documentation and conduct interviews as necessary • Assess the audit risk • Write an audit planning memo and audit program o Refine audit objectives and scope o Identify the audit procedures to be performed and the evidence to be obtained and examined • Announce the initiation of the audit and conduct kick-off meeting with key stakeholders o Discuss audit objectives, scope, audit process, timing, resources, and expectations o Discuss documentation and interview requests for the audit 12 Item 9: Staff Report Pg. 36 Packet Pg. 192 of 341 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla Step 2 — Control Review and Testing This step involves executing the procedures in the audit program to gather information, interview individuals, and analyze the data and information to obtain sufficient evidence to address the audit objectives. The preliminary audit objective is to determine whether improvements have been made to make facilities, programs, and services accessible in accordance with the Transition Plan and Self -Evaluation Final Study to ensure compliance with the Americans with Disabilities Act (ADA) of 1990. Specifically, we will determine whether (1) necessary remediation work, projects, or programs are included in the annual capital budget to meet the ADA Transition Plan Schedules; (2) the progress of the remediation efforts and any change in laws and regulations are assessed periodically to ensure continued improvements in ADA compliance; (3) the City monitors the contractor's compliance with the contractual requirements to ensure that the City receives necessary services. Procedures include, but not limited to: • Interview the appropriate individuals to gain an understanding of the organizational structure, processes, and controls related to the ADA compliance efforts. • Review policies and procedures as well as the legislative and regulatory requirements to identify the criteria to be used for evaluation of control design and effectiveness. • Review the relevant documents such as ADA Transition Plan, ADA Self -Evaluation Report, the Transition Plan Schedule, progress assessment reports, and the contract with the consultants. • Compare the process and controls against the best practices. Step 3 — Reporting In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include: • Develop findings, conclusions, and recommendations based on the supporting evidence gathered • Validate findings with the appropriate individuals and discuss the root cause of the identified findings • Complete supervisory review of working papers and a draft audit report • Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses • Obtain written management responses and finalize a report • Review report with members of City Council and/or the appropriate Council Committee Deliverables: The following deliverable will be prepared as part of this engagement: • Audit Report 13 Item 9: Staff Report Pg. 37 Packet Pg. 193 of 341 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla Schedule of Performance Anticipated Start Date: January 1, 2024 Anticipated End Date: June 30, 2024 Maximum Compensation Amount and Rate Schedule The not -to -exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $73,110. The not -to -exceed budget is based on an estimate of 385 total project hours, of which 15 are estimated to be completed by the City Auditor. Reimbursable Expenses We plan to complete all work remote including all interviews and documentation review. However, during the planning and fieldwork phases of this audit, the City and Baker Tilly may mutually determine it will be beneficial to perform a portion of the work on -site. Given this possibility, Baker Tilly could incur reimbursable expenses for this Task. The not -to -exceed maximum for reimbursable expenses for this Task is $6,500. The following summarizes anticipated reimbursable expenses: • Round-trip Airfare — $2,000 (1 round trip flights x 2 auditors) • Ground Transportation (car rental or Uber/taxi) - $800 • Hotel accommodation - $3,000 (2 rooms x 4 nights) • Food and incidentals — $2,100 14 Item 9: Staff Report Pg. 38 Packet Pg. 194 of 341 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla PROFESSIONAL SERVICES TASK ORDER TASK ORDER FY24-05 Various Reporting & City Hotline (Modified) Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item lA below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below. CONTRACT NO. 021179340 OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE) IA. MASTER AGREEMENT NO. (MAYBE SAME AS CONTRACT /P.O. NO. ABOVE): C21179340 1 B. TASK ORDER NO.: FY24-05 2. CONSULTANT NAME: Baker Tilly US, LLP 3. PERIOD OF PERFORMANCE: START: July 1, 2023 COMPLETION: June 30, 2024 4 TOTAL TASK ORDER PRICE: $120,592 90,000 BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT TBD 5. BUDGET CODE COST CENTER COST ELEMENT WBS/CIP PHASE 6. CITY PROJECT MANAGER'S NAME & DEPARTMENT: Greg Tanaka, Chair of the City Council's Policy and Services Committee 7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A) MUST INCLUDE: • SERVICES AND DELIVERABLES TO BE PROVIDED • SCHEDULE OF PERFORMANCE • MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable) • REIMBURSABLE EXPENSES, if any (with "not to exceed" amount) 8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work described in this Task Order. APPROVED: CITY OF PALO ALTO BY: Name Title Date I hereby acknowledge receipt and acceptance of this Task Order and warrant that I have authority to sign on behalf of Consultant. APPROVED: COMPANY NAME: BY: Name Title Date Item 9: Staff Report Pg. 39 Packet Pg. 195 of 341 15 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla Attachment A DESCRIPTION OF SCOPE OF SERVICES Introduction Attachment A, the Description of Scope of Services, contains the following four (4) elements: • Services and Deliverables To Be Provided • Schedule of Performance • Maximum Compensation Amount and Rate Schedule (As Applicable) • Reimbursable Expenses, if any (With "Not To Exceed" Amount) Services & Deliverables Baker Tilly will provide the following services in Task 5: • Quarterly Reports • Annual Status Report • Provision of the City Hotline • Office Administrative Functions, including quarterly follow-up activities and testing of corrective actions for the completed audits Deliverables: Legislative documents will be prepared to present the financial statements and reports prepared by an external auditor to the Finance Committee • Quarterly Reports (4 in FY24) • Annual Status Report Schedule of Performance Anticipated Start Date: July 1, 2023 Anticipated End Date: June 30, 2024 Maximum Compensation Amount and Rate Schedule The not -to -exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $120,592 90,000. The not -to -exceed budget is based on an estimate of 440 300 total project hours, of which 170 are estimated to be completed by the City Auditor. Reimbursable Expenses Baker Tilly anticipates several site visits by the City Auditor throughout FY2024 planning one on site fieldwork week Given this possibility, Baker Tilly could incur reimbursable expenses for this Task. 16 Item 9: Staff Report Pg. 40 Packet Pg. 196 of 341 Item 9 Attachment B - OCA - Y2024 Annual Audit Pla The not -to -exceed maximum for reimbursable expenses for this Task is $19,500 19,000. The following summarizes anticipated reimbursable expenses: • Round-trip Airfare — $6,000 (6 round trip flights) • Ground Transportation (car rental or Uber/taxi) - $2,400 • Hotel accommodation - $9,000 (24 nights) • Food and incidentals — $2,100 1,600 17 Item 9: Staff Report Pg. 41 Packet Pg. 197 of 341 Item 10 Item 10 Staff Report City Council Staff Report From: CAO Committee CITY O F Report Type: ACTION ITEMS PALO Lead Department: Human Resources ALTO Meeting Date: January 22, 2024 Report #:2401-2482 TITLE Approval of an Employment Agreement and Approval of Resolution to Appoint Mahealani Ah Yun to the Position of City Clerk at an Annual Salary of $165,000. CEQA Status — Not a Project RECOMMENDATION The Council Appointed Officers Committee recommends the City Council approve of an employment agreement and adopt a resolution to appoint Mahealani Ah Yun to the position of City Clerk at an annual salary of $165,000. BACKGROUND The City Council makes appointments to council -appointed officer positions. The appointment of the City Clerk position is subject to the approval of the Council. The duties of the City Clerk are outlined in the Charter of the City of Palo Alto and Palo Alto Municipal Code section 2.08.110. The City Clerk proactively supports the City Council and works collaboratively with other Council Appointed Officers (CAOs) and City departments to facilitate the Council's vision, while upholding the duties and role of the City Clerk's Office with confidence and independence. The City Clerk must apply accuracy, attention to detail, timely communication and responsiveness, and ensure high -quality work products. The City Clerk is responsible for providing clear communications and maintaining strict standards of accountability. The former City Clerk Lesley Milton resigned in May 2023, to take a new opportunity at another California city. On May 1, 2023, the Council Appointed Officers (CAO) Committee met to discuss a recommendation to the City Council regarding the City Clerk vacancy. The CAO Committee motion which passed 3-0 recommended that Council authorize the following: Item 10: Staff Report Pg. 1 Packet Pg. 198 of 341 Item 10 Item 10 Staff Report 1. Invite letters of interest and a resume from interested internal applicants for the interim City Clerk position, have HR review for qualifications, and schedule a closed session interview of candidates with the full Council pending a full recruitment process. 2. Contract with the recruitment firm Peckham & McKinney who conducted the previous City Clerk recruitment, and the literature previously used be included in a late packet report on the next meeting agenda. The City Council approved the CAO Committee recommendation on May 8, 2023 (Report #2305-1405). On June 5, 2023, the City Council appointed Mahealani Ah Yun as the interim City Clerk, as recommended by the CAO Committee. ANALYSIS As requested and authorized by Council, the executive recruitment firm Peckham & McKenney conducted an extensive search for the City of Palo Alto's next City Clerk. Qualified applicants were evaluated for the position, and Mahealani Ah Yun was selected by the City Council as the top candidate. Mahealani Ah Yun has served as Deputy City Clerk for the City of Palo Alto beginning in November 2021. She has served as Interim City Clerk from June 5, 2023 to the present. Under the direction of the former City Clerk, Ms. Ah Yun closely supported Council members and assisted in supporting five Council standing committees and nine boards and commissions, preparing minutes, and facilitating the agenda production process. In addition, Ms. Ah Yun administered public records requests and played a key role in launching the new agenda management system. As Interim City Clerk, Ms. Ah Yun served as a team leader and championed the adoption of new technology and procedures to promote access to public meetings and records. Ms. Ah Yun has over 5 years of experience working for a non-profit agency, the Service League of San Mateo, working closely with the San Mateo County Sheriff's Office staff overseeing correctional programs and services. Ms. Ah Yun holds a Master's Degree of Public Administration from Notre Dame de Namur University and a Bachelor of Science Degree in Psychology, Community and Criminal Justice, and Political Science. She is a Notary Public and holds several other industry certifications and related Clerk training. FISCAL/RESOURCE IMPACT The City Clerk position is budgeted within the City Clerk's Office and is included in the FY 2024 Adopted Budget. Ms. Ah Yun will be paid an annual salary of $165,000 and will receive standard Item 10: Staff Report Pg. 2 Packet Pg. 199 of 341 Item 10 Item 10 Staff Report management benefits consistent with the Compensation Plan for Unrepresented Management and Professional employees. STAKEHOLDER ENGAGEMENT Staff, in coordination with the Council Appointed Officers Committee, City Council, and the executive recruitment firm, completed the interview process to bring forward this action. ATTACHMENTS Attachment A: Employment Agreement City Clerk Mahealani Ah Yun Attachment B: Resolution Appointing Mahealani Ah Yun City Clerk APPROVED BY: Sandra Blanch, Human Resources Director Item 10: Staff Report Pg. 3 Packet Pg. 200 of 341 Item 10 Attachment A - Employment Agreement City Clerk Mahealani Ah EMPLOYMENT AGREEMENT Yun BETWEEN CITY OF PALO ALTO AND Mahealani Ah Yun THIS AGREEMENT is between the City ofPaloAlto,a municipal corporation and chartered city ("City") and Mahealani Ah Yun ("Ah Yun"). It is effective on the latest date next to the signatures on the last page. This Agreement is entered into on the basis of the following facts: A. City, acting by and through its City Council, wishes to employ Ah Yun as its City Clerk, subject to the terms and conditions set forth in this Agreement, the Palo Alto Municipal Code and the Charter of the City of Palo Alto (the "Charter") B. Under the Charter, the City Clerk is appointed by the City Council. Notwithstanding any provision of the City of Palo Alto Merit System Rules and Regulations, the City Clerk serves on an at -will basis, with no expectation of continued employment, and with no right to pre -or post - separation due process or appeal. C. Ah Yun desires to be employed by the City as its City Clerk, subject to the terms and conditions in this Agreement, the Palo Alto Municipal Code, the Charter, the Palo Alto Merit System Rules and Regulations, and all other applicable laws, resolutions, and policies. D. The City and Ah Yun wish to establish specific terms and conditions relating to compensation and benefits and related matters. BASED UPON THE FOREGOING, THE CITY AND AH YUN AGREE AS FOLLOWS: Employment. The City appoints Ah Yun as its City Clerk for an indefinite term to begin on January 23, 2024. Except as otherwise provided herein, Ah Yun's employment with the City shall be governed by the City Council adopted Compensation Plan for Management and Professional Personnel and Council Appointees, as it currently exists and may be changed from time to time. Item 10: Staff Report Pg. 4 Packet Pg. 201 of 341 Item 10 Attachment A - Employment Agreement City Clerk Mahealani Ah Duties of the City Clerk. Ah Yun will perform the duties established fd Yun by the Palo Alto City Charter, by the Palo Alto Municipal Code, by direction given by the City Council, and as otherwise provided by law, ordinance, or regulation. Ah Yun agrees to comply with all federal, state and local laws, ordinances, rules and regulations applicable to or associated with these duties. 2.1. Full Energy and Skill. Ah Yun will devote her full energy, skill, ability, and productive time to the performance of her duties. 2.2. No Conflict. Ah Yun will not engage in any employment, activity, consulting service, or other enterprise, for compensation or otherwise, which is actually or potentially in conflict with or which interferes with the performance of her duties. Ah Yun acknowledges that she is subject to the various conflict of interest requirements found in the California Government Code and state and local policies and regulations. 2.3. Permission Required for Outside Activities. Ah Yun will not engage in any employment, activity, consulting service, or other enterprise, for compensation or not, without written permission of the City Council. Salary. While performing the duties of City Clerk, Ah Yun will receive a base salary within the range provided in the City Council -approved Compensation Plan for Management and Professional Personnel and Council Appointees, as it currently exists and may be changed from time to time. Ah Yun will receive an initial gross base annual salary of one hundred sixty-five thousand dollars ($165,000.00), beginning on the Employment Start Date. This amount is subject to authorized or required deductions and withholding, prorated, and paid on the City's regular paydays. Ah Yun is an exempt employee under applicable wage and hour law and her base salary shall be compensation for all hours worked. The City agrees that the amount of Ah Yun's base annual salary will not decrease, except as part of a permanent decrease that is consistent with the Fair Labor Standards Act. 4. Benefits and Allowances. Ah Yun will be eligible for, and shall receive, all regular benefits (i.e., health insurance, PERS contributions to the extent paid by the City, etc.) and vacation, sick leave, and management leave, as are generally provided to management employees under the City Council approved Compensation Plan for Management and Professional Personnel and Council Appointees, as it currently exists and may be changed from time totime. Item 10: Staff Report Pg. 5 Packet Pg. 202 of 341 Item 10 Attachment A - Employment Agreement City Clerk Mahealani Ah 5. Additional Benefits and Allowances. In addition to the benefits speci Yun Ah Yun will receive the following additional benefits and allowances: 5.1. Severance. If Ah Yun is terminated or asked to resign she shall, upon execution of a release of all claims against the City, be eligible for a severance payment according to the City Council -adopted Compensation Plan for Management and Professional Personnel and Council Appointees, as it currently exists and may be changed from time to time, currently equivalent to a maximum of twelve (12) weeks of salary and benefits. No severance shall be paid if Ah Yun is terminated for serious misconduct involving abuse of her office or position, including but not limited to waste, fraud, violation of the law under color of authority, misappropriation of public resources, violence, harassment or discrimination. If Ah Yun is later convicted of a crime involving such abuse of her position, she shall fully reimburse the City as set forth in Government Code section 53243.3. 6. Additional Expenses of Employment. The City shall pay the cost of any fidelity or other bonds required by law for the City Clerk. 7. Duration of Employment. Ah Yun understands and agrees that she has no constitutionally protected property or other interest in her employment as City Clerk. Ah Yun waives any and all rights, if any, under the Merit System Rules and Regulations, including without limitation, the right to pre -or post -disciplinary due process. Ah Yun understands and agrees that she works at the will and pleasure of the City Council and that she may be terminated or asked to resign at any time, Item 10: Staff Report Pg. 6 Packet Pg. 203 of 341 Item 10 Attachment A - Employment Agreement City Clerk Mahealani Ah with or without cause. Ah Yun may terminate this agreement (terminating all employ Yun 30 days written notice to the Mayor. 8. Miscellaneous. 8.1. Notices. Notices given under this Agreement shall be in writing and shall be either: a) served personally; or b) sent by facsimile (provided a hard copy is mailed within one (1) business day); or c) delivered by first-class United States mail, certified, with postage prepaid and a return receipt requested; or d) sent by Federal Express, or some equivalent private mail delivery service. Notices shall be deemed received at the earlier of actual receipt or three (3) days following deposit in the United States mail, postage prepaid. Notices shall be directed to the addresses shown below, provided that a party may change such party's address for notice by giving written notice to the other party in accordance with this subsection. CITY: Attn: Mayor, City Council 250 Hamilton Avenue, Palo Alto CA 94301 Phone (650) 329-2226 AH YUN: Mahealani Ah Yun 250 Hamilton Avenue, Palo Alto CA 94301 Phone (650) 329-2630 8.2. Entire Agreement/ Amendment. This Agreement constitutes the entire understanding and agreement between the parties as to those matters contained in it, and supersedes any and all prior or contemporaneous agreements, representations and understandings of the parties. This Agreement may be amended at any time by mutual agreement of the parties, but any such amendment must be in writing, dated, and signed by the parties and attached hereto. 8.3. Applicable Law and Venue. This Agreement shall be interpreted according to the laws of the State of California. Venue of any action regarding this Agreement shall be in the proper court in Santa Clara County. El Item 10: Staff Report Pg. 7 Packet Pg. 204 of 341 Item 10 Attachment A - Employment Agreement City Clerk Mahealani Ah 8.4. Severability. In the event any portion of this Agreement is declar Yun portion shall be severed from this Agreement and the remaining provisions shall remain in effect, unless the result of such severance would be to substantially alter this Agreement or the obligations of the parties, in which case this Agreement shall be immediately terminated. 8.5. Waiver. Any failure of a party to insist upon strict compliance with any term, undertaking, or condition of this Agreement shall not be deemed to be a waiver of such term, undertaking, or condition. To be effective, a waiver must be in writing, signed and dated by the parties. 8.6. Representation by Counsel. Ah Yun and the City acknowledge that they each did, or had the opportunity to, consult with legal counsel of their respective choices with respect to the matters that are the subject of this Agreement prior to executing it. 8.7. Section Headings. The headings on each of the sections and subsections of this Agreement are for the convenience of the parties only and do not limit or expand the contents of any such section or subsection. Ah Yun Mahealani Ah Yun Approved as to Form: City Attorney's Office City of Palo Alto Mayor Item 10: Staff Report Pg. 8 Packet Pg. 205 of 341 Item 10 Attachment B - Resolution Appointing Mahealani Ah Yun City NOT YET APPROVED Clerk Resolution No. A Resolution of the City Council for the City of Palo Alto appointing Mahealani Ah Yun as the Palo Alto City Clerk. RECITALS A. The Palo Alto City Charter specifies the duties and functions of the City Clerk for the City of Palo Alto; B. The Charter further specifies that the City Council shall appoint the City Clerk; C. The Council received notification that City Clerk Lesley Milton was resigning effective May 19, 2023; D. The Council Appointed Officers Committee recommended and the full City Council authorized staff to conduct a nationwide search through Peckham and McKenney, an executive search firm specializing in Public Sector recruitment. E. On December 19, 2023 Council interviewed highly qualified candidates identified through this search and selected Mahealani Ah Yun as the next City Clerk of the City of Palo alto; NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows: SECTION 1. The Council hereby appoints Mahealani Ah Yun as City Clerk for the City of Palo Alto; SECTION 2. Mahealani Ah Yun shall serve as City Clerk at the will of the Council as provided by the Charter, and shall further serve according to all of the terms and provisions of the Charter and the Municipal Code; and SECTION 3. The Council hereby appoints and employs Mahealani Ah Yun for an indefinite term that begins January 23, 2024. AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: Item 10: Staff Report Pg. 9 Packet Pg. 206 of 341 Item 11 Item 11 Staff Report City Council Staff Report From: City Manager CITY O F Report Type: ACTION ITEMS PALO Lead Department: Administrative Services ALTO Meeting Date: January 22, 2024 Report #:2312-2470 TITLE Adoption of a Resolution and Approving an Easement Relocation Agreement Relocating and Vacating a 25 Foot Public Service Easement at the Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also commonly known as 1310 Bryant Street), Assessor Parcel Numbers 124-12-033 & 124-12-034; CEQA status — categorically exempt. RECOMMENDATION Staff recommends that Council: 1. Approve and authorize the City Manager or designee to execute the Easement Relocation Agreement relocating a public service easement on the Castilleja School located at 1263 Emerson Street and 220 Embarcadero Road (also commonly known as 1310 Bryant Street); and 2. Adopt a resolution summarily vacating a public service easement on the Castilleja School located at 1263 Emerson Street and 220 Embarcadero Road (also commonly known as 1310 Bryant Street) after the relocated easement has been recorded. ANALYSIS On April 20, 1992, the City Council introduced and passed a resolution ordering the vacation of a street easement on a portion of Melville Avenue between Bryant and Emerson Streets, while reserving a 25 -foot easement benefitting the City for underground and overhead public utilities purposes.' This Public Utility Easement ("PUE") is associated with the property owned by the Castilleja School Foundation ("Castilleja").2 The property's Assessor Parcel Numbers are 124-12- 033 & 124-12-034 and is commonly known as 1310 Bryant Street, but a Preliminary Report prepared by Chicago Title Company, dated November 1, 2023, and referenced as Order No. 60605270-606-TEO-JM, identifies the property address for Assessor Parcel Number 124-12-033 'General Vacation, Resolution No. 7086, recorded as Recording Number 11386298, Book M218, Page 0593 of Official Records of Santa Clara county. 2 https://www.cityofpaloalto.org/City-Hall/Hot-Topics/Castilleja-School Item 11: Staff Report Pg. 1 Packet Pg. 207 of 341 Item 11 Item 11 Staff Report as 1263 Emerson Street and a separate Preliminary Report dated November 9, 2023, and referenced as Order No. 60604321-606-TEO-JM, identifies the property address for Assessor Parcel Number 124-12-034 as 220 Embarcadero Road. This item was originally scheduled on August 14, 2023. To maintain clear visibility on items related to the Castilleja School development, the item was reagendized to the December 18, 2023 agenda and revised with a clearer title to reference the school by name and the commonly known address, in addition to the addresses and parcel numbers found in title reports. Staff also notified individuals that requested to be notified of actions related to the school. At the December 18, 2023 meeting, Mayor Kou, Council Member Burt, and Council Member Lauing requested to pull Agenda Item Number 11. The item is now again reagendized, but as an action item. On June 6, 2022, the City Council approved Castilleja's applications for Architectural Review with Parking Adjustment, Conditional Use Permit, and Variance, and made several findings, determination and declarations.3 In connection with those applications, the City Council made it a Condition of Approval that Castilleja relocate the existing 25 -foot PUE to be within the boundaries of the driveway that is proposed near the Emerson Street and Melville Avenue intersection. Castilleja has agreed to relocate the existing 25 -foot public utility easement. To relocate the easement, the City will execute an Easement Relocation Agreement creating a 25 - foot PUE within the proposed new driveway and adopt a resolution to vacate the existing easement in accordance with Section 8333 of the California Streets and Highways Code. STAKEHOLDER ENGAGEMENT This item has been coordinated with Jorgenson, Sigel, McClure & Flegel, LLP, legal counsel to Castilleja School. Planning staff will notify individuals that have previously provided emails to receive notice related to the school's Council -approved planning entitlement project. FISCAL/RESOURCE IMPACT The property owner paid the summary easement vacation fee in FY 2023, which amounts to $1,842, as set forth in the FY 2023 Municipal Fee Schedule. ENVIRONMENTAL REVIEW Council action to relocate the public service easement is within the scope of the Environmental Impact Report prepared for the Castilleja School Project and adopted by the Council on June 6, 2022 (SCH #2017012052). ATTACHMENTS Attachment A: Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also commonly known as 1310 Bryant Street) APPROVED BY: Kiely Nose, Assistant City Manager 3 https://www.cityofpaloalto.org/files/f65eb77d-4d17-41a6-8158-44fldf3b649f/Casti-Signed-ROLUA-and- Exhibit.pdf Item 11: Staff Report Pg. 2 Packet Pg. 208 of 341 ATTACHMENT A Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson SUMMARY VACATION & EASEMENT RELOCATION Ad Street and 220 Embarcadero Road (also :ommonly known as 131( Bryant Street) Item 11: Staff Report Pg. 3 Packet Pg. 209 of 341 Recorded at no charge in accordance with Streets & Highways Code Section 8336 at the request of and when recorded return to: City of Palo Alto Real Estate Division 250 Hamilton Avenue Palo Alto, CA 94301 Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also commonly known as 1310 Bryant Street) j SPACE ABOVE LINE FOR RECORDER'S USE APN: 124-12-034 Address: Castilleja School 1263 Emerson Street and 220 Embarcadero Road (a.k.a. 1310 Bryant Street) Palo Alto, CA 94301 SUMMARY VACATION RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO SUMMARILY VACATING AND RELOCATING A PUBLIC SERVICE EASEMENT AT THE CASTILLEJA SCHOOL, 1263 EMERSON STREET AND 220 EMBARCADERO ROAD (A.K.A. 1310 BRYANT STREET), PALO ALTO, CA WHEREAS, Section 8333 of the Streets and Highways Code authorizes the City Council to summarily vacate a public service easement in any of the following cases: (a) the easement has not been used for the purpose for which it was dedicated or acquired for five consecutive years immediately preceding the proposed vacation, (b) the date of dedication or acquisition is less than five years, and more than one year, immediately preceding the proposed vacation, and the easement was not used continuously since that date, (c) the easement has been superseded by relocation, or determined to be excess by the easement holder, and there are no other public facilities located within the easement; and WHEREAS, under that certain General Vacation, Resolution No. 7086, recorded as Recording Number 11386298, Book M218, Page 0593 of Official Records of Santa Clara County, the City of Palo Alto reserved a 25 -foot easement for public utilities purposes benefitting the City, and any right necessary to construct, maintain, operate, replace, remove, renew or enlarge any underground public utility facilities, existing overhead public utility facilities, sanitary sewers, storm drains and appurtenant structures in, upon, over, under or across the easement area; and WHEREAS, in connection with that certain ACTION NO. 2022-02 RECORD OF THE COUNCIL OF THE CITY OF PALO ALTO LAND USE ACTION 1310 BRYANT STREET (CASTILLEJA) ARCHITECTURAL REVIEW 19PLN-00116 WITH PARKING ADJUSTMENT CONDITIONAL USE PERMIT AND VARIANCE 16PLN-00238, the City imposed Condition 28 (EASEMENT RELOCATION): "Applicant shall relocate the existing 25 - Item 11: Staff Report Pg. 4 Packet Pg. 210 of 341 Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation foot Public Utility Easement (PUE) to be within the boundaries of the driv Agreement - Castilleja near the Emerson Street and Melville Avenue intersection"; and School at 1263 Emerson Street and 220 WHEREAS, the City Council of the City of Palo Alto intends to I Embarcadero Road (also Relocation Agreement in Attachment "A" attached to this resolution to commonly known as 131( easement and summarily vacate the existing easement as more particularly Bryant Street) in the exhibits of that agreement; and NOW, THEREFORE, the City Council does hereby RESOLVE as follows: SECTION 1. This vacation is made under the authority of California Streets and Highways Code Chapter 4 of part 3 of Division 9, commencing at Section 8330 et. seq. 1. The public service easement described on Exhibit "A" and depicted on the plat map as Exhibit "B" of Attachment "A" (Easement Relocation Agreement) will be superseded by relocation as described on Exhibit "C" and depicted on the plat map as Exhibit "D"; and SECTION 2. Based upon the findings made in Section 1 of this Resolution and the provisions of Section 8333 of the Streets and Highways Code, the City Council does hereby order that public service easement as shown on the said Exhibits "A" and "B" of Attachment "A" shall be summarily vacated and relocated as shown on the said Exhibits "C" and "D" of Attachment "A„ SECTION 3. The City Clerk, acting by and through the Real Property Manager, is hereby directed to record at the Santa Clara County Clerk -Recorder's Office a certified copy of this Resolution, including the Maps. SECTION 4. The public service easement for utilities and incidental purposes described in Exhibit "A" and depicted in the plat map as Exhibit "B" in Attachment "A" will be relocated to the area described in Exhibit "C" and depicted in the plat map as Exhibit "D" in Attachment "A" from and after the date of recordation of the documents identified in Section 3 of this Resolution. SECTION 5. Council action to relocate the public service easement is within the scope of the Environmental Impact Report prepared for the Castilleja School Project and adopted by the Council on June 6, 2022 (SCH #2017012052). Item 11: Staff Report Pg. 5 Packet Pg. 211 of 341 Recorded at no charge in accordance with Streets & Highways Code Section 8336 at the request of and when recorded return to: City of Palo Alto Real Estate Division 250 Hamilton Avenue Palo Alto, CA 94301 WITH A CONFORMED COPY TO: Castilleja School Attn: Head of School 1310 Bryant Street Palo Alto, CA 94301 Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also commonly known as 1310 Bryant Street) j SPACE ABOVE LINE FOR RECORDER'S USE APNs: 124-12-033 & 124-12-034 Address: 1263 Emerson Street and 220 Embarcadero Road (a.k.a. 1310 Bryant Street) Palo Alto, CA 94301 EASEMENT RELOCATION AGREEMENT 1. The City of Palo Alto ("City") is a grantee under that certain General Vacation, Resolution No. 7086, recorded as Recorder's Serial Number 11386298 of the Official Records of Santa Clara County, which includes a certain 25' Public Utility and Surface Access Easement described in Exhibit A and shown in Exhibit B, attached hereto (the "Existing 25' PUE"), which burdens property owned by the Castilleja School Foundation, a California corporation ("Castilleja"). In connection with that certain ACTION NO. 2022-02 RECORD OF THE COUNCIL OF THE CITY OF PALO ALTO LAND USE ACTION [1310 BRYANT STREET (CASTILLEJA); ARCHITECTURAL REVIEW 19PLN- . 00116 WITH PARKING ADJUSTMENT CONDITIONAL USE PERMIT AND VARIANCE 16PLN-00238, dated June 6, 2022), the City imposed Condition of Approval 28 [EASEMENT RELOCATION], which mandates that Castilleja relocate the existing 25 -foot Public Utility Easement (PUE) to be within the boundaries of the driveway that is proposed near the Emerson Street and Melville Avenue intersection. 3. In accordance with Condition of Approval 28, Castilleja agrees to relocate the Existing 25' PUE to the to the 25' foot area described in Exhibit C and shown in Exhibit D, attached hereto (the "Relocated 25' PUE "), and the City hereby agrees to relocate all its RIGHTS, TITLE AND INTEREST in and to the Existing 25' Public Utility to the Relocated 25' PUE. This Easement Relocation Agreement shall be deemed to apply only to the rights, title and interest of City under the Existing 25' PUE as they pertain to the Relocated 25' PUE, and shall not diminish or affect any of City's rights, title and interest as to any other land described in the Existing 25' PUE located outside of the Relocated 25' PUE. Item 11: Staff Report Pg. 6 Packet Pg. 212 of 341 DATED: 1 cQb 3 DATED: The Castilleja Foundation City of Palo Alto By: _______— Title; Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also :ommonly known as 131( Bryant Street) rN otary Public or other officer completing this certificate verifies only the identity of the individual who ed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity at document. STATE OF CALIFORNIA ) {) ss: COUNTY OF J� On ,-E 2023, before me 1. f /` Notary Public, personally appeared ho proved to me on the basis of satisfactory evidence to be the persons} whoseanne(s) is/are subscribed to the within instrument and acknowledged to me that helshelthey executed the same in h:slher/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature a 1<,., A. DE LA FUENTE ` Notary Public • California °... ' SanU Clara County Commiuion R 231S141 My Comm. Expires Feb 2t, 2024 N:\DATA\FormstNotary1Notary Ackrmvledgeraent. iOGX Item 11: Staff Report Pg. 7 Packet Pg. 213 of 341 Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja ( A Notary Public or other officer completing this certificate verifies only the identity School at 1263 Emerson signed the document to which this certificate is attached, and not the truthfulness, Street and 220 of this document. Embarcadero Road (also commonly known as 131C STATE OF CALIFORNIA ) Bryant Street) ss: COUNTY OF On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature Item 11: Staff Report Pg. 8 Packet Pg. 214 of 341 EXHIBIT A I Public Utilit' Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also :ommonly known as 131f Bryant Street) An Easement, 25 feet in width, over, under and upon that certain strip of land being a portion of Parcel 1 and Parcel 2, as said Parcel is shown on that certain Parcel Map entitled "Tract No. 8593", recorded in Book 648 of Maps, Pages 1-2 and as Document 11971418, Santa Clara County Records, and said easement being described as follows: Being all of said Easement labeled as a 25' Public Utility and Surface Access Easement, Book M218, Page 593, Official Records as shown in that certain Parcel Map entitled "Tract No. 8593", recorded in Book 648 of Maps, Pages 1-2 and as Document 11971418, Santa Clara County Records. This description was prepared by me or under my direction in conformance with the requirements of the California Professional Land Surveyors Act. KfaP9l26 Date: November 22, 2022 Item 11: Staff Report Pg. 9 Packet Pg. 215 of 341 I R=62.87' c=4515' d=41O9'01 " N2918'00"E 63.92'-r � �o 1/ PARCEL 2 % / 648 MAPS 1-2 Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also commonly known as 1310 BRYANT STL Bryant Street) (60' -WIDE PUBLIC ROAD) vlr tl. fr)' o dl op "� EASEMENT TO BE RELOCATED 25' PUBLIC UTILITY AND SURFACE ACCESS EASEMENT (FILE NO. 11386298) PAR48 '�N 648 N38*18'00E 100.00' 724-12-031 MAPS 1-2 t APN.• 124-12-016 EMERSON 1235 APN.' 1215 EMERSON ST ST 724-72-033 N51 *41'05"W 25.00' - LEGEND - - BOUNDARY LINE - £ASI:AIENT LINE - ROAD CEN7FRL/N£ PARCEL 2 648 MAPS 1-2 AREA -286,783 SQ FT, 6.58 AC LANDS OF CASJ7II EJA SCHOOL APN. 724-12-034 1310 BRYANT ST - - _ EMERSON STREET (60' -WIDE PUBLIC ROAD) PLAT TO ACCOMPANY LEGAL DESCR MON SANDIS BUILD QN mi • 0 50 100 SCALE: 1" = 100' EXHIBIT B EASEMENT RELOCATION CAS11LLEJA SCHOOL PALO ALTO CA Item 11: Staff Report Pg. 10 Packet Pg. 216 of 341 Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson EXHIBIT "n" Street and 220 Embarcadero Road (also PUBLIC UTILITY AND SURFACE ACCESS EASEME commonly known as 131( Bryant Street( (EASEMENT VACATION/RELOCATION AREA) CASTILLEJA SCHOOL APN: 124-12-033 & 124-12-034 BEING A PUBLIC SERVICE EASEMENT, AS DEFINED IN CALIFORNIA STREETS AND HIGHWAYS CODE SECTION 8306, OVER, UNDER, AND UPON A PORTION OF PARCEL 1 AND PARCEL 2, AS SHOWN ON THAT CERTAIN PARCEL MAP ENTITLED "TRACT NO 8593", FILED JUNE 28, 1993 IN BOOK 648 OF MAPS, PAGES 1-2, SANTA CLARA COUNTY RECORDS; AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS; BEGINNING AT THE SOUTHWEST CORNER OF SAID PUBLIC SERVICE EASEMENT, SAME BEING THE COMMON LINE OF THE NORTHERLY RIGHT OF WAY LINE OF EMERSON STREET AND THE SOUTHERLY LINE OF PARCEL 1 AND PARCEL 2 OF SAID "TRACT NO 8593. FROM WHICH THE SOUTHEAST CORNER OF SAID PARCEL 1 BEARS SOUTH 51`4200" EAST, 5.39 FEET; THENCE CROSSING SAID PARCEL 1 AND PARCEL 2, NORTH 3818'00" EAST, 493.01 FEET TO THE SOUTHERLY RIGHT OF WAY LINE OF BRYANT STREET, SAME BEING THE NORTHERLY LINE OF SAID PARCEL 2 AND A CURVE TO THE RIGHT, HAVING A RADIUS OF 62.87 FEET AND A RADIAL BEARING OF SOUTH 1101'02" WEST; THENCE ALONG SAID CURVE THROUGH A CENTRALANGLE OF 23°48'02", AN ARC DISTANCE OF 26.12 FEET; THENCE CROSSING SAID PARCEL 2, SOUTH 3818'00" WEST, 499.88 FEET TO THE COMMON LINE OF THE NORTHERLY RIGHT OF WAY LINE OF EMERSON STREET AND THE SOUTHERLY LINE OF PARCEL 2; THENCE ALONG SAID COMMON UNE, NORTH 51"42'00" WEST, 25.00 FEET THE POINT OF BEGINNING. SAID PARCEL CONTAINING 12,435 SQUARE FEET, MORE OR LESS, AS SHOWN ON ATTACHED EXHIBIT "D," WHICH BY THIS REFERENCE IS MADE A PART HEREOF. THIS DESCRIPTION WAS PREPARED BY ME OR UNDER MY DIRECTION IN CONFORMANCE WITH THE REQUIREMENTS OF THE CALIFORNIA PROFESSIONAL LAND SURVEYORS ACT. Kelly S ohnson PLS 9126 Date: May 03, 2023 Item 11: Staff Report Pg. 11 Packet Pg. 217 of 341 R=62.87' L=26.12' A=2Y48'02" 49 05"W(R) i / I S11V102"W(R)- QO / �N cYTW 33 ,.. $ rig Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also :ommonly known as 131( BRYANT STRa�yant street) (60' -WIDE PUBLIC ROAD) PARCEL 2 648 MAPS 1-2 (FIE NO. 11971418) EASEMENT TO BE AREA=286 783 SO FT, 6.58 AC / VACATED LANDS OIL CASTILLEJA SCHOOIL APN.• 124-12-034 / PARCEL 2 25' NDBLIC UTILITY 1310 BRYANT ST AND SURFACE 648 MAPS 1-2 ACCESS EASEMENT (FILE NO. 11386298) (M218 OR 593) NEW RELOCATED PUBLIC U71UTY AND PARCEL 1 APN.• 648 124-12-031 MAPS 1-2 APN.' 124-12-016 1235 APN, Sr 1215 EMERSON Sr EMERSON 1124-12-033 LEGEND SURFACE ACCESS EASEMENT 12,435± SQUARE FEET 0.285± ACRES POINT OF BEGINNING N5142'00V 25.00' BOUNDARY LINE EASEMENT LINE ROAD LLENIERLWE EMERSON STREET (6O' -WIDE PUBLIC ROAD) o so 100 SCALE: 1" - 100' PLAT TO ACXOMPANY LEGAL DESCRIPTION EXHEB! iT D ©SANDS I vACA�/1�oca� ______________________ I v' EABIT 10 BUILD ON. CASTIJ JA SCHOOL Item 11: Staff Report Pg. 12 Packet Pg. 218 of 341 This is to certify that the interest in real property conveyed by the within de of Palo Alto, a municipal corporation, is hereby accepted by the undersign behalf of the Council of the City of Palo Alto, pursuant to authority conferrf said Council adopted on March 15, 1971, and the City of Palo Alto consents by its duly authorized officer. Dated: APPROVALS Approved as to Form: By: City Attorney or designee By: Item 11 Attachment A - Summary Vacation Resolution & Easement Relocation Agreement - Castilleja School at 1263 Emerson Street and 220 Embarcadero Road (also :ommonly known as 131C Bryant Street) City Manager or designee Approved as to Content: By Director of Planning or designee CERTIFICATE OF ACKNOWLEDGMENT (Civil Code § 1189) A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) COUNTY OF SANTA CLARA) On , before me, __________________,a notary public in and for said County, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under penalty of perjury under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Item 11: Staff Report Pg. 13 Packet Pg. 219 of 341 Item 12 Item 12 Staff Report CITY OF PALO ALTO City Council Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Administrative Services Meeting Date: January 22, 2024 Report #:2311-2226 TITLE Review and Accept the FY 2025 - FY 2034 Long Range Financial Forecast (LRFF) and FY 2025 Budget Development Guidelines as Recommended by the Finance Committee, CEQA Status — Not a Project RECOMMENDATION The Finance Committee and Staff recommend the City Council accept the General Fund Long Range Financial Forecast (LRFF) for Fiscal Year 2025-2034 (Attachment I) and the FY 2025 annual Budget Development Guidelines (Attachment 11) and direct staff to use this forecast as the starting point for the initiation of the FY 2025 budget process. EXECUTIVE SUMMARY The FY 2025 - 2034 Long Range Financial Forecast (LRFF) was reviewed with the Finance Committee on December 5, 2023 (Attachment I) along with the annual Budget Development Guidelines (Attachment II) and were unanimously approved by the Committee. Base Case Long Range General Fund forecast projects a shortfall of $6.0 million in FY 2025, followed by shortfalls ranging from $5.4 million in FY 2026 down to $0.5 million in FY 2029. These amounts are consistent with previous projections used as part of the two-year budget balancing strategy when adopting the FY 2024 Budget and a reserve was adopted by Council to provide funding for the FY 2025 projected gap. This report summarizes the key discussion points with the Finance Committee and includes additional information requested by the Finance Committee to provide context and/or additional data points of reference to the City Council. Per City Council policy, items that are unanimously approved by the Finance Committee are placed as a consent agenda item for the City Council. Though this report was approved unanimously, staff and the Committee have placed this item on the City Council's action agenda for deliberation of the full Council in acknowledgement of the importance for financial planning in the continued varied economic conditions. Item 12: Staff Report Pg. 1 Packet Pg. 220 of 341 Item 12 Item 12 Staff Report BACKGROUND/ANALYSIS The LRFF is a preliminary ten-year forecast based on the most current information available, actual revenues for FY 2023, and projected results through FY 2024 at the point in time of release (December 2023). General Fund expenditures are based on current City Council approved service levels (Base Case) compared to projected revenues over the next ten years. This Forecast allows staff and City Council to look at both the short-term and long-term financial status of current service levels in the General Fund to inform daily policy decisions and evaluate long-term goals and ongoing challenges. The Committee and staff recommend use of the Base Case for the FY 2025 Budget planning. • Base Case Long Range General Fund forecast projects a shortfall of $6.0 million in FY 2025, followed by shortfalls ranging from $5.4 million in FY 2026 down to $0.5 million in FY 2029. FY 2030 has a surplus of $6.6 million which continues to grow through FY 2034. This forecast maintains current service levels approved in FY 2024 and should be used for planning purposes to assist in gauging effects of major policy interventions against a likely "status quo" version of the future. These amounts are consistent with previous projections used as part of the two-year budget balancing strategy when adopting the FY 2024 Budget. • Alternate forecast scenario that reflects a 1% loss in economically sensitive revenue. Compared to the Base Case, this scenario reduces revenues by $2.1 million in FY 2025 and maintains and increases the projected shortfalls over the next ten years, ranging from $8.1 million in FY 2025 to $3.0 million in FY 2029. FY 2030 begins a surplus of $3.9 million which continues to grow through FY 2034. • Alternate forecast that reflects a 1% compensation adjustment (1%) in FY2026. Compared to the Base Case, this scenario increases expenses by $1.2 million in FY 2026 and maintains and increases projected shortfalls over the next ten years, ranging from $6.7 million in FY 2026 to $1.9 million in FY 2029. FY 2030 begins a surplus of $5.2 million which continues to grow through FY 2034. These alternate forecasts were done separately to show the impacts of each scenario in isolation; however, aspects of both alternate forecasts may occur in conjunction in the future. The economy continues to demonstrate resiliency to a formal recession and this forecast reflects a continued level of stagnation offset by inflation. Risks remain due to world conflicts and potential local economy impacts. Several persistent issues across the City are improving but continue to impact the ability to provide fully authorized service levels. These include staff turnover, recruitment and retention, and supply chain issues and inflation that continue to increase costs across all aspects of the City. All of these factors lead to heightened intensity of financial forecasting and the budget development process. These forecast figures present staff Item 12: Staff Report Pg. 2 Packet Pg. 221 of 341 Item 12 Item 12 Staff Report with the challenge of prioritizing the growing needs of the City with the fiscal sustainability of these needs. Consistent with the projections in the FY 2024 Adopted Budget, this LRFF reflects deficits in the near term with revenues falling below expenses. As previously recommended, the shortfall in FY 2025 will be addressed by the Uncertainty Reserve that was proactively set aside during the prior year for this purpose. Also, this LRFF assumes support from both local ballot Measures K (Business Tax) and L (Gas Utility Fund Equity Transfer) that were approved by the voters in November 2022. Based on this forecast, ensuring ongoing financial stability will require continued prioritization of spending and utilization of one-time surplus funding or the Uncertainty Reserve to address short- term deficits in the next few years. More detailed guidelines and policies to inform the development of the FY 2025 budget are discussed in Attachment II. As directed by the City Council, staff will include recommendations for addition of key resources and appropriation of funds as part of the FY 2024 Midyear process, including a review of objectives deferred in the development of the FY 2024 Adopted Budget. The Mid -Year Review report is scheduled for Council review in February 2024. Finance Committee Review As part of the Finance Committee's review of the LRFF, several requests were made to provide context and/or additional data points of reference. Staff has compiled a summary of these items below and details in Attachment III. Vacancy Analysis The current vacancy rate is approximately 13.5% in the General Fund, excluding public safety. This preliminary vacancy rate is point in time and does not consider actions currently in progress for recruitments, promotions, and other staffing shifts. To better align with the status of vacancies, this forecast increases the vacancy estimate from previously assumed rate of 3% to 5% in all years. This results in additional savings of approximately $2 million annually, or a projected $5 million in total vacancy savings each year. This additional funding fully forecasts the vacancy savings the City has seen in recent years of $1.7 million as shown in Table 1. Table 1 provides a historical summary of budget to actuals variance in the Salary and Benefits category for General Fund departments. The budget includes the budgeted vacancy factor assumption, therefore this savings is what has been achieved beyond planned levels. The table includes the annual vacancy rate and the percentage difference from budgeted funding levels. As shown below, the vacancy savings from the previous year have varied from -$1.7 million to +$1.7 million over the last five years from the budgeted vacancy assumption, reflecting a variance of less than 1.5% as compared to the budgeted. Item 12: Staff Report Pg. 3 Packet Pg. 222 of 341 Item 12 Item 12 Staff Report TABLE 1: Historical General Fund Vacancy Savings ($'s in Millions) 2019 Total General Fund Vacancy Savings $1.3M 2020** 2021** 2022 2023 $1.3M -$1.7M $1.6M $1.7M Annual Vacancy Rate 12% 12% 15% 12% 13% General Fund Adjusted Budget* $123.3M $134.7M 124.1M $134.3M $148.4M Variance to Budget 1.1% 1.0% -1.4% 1.2% 1.2% * The annual budget reflects salaries and benefits net of the forecasted vacancy factor each year. ** FY 2020 and FY 2021 are anomaly years as they were significantly impacted by adjustments made due to the COVID-19 pandemic where a number of factors are impacting these rates including but not limited to a hiring freeze as well as eventual position reductions citywide. Economic Recovery Advisory Report During the LRFF review, the Finance Committee raised questions regarding the processes to develop LRFF assumptions and variability in actual results. As a follow up to this discussion, this report includes references to an audit completed by the Office of the City Auditor (OCA) in April 2022 to review the City's long-term financial planning models and inputs (CMR 139151). The OCA results indicated that the City's was able to forecast revenues at no more than a 9% difference from original estimates over a five-year period, from FY 2016 to FY 2020. Further, the results indicated that the City has a robust process for forecasting and uses reliable information for assumptions. Overall, the OCA determined that the City's long-term financial planning models and inputs align with the OCA's considerations and best practices. Historical Grant Funding and Funding from Other Agencies From FY 2019 through FY 2023, various federal, state, local, and other agencies allocated funds for programs and initiatives across the General Fund and the Capital Improvement Fund. The City's practice is to recommend allocation of these funds after formal agreements are in place with the granting agency or jurisdiction. In addition, since these funds are designated for specific needs, staff strives to use these funding sources first in order to maximize resources. Operating - General Fund 2019 2020 2021 2022 2023 Funding by Fiscal Year (in Millions) $0.8 $0.8 $1.1 $8.8 $12.1 Notable funding includes but is not limited to, the Federal Transportation Agency (FTA) contributed to transportation -related projects along with the Santa Clara County Measure B 1 City Council, April 11, 2022; Staff Report # 13915, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=81750 Item 12: Staff Report Pg. 4 Packet Pg. 223 of 341 Item 12 Item 12 Staff Report Transportation Improvement Program, and Stanford University supporting the PA Link program, Federal Health and Human Services (HHS) funding was appropriated for mental health services, COVID-19 relief through CARES and American Rescue Plan Act (ARPA) funds, fire fighter staffing funding via Staffing for Adequate Fire and Emergency Response (SAFER), and investments in safety equipment through the Santa Clara County Office of Emergency Services (SCC OES). Capital Improvement Fund External revenues supporting capital improvement projects fall into three broad categories: local/regional grants (including Measure B), state grants, and federal grants. The table below summarizes the amounts, sources, and uses of these revenues by fiscal year from FY 2019 -FY 2023. The amounts in each fiscal year, which total $50.5 million, do not include reappropriations. 2019 2020 2021 2022 2023 Funding by Fiscal Year (in Millions) $12.4 $4.3 $12.6 $4.0 $17.0 Turning to currently budgeted revenues in the Capital Improvement Fund, the table below shows how Measure K, the City of Palo Alto's business tax, and Measure B, a Santa Clara sales tax that benefits transportation projects, are currently planned to be allocated across capital improvement projects based on the 2024-2028 Capital Improvement Plan (CIP). These allocations may change during the FY 2025 budget and 2025-2029 CIP development cycle. 2024 2025 2026 2027 2028 Measure K - City of Palo Alto Business Tax $0.75 $1.5 $3.0 $3.0 $3.0 PL -24000 - Meadow Dr./ Charleston Rd. Rail Grade $0.43 $0.75 $2.0 $2.0 $2.0 Separation and Safety Improvements PL -24001 - Churchill Avenue Rail Grade Separation $0.32 $0.75 $1.0 $1.0 $1.0 and Safety Improvements Measure B - Santa Clara County Sales Tax $10.5 $7.8 $27.3 $27.3 $20.3 PL -05030 - Traffic Signal and Intelligent $0.6 $0.3 $0.3 $0.3 $0.3 Transportation Systems PL -12000 - Transportation and Parking $0.5 - - - - Improvements PL -17001 - Railroad Grade Separation and Safety $1.9 $1.0 $2.0 $2.0 $1.0 Improvements PL -24000 - Meadow Dr./Charleston Rd. Rail Grade $4.5 $4.5 $15.0 $15.0 $15.0 Separation and Safety Improvements PL -24001 - Churchill Avenue Rail Grade Separation $3.0 $2.0 $10.0 $10.0 $4.0 and Safety Improvements Item 12: Staff Report Pg. 5 Packet Pg. 224 of 341 Item 12 Item 12 Staff Report Human Services Resource Allocation Process (HSRAP) As part of the LRFF, staff provided additional details to facilitate the City Council's review of a referral to consider pegging HSRAP budget allocations to a benchmark, such as a percentage of General Fund budgeted expenditures. Staff confirmed that funding levels in prior years were not tied to a percentage of the General Fund budgeted expenditures. As part of the LRFF review, the Finance Committee elected to continue the discussion on this referral in February 2024 with any recommended changes forwarded to the City Council for consideration as part of the FY 2025 budget process. The status of the referral has been updated from 'complete' to 'in progress', as indicated in the status update completed on December 5, 2023 (CMR 2307-17942). FISCAL/RESOURCE IMPACT Financial implications from this report and input from the City Council will be considered in the City Manager's development of the Fiscal Year 2025 budget. Upcoming milestones related to the City's fiscal standing and the FY 2025 Budget Process include: • February (Council) — FY 2024 Mid -Year Budget Review and Second Quarter Financial Report • March/April (Finance Committee and Utilities Advisory Commission or UAC) — Five Year Utility Financial Plans and FY 2025 Utility Rate Recommendations • May (Council) — FY 2025 Proposed Operating and Capital Budgets Published • May (Finance Committee) — FY 2025 Proposed Budget Hearings, including Utility Rates, Municipal Fees, and Five -Year Capital Improvement Plan • June (Finance Committee) — FY 2024 Third Quarter Financial Report • June (Council) —Adoption of the FY 2025 Operating and Capital Budgets, Utility Rates, and Municipal Fees. STAKEHOLDER ENGAGEMENT The preliminary forecast for FY 2025 represents the beginning of the fiscal year 2025 budget development process. As in previous years, City Council discussion of the LRFF will provide guidance to staff in the budget development process. It is anticipated that conversations with City Council and the community will occur through public budget hearings in Spring 2024, according to the standard budget adoption process. ENVIRONMENTAL REVIEW This report is not a project for the purposes of the California Environmental Quality Act. Environmental review is not required. 2 Finance Committee, December 5, 2023; Staff Report # 2307-1794, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=64178 Item 12: Staff Report Pg. 6 Packet Pg. 225 of 341 Item 12 Item 12 Staff Report ATTACHMENTS Attachment A: FY 2025-2034 Long Range Financial Report (LRFF), CMR 2307-1773 Attachment B: FY 2025 Budget Development Guidelines Attachment C: Additional Information as Requested by Finance Committee APPROVED BY: Kiely Nose, Assistant City Manager Item 12: Staff Report Pg. 7 Packet Pg. 226 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- pot 2034 Long Range Financial Report (LRFF), CMR 2307-1773 Finan ee Staff Report From: City Manager CITY OF Report Type: ACTION ITEMS PALO Lead Department: Administrative Services ALTO Meeting Date: December 5, 2023 Report #:2307-1773 TITLE Review and Recommend the City Council Accept the FY 2025- 2034 Long Range Financial Forecast and FY 2025 Annual Budget Development Guidelines RECOMMENDATION Staff recommends that the Finance Committee review and recommend that the City Council accept the General Fund Long Range Financial Forecast (LRFF) for Fiscal Year 2025-2034 and the FY 2025 annual Budget Development Guidelines (Attachment A) and direct staff to use this forecast as the starting point for the initiation of the FY 2025 budget process. EXECUTIVE SUMMARY Annually, the City presents a ten-year General Fund Long Range Financial Forecast (LRFF) in December that marks the beginning of the annual budget process. This preliminary forecast is based on the most current information available, actual revenues for FY 2023, and projected results through FY 2024 at the point in time of release. General Fund expenditures are based on current City Council approved service levels compared to projected revenues over the next year. The Base Case Long Range General Fund forecast projects a $6.0 million shortfall in FY 2025, followed by shortfalls ranging from $5.4 million in FY 2026 down to $0.5 million in FY 2029. FY 2030 has a surplus of $6.6 million which continues to grow through FY 2034. This forecast maintains current service levels approved in FY 2024 and should be used for planning purposes to assist in gauging effects of major policy interventions against a likely "status quo" version of the future. These amounts are consistent with previous projections used as part of the two-year budget balancing strategy when adopting the FY 2024 Budget. Staff modeled an alternate forecast scenario that reflects a 1% loss in economically sensitive revenue and the impact on the General Fund over the forecast period. Compared to the Base Case, this scenario reduces revenues by $2.1 million in FY 2025 and maintains and increases the projected shortfalls over the next ten years, ranging from Item 12: Staff Report Pg. 8 Packet Pg. 227 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), $8.1 million in FY 2025 to $3.0 million in FY 2029. FY 2030 begins a CMR 2307-1773 lion which continues to grow through FY 2034. Staff modeled an alternate forecast that reflects a one-time compensation adjustment (1%) in FY 2026 and the impacts on the General Fund over the forecast period. Compared to the Base Case, this scenario increases expenses by $1.2 million in FY 2026 and maintains and increases projected shortfalls over the next ten years, ranging from $6.7 million in FY 2026 to $1.9 million in FY 2029. FY 2030 begins a surplus of $5.2 million which continues to grow through FY 2034. These alternate forecasts were done separately to show the impacts of each scenario in isolation; however, aspects of both alternate forecasts may occur in conjunction in the future. The economy continues to demonstrate resiliency to a formal recession and this forecast reflects a continued level of stagnation offset by inflation. Risks remain due to world conflicts and potential local economy impacts. At the national level, economic growth through the third quarter of calendar year 2023, was led by robust consumer (retail) spending despite a persistently high inflation rate and high borrowing costs with interest rates at their highest level in 22 years. Monetary policy tightening actions by the US Federal Reserve continue to achieve a "soft landing" whereby there's a slowdown in economic growth that avoids recession for the purpose of stopping the economy from overheating and continuing to experience higher inflation. Economic uncertainty continues; however, the current outlook projects a weak economy in 2024 followed by a return to trend growth rates by 2025. Other risks that will continue to be monitored are a future protracted (U.S.) government shutdown, geopolitical events, and election resulting in changing national economic policies in 2025. All of these factors lead to heightened intensity of financial forecasting and the budget development process. These forecast figures present staff with the challenge of prioritizing the growing needs of the City with the fiscal sustainability of these needs. Consistent with the projections in the FY 2024 Adopted Budget, this LRFF reflects deficits in the near term with revenues falling below expenses. As previously recommended, the shortfall in FY 2025 will be addressed by the Uncertainty reserve, that was proactively set aside during the prior year for this purpose. Also, this LRFF assumes support from both local ballot Measures K (Business Tax) and L (Gas Utility Fund Equity Transfer) that were approved by the voters in November 2022. As discussed later in this report, funding from the Gas Equity Transfer will be incrementally increased to the voter approved 18% of gas revenue by FY 2027 to support general fund activities, and Business Tax funding has been programmed towards three Council approved priorities for investments in public safety, transportation and train crossing safety, and affordable housing and unhoused support. Several persistent issues across the City are improving but continue to impact the ability to provide fully authorized service levels. These include staff turnover, recruitment and retention, and supply chain issues and inflation that continue to increase costs across all aspects of the City. Item 12: Staff Report Pg. 9 Packet Pg. 228 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), Development of the FY 2025 budget and planning for the subsequent CMR2307-1773 the forecast will need to be done strategically over the next several months in order to balance the increased service level needs of the community with the financial resources currently projected. With these variables, ongoing revenues are unable to keep pace with expenses in the short term. The LRFF is a tool to model financial forecasting assuming resources and services are operating at authorized levels. City staff will continue to review and refine these projections to establish the FY 2025 budget and use this forecast to begin internal planning for budget balancing solutions. Individual fiscal years will vary from this forecast such as higher vacancy rates in staffing or changes in revenue estimates. These circumstances, specific to a given year, typically represent one-time resources that are factored into the annual budget planning process. More detailed guidelines or Budget Policies to inform the development of the FY 2025 budget are discussed at the end of this document (Attachment A). Included in this report and subsequent documents are the following: - The Economy: discussion of the current financial climate of the United States to the local economy of the City of Palo Alto (details can be found in Attachment B) - Summary Long Range Financial Forecast including Revenue and Expense assumptions in FY 2025-2034 (details can be found in Attachments C and D) o Financial status of the General Fund as of the FY 2024 Adopted Budget o Brief discussion of FY 2023 surplus funding o Updated FY 2024 revenue assumptions based on current projections - FY 2025 Budget Development Guidelines to inform the Budget process (Attachment A) - Alternate scenarios to the base case forecast to demonstrate financial impacts to the City from: o Impacts from a moderate recession o Impacts from a citywide 1% increase of salaries and benefits - Response to the Human Services Resource Allocation Process (HSRAP) Funding Referral from the FY 2024 Adopted Budget process (Attachment E) BACKGROUND Annually the Office of Management and Budget produces a ten-year General Fund Long Range Financial Forecast (LRFF). The LRFF reflects staff's best estimates on the projected revenues and expenditures over the next ten years based on the information that is currently available. It is important to note that the LRFF is a planning document and is separate and distinct from the development of the City's annual Operating and Capital Budgets. There are assumptions and parameters modeled in the LRFF, but these assumptions are revised and refined as more information becomes available through the budget development process. The LRFF contains a comprehensive review of the costs to provide current City Council approved service levels, including current contracts, updates to salaries and benefits based on the current population of employees, and the current labor contracts in effect. The LRFF also reviews the status of the current economy and various economically sensitive revenues such as Sales Tax, Documentary Transfer Tax, Property Tax, and Transient Occupancy Tax to explain key trends in those areas. This Forecast allows staff and City Council to look at both the short-term and long - Item 12: Staff Report Pg. 10 Packet Pg. 229 of 341 Item 12 Attachment I - General Fund Long Range Fl Attachment A - FY 2025- 2034 Long Range Financial Report (LRFF), term financial status of current service levels in the General Fund to inform CMR 2307 1773 ons and evaluate long-term goals and ongoing challenges. The Economy Nationally, as of October 2023, the consumer price index (CPI) which measures changes in the prices paid by consumers for a basket of goods and services, was 3.2%. This is lower than the 7.7% CPI from a year ago, but still indicates increasing costs. The unemployment rate, as of October 2023, is 3.9% which is up from 3.4% at the beginning of the 2023 calendar year and may indicate an economic slowdown in the coming quarters. Despite these factors, economic growth through the third quarter of calendar year 2023, was led by robust consumer (retail) spending, and the gross domestic product (GDP), a measure of all goods and services produced in the economy, increased at an annualized rate of 4.9%. The UCLA Anderson outlook is "The oft - predicted but never seen 'recession next quarter' has now faded in the face of expansionary fiscal policy, a new national industrial policy, and a consumer who is happy to continue spending." This outlook projects a weak economy in 2024 followed by a return to trend growth rates by 2025. This weaker outlook translates into 1% to 2% GDP growth for the remainder of 2023 with the expectation this will gradually increase to a 2% to 3% growth through 2024. The local economy continues to show strong performance in the first half of calendar year 2023. The UCLA Anderson outlook for California does not forecast a recession based on the state's strong employment and economic growth, although real personal income is forecasted to remain flat in 2023 and grow between 1% to 2% through 2025. California's unemployment rate, similar to the national trend, has risen in calendar year 2023 and is expected to be in the mid to high 4% through 2025. Additional details on economic statistics such as Gross Domestic Product (GDP), unemployment, and Consumer Price Index (CPI) can be found in Attachment B in greater length. ANALYSIS Palo Alto serves a diverse community with a broad range of unique services that adds to the complexity of managing a balanced budget and healthy fiscal outlook. This annual General Fund Long Range Financial Forecast is being developed at a time of perceived economic stagnation and geo-political unrest. The economy is currently not trending into recessionary period that has been predicted for the past several quarters; however, continued economic uncertainty heightens the intensity of financial forecasting and the budget development process. The rigor previously demonstrated by the Council and staff to tackle the challenges of the pandemic continues as staff works to prioritize the growing needs of the City with the fiscal sustainability of these needs. The FY 2025-2034 'Base Case' revenue and expense assumptions include updates on the status of the general fund as of the FY 2024 Adopted Budget, the FY 2023 fiscal year end, and current FY 2024 projected assumptions. As with all forecasts, there is uncertainty regarding the revenue and expenditure estimates contained in this document. Instead of a recession, this forecast assumes economic stagnation at the beginning of the ten-year period, in line with current projections from UCLA Anderson. Major tax revenues have rebounded from impacts of the Covid- 19 pandemic and projected to be at or above pre -pandemic levels through the ten-year forecast. Expenses are programmed to maintain service levels based on Council approval. As a result, some Item 12: Staff Report Pg. 11 Packet Pg. 230 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), limited term programs are not extended through the entire ten-year foreCMR2307-1773 d in this report to indicate that continuing the programs would require additional resources. Investments in Capital projects are consistent with the 2024-2028 Capital Improvement Plan with continued focus on completing the Council approved 2014 Infrastructure Plan projects as well as maintaining and upkeeping the City's current facilities and infrastructure. The Uncertainty Reserve that was established as part of the FY 2023 Mid -Year Review was used to balance the FY 2024 Adopted Budget, but as planned and approved by Council, still has funding available to solve the projected shortfall in FY 2025. A strategic plan will be needed to solve the estimated shortfalls in the subsequent years of the forecast. Race race Table 1 displays the projected General Fund revenues and expenditures over ten years and the cumulative net operating margin. - The operating margin reflects the variance between the projected General Fund revenues and expenditures for each year of the forecast or the annual surplus or shortfall. - The net operating margin is presented on a one-time basis, as the annual surplus or shortfall for a given year, and on an incremental basis. The incremental forecast assumes that each shortfall is addressed completely with ongoing solutions in the year it appears and that each surplus is completely expended with ongoing expenditures. It is the City's goal to remain in balance on an ongoing basis, so the incremental figure is useful to illustrate the additional surplus and/or shortfall attributed to a particular fiscal year. To the extent a shortfall is not resolved, or a surplus is not expended on an ongoing basis, it is important to understand that the remaining budget shortfall or surplus will remain and be pushed to the following year. The Base Case financial forecast projects a shortfall of $6.0 million in FY 2025, followed by shortfalls ranging from $5.4 million in FY 2026 down to $0.5 million in FY 2029. FY 2030 has a surplus of $6.6 million which continues to grow through FY 2034. Based on these assumptions, the cumulative net operating margin, or ongoing surplus, during the forecast period is a surplus of $36.5 million. TABLE 1: FY 2025 - 2034 Long Range Financial Forecast (Base Case) BASE CASE .2023 202 •« « a « « « «« « «. « «. Total tenon no $254,799 $261,141 $264,281 275,889 $289,060 $301,025 $312,564 $325,208 $339,684 $353,085 $355,820 $379,944 $394,026 858 Contrisutlon (One -Time) - $3,440 $3,440 - - - - - - - - - - Reappropriated Funds (One -Tin $15,000 $15,000 Yearover Year irnrmose (revenge an/y) 5.6% 4,0% « 41% 10% 48% 4.5% 19% 16% 19% 17% Total Expenditures $243,695 $279,581 $279,282 $281,887 $294,473 $304,465 $314,253 $325,708 $3333,099 $341,030 $344,933 $351,721 $357,516 YeeroverYearrnerease 0.0% 45% 14% 12% 16% 2.3% 24% ii% 2.0% 1.6% Cumulative Net Operating Margin IOne-Time} Cumulative Net Operating Margin Assumes that the annual shoe/foils are solved with angling solutions and annual surpluses are spent for ongoing expenditures $87,220 $36,511 Item 12: Staff Report Pg. 12 Packet Pg. 231 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), CMR 2307-1773 TABLE 2: FY 2025 — 2034 Long Range Financial Forecast Net Operating Margin (Base Case) General Fund Net Operating Margin $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $ 5.0 $0.0 $5.0 -$10.0 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 --4 Net One -Time Surplus/(Gap) -4- Net Operating Margin Revenue Assumptions The FY 2023 Annual Comprehensive Financial Report (ACFR), scheduled for review by the Finance Committee on November 28, 2023, reported higher annual earnings for General Fund revenues as compared to the prior year; most major tax revenues experienced growth back to pre - pandemic levels due to the improved local economy, high price trends, and inflation (CMR 2308- 18571). This increased major tax revenue trend has continued through the first quarter (Q1) of FY 2024 with several categories tracking higher than the FY 2024 Adopted Budget levels. In FY 2024, staff estimates an overall increase in total revenues of $3.1 million from the Adopted $279.6 million to $282.7 million. Further discussion of changes to specific categories can be found in Attachment C, but increases are anticipated in Sales Tax, Property Tax, and Utility Users Tax and slightly offset by decreases in Transient Occupancy Tax and Documentary Transfer Tax. If these additional revenues continue to materialize in FY 2024, Staff anticipates returning to Council as part of the as part of the FY 2024 Mid -Year Budget Review to recommend using this funding to increase the uncertainty reserve to help mitigate impacts from a recession as well as smooth the near -term shortfalls seen in the first few years of this LRFF. A summary of revenue assumptions are discussed here, extensive information regarding each revenue category can be found in Attachment C. - Tax revenues constitute approximately 60% of General Fund resources. In FY 2025, the forecast projects a $7.8 million or 5.0% increase from FY 2024 projected levels ($156.8 1 Finance Committee, November 28, 2023, CMR 2308-1857: https://cityofpaloaIto.primegov.com/portal/viewer?id=9637&type=3 Item 12: Staff Report Pg. 13 Packet Pg. 232 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), million to $164.6 million). This increase is primarily attributed cMR2307-1773 ted receipts for Sales Tax, Property Tax, and Transient Occupancy Tax (TOT) categories. o Sales Taxes is anticipated to increase $1.9 million or 5.1% from FY 2024 ($37.7 million to $39.6 million). Revenue in this category continue to experience growth as consumer spending continues despite high inflation and perceptions of a looming recession. o Property Taxes make up the largest source of the General Fund's revenue, approximately 25%. In FY 2025, this revenue is anticipated to increase $3.3 million or 5.1% from FY 2024 ($64.6 million to $67.9 million). Robust residential and commercial property sales are anticipated to continue to grow this source annually. o Transient Occupancy Taxes are impacted by business and other leisure/non- leisure travel and experienced significant reductions in the past few years due to a number of factors resulting from the pandemic. However, this revenue was able to return to pre -pandemic levels in FY 2023. In FY 2025, this revenue is anticipated to increase $1.2 million or 4.6% from FY 2024 ($25.5 million to $26.7 million). - The forecast for non -tax revenues projects a $1.6 million or 3.2% increase in FY 2025 from FY 2024 adopted levels. This increase is primarily attributable to the alignment of revenue estimates for the Stanford agreement to provide Fire and Dispatch services, and increased rental revenue from other funds and departments that use General Fund maintained City facilities. These increases are partially offset by decreases in limited term revenue through the Staffing for Adequate Fire and Emergency Response (SAFER) Grant Program and decreased reimbursement revenue from other funds for administrative services. The changes by revenue category can be seen in Tables 3 and 4 below. Major tax revenue trends are shown in Table 5 and discussed in greater detail in Attachment C. TABLE 3: General Fund Revenue Forecast ,._ Sales Tares 36,926 36,272 37,737 39,647 41,204 42,798 44,382 45,935 47,451 49,149 50,707 52,851 55,123 3.4% 15% Property Taxes 63,129 63,785 64,578 67,877 72,093 76,599 81,358 86,345 92,466 97,963 103,129 108,924 115,219 '', 5.4% 2.4% Transient Occupancy Tax General Purpose 13,471 14,437 13,450 14,072 14,913 15,882 16,647 17,468 16,336 19,259 20,266 21,330 22,450 4.8% 2.2% Infrastructure 12,014 12,397 12,098 12,658 13,413 14,285 14,974 15,712 16,493 17,322 18,228 19,165 20,193 4.8% 2.2% Documentary Transfer Tax 5,751 5,920 5,808 6,241 6,517 6,799 7,065 7,335 7,615 7,896 8,179 8,469 8,769 3.5% 1.6% Utility Users Tax 18,763 18,457 19,674 20,047 20,573 21,488 22,502 23,122 24,653 25,487 26,361 27,267 28,206 3.5% 1.4% Charges for Services 34,501 34,560 34,560 36,901 37,660 38,091 33,615 39,232 39,668 40,176 40,255 40,538 40,680 1.0% 0.6% Permits and Licenses 7,994 10,722 10,722 11,457 11,514 11,776 12,153 12,523 12,690 12,346 12,860 12,960 12,721 1.1% 0.9% Return on Investments 2,529 1,846 2,909 3,008 3,099 3,193 3,290 3,414 3,553 3,702 3,860 4,022 4,191 '. 3.4% 1.3% Rental Income 14,384 15,931 15,931 16,857 17,703 18,426 19,073 19,746 20,444 21,169 21,923 22,706 23,508 '', 3.4% 1.6% From Other Agencies 7,392 1,591 1,591 1,308 576 576 576 576 576 576 576 576 576 -7.9% -7.9% Charges to Other Funds 13,227 15,496 15,496 13,168 13,664 14,168 14,706 15,230 15,783 16,353 16,943 17,558 18,177 3.3% 1.5% Other Revenue 2,133 2,373 2,378 2,457 2,195 2,200 2,206 2,211 2,217 2,223 2,231 2,237 2,244 -0.9% -1.0% Operating Transfers -In 21,954 23,932 23,932 26,130 28,336 29,153 30,118 31,454 32,829 34,042 35,380 36,392 37,034 3.5% 1.9% BSR Contribution (One -Time) 3,440 3,440 Reappropriated Funds (One -Time) 15,000 15,000 1109 3I9l2tT2mc Item 12: Staff Report Pg. 14 Packet Pg. 233 of 341 I Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2O25 - 2O34 Long Range Financial Report (LRFF), TABLE 4: General Fund Revenue Forecast Year to Year Percentage CMR 2307-1773 Sales Taxes -1.8% 4.0% 5.1% 3.9% 3.9% 3.7% 3.5% 3.3% 3.6% 3.2% 4.2% 4.3% Property Taxes 1.0% 1.2% 5.1% 6.2% 6.3% 6.2% 6.1% 7.1% 5.9% 5.3% 5.6% 5.8% Transient Occupancy Tax General Purpose 7.2% -6.8% 4.6% 6.0% 6.5% 4.6% 4.9% 5.0% 5.6% 5.2% 5.3% 5.2% Infrastructure 3.2% -2.4% 4.6% 6.0% 6.5% 4.8% 4.9% 5.0% 5.0% 5.2% 5.3% 5.2% Documentary Transfer Tax 2.9% -1.9% 7.5% 4.4% 4.3% 3.9% 3.8% 3.8% 3.7% 3.6% 3.6% 3.5% Utility Users Tax -1.6% 6.6% 1.9% 2.6% 4.4% 4.7% 2.8% 6.6% 3.4% 3.4% 3.4% 3.4% Other Taxes and Fines 442.4% 0.0% 18.9% 37.9% -0.1% -12.4% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Charges for Services 0.2% 0.0% 6.8% 2.1% 1.1% 1.4% 1.6% 1.1% 1.3% 0.2% 0.7% 0.4% Permits and Licenses 34.1% 0.0% 6.8% 0.5% 2.3% 3.2% 3.0% 1.3% 1.2% 0.1% 0.8% -1.8% Return on Investments -27.0% 57.6% 3.4% 3.0% 3.0°% 3.1% 3.8% 4.0% 4.2% 4.2% 4.2% 4.2% Rental Income 10.8% 0.0% 5.8% 5.0% 4.1% 3.5% 3.5% 3.5% 3.5% 3.6% 3.6% 3.5% From Other Agencies -78.5°°% 0.0% -17.8% -56.0.% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Charges to Other Funds 17.2% 0.0% -15.0% 3.8% 3.7% 3.8% 3.6% 3.6% 3.6% 3.6% 3.6% 3.5% Operating Transfers -In Fuillions $ 95 $ 90 $85 $ 80 $ 75 $70 $ 65 $ 60 $55 $ 50 $45 $40 $ 35 $ 30 $25 $ $ 20 $15 12 $10 $5 30 Sales Tax + Prcf-ertyTax 3.9% 2.9% 1.8% IABEL 5: Lity OT F'alo Alto iviajor General i-una Kevenues Major General Fund Revenues TOT. General Fund tLtilit;I Iser's Tax 143.1 Crc. Transfer Tax 153..4 $ 56.4 TOT- fhfra_druture I $511 $42.8 199.1 $96.4 IJ6.5 IJ4.9 $30.0 $23.9 $J 1. 1 $30.6 $29.1 132.' TOT - General Fu -d Ilea 13.2 116.' i ' 111.2 $ 13115. I16. p 1 16.1 $ 1tl.6 115.6 113.3 .5 12.0 .... I 1 ■ T4 • $'2.1 • Salo%T.i: $42.8 115.9 Ida4 139.6 2.8.......+•_•_..- .•....... • Uility User's Tax 1 $20.0 $20.6 $2 1.5 $22.5 .............$ 123. I .•• 18.5 ...... •..-._....a......._..-..� 111 9 $ 15.3 $ I6.6 1' 5 _;,..._...: $ ;.. �.........= 14.1 _.. ..y ............ ..._.15.0.. �. ......12._ `..._._*... $ $15.' $16. $ 12.' $ 1 13.4 $1 4.3 TOT - Inr8 , uC blre { ? 8.2 • $4.5 $4.8 $7.1 1p k16 'LXZ 1 �� 19 X1 11 p, p1ti 0 0ii o.S f89 X11 X66 019 IS.�o 'L� 1 s T T 2 Fiscal Yelf Item 12: Staff Report Pg. 15 Packet Pg. 234 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), Expense Assumptions CMR 2307-1773 As part of developing the FY 2025-2034 Forecast expenditure budget, the General Fund expense categories have been adjusted by removing FY 2024 Adopted Budget one-time expenses and updating major cost elements such as salary and benefits costs. The table below displays the expense forecast and when compared to the FY 2024 Adopted Budget, growth of 0.9% is expected in FY 2025. The small overall annual growth is due to the elimination of large one-time reserves in FY 2023 that offset the increase in expenses in other categories such as Salary and Benefits, Allocated Charges, and Transfers to Other Funds. A summary of expense assumptions is discussed here, extensive information regarding each expense category can be found in Attachment D. - Salary and Benefits are projected to increase $7.1 million or 4.3% from the FY 2024 ($166.9 million to $174.0 million). This is primarily attributable to increases in salaries ($2.9 million or 3.1%) and pension costs ($4.5 million or 10.2%). o A general wage adjustment of 2% is included for all employees starting in either January 2025 or July 2025 for all years of the forecast once negotiated contracts sunset. o A reserve is included for potential changes to future labor costs including, changes in vacancy rates, labor and benefit rate variability, and inflation assumptions. Long Term contributions to pension and other post -employment benefits reflect increases over the prior year and capital investments are being phased through the first three to five years of the forecast: o Pension 115 Trust contributions are calculated using a lower 5.3% discount rate for normal cost as compared to CaIPERS 6.8%. Through FY 2024, it is expected that $67.6 million ($44.6 million in the General Fund) in supplemental principal contributions will be made to the Pension Trust. Staff expects to reach sufficient balances in the Pension Trust to begin paying down CaIPERS unfunded liabilities in the next 1-2 years, consistent with the Retiree Benefit Funding Policy. The FY 2025 budget estimates $13.8 million ($8.3 million in the General Fund) in supplemental contributions, a $0.5 million or 4.1% increase from FY 2024 Adopted levels of $13.2 million. o California Employers' Retiree Benefit Trust (CERBT) Fund contributions for Retiree medical costs are calculated using a lower 5.75% discount rate as compared to a 6.25% assumption. Through FY 2024, it is expected that $11.1 million in supplemental principal contributions will be made to the CERBT Trust. The FY 2025 Budget estimates $16.9 million ($10.8 million in the General Fund) for ADC, an approximate $0.5 million or 2.9% increase from FY 2024 levels of $16.4 million. o Capital Infrastructure transfers reflect the goal established as part of the 2022- 2026 Capital Improvement Plan (CIP) to restore the base portion of this transfer to pre -pandemic levels by FY 2026. The local economy has recovered from the COVID-19 pandemic, and estimated transfers from TOT revenues in FY 2025 are currently projected to increase to $12.3 million and the base transfer to increase to $12.4 million for a total $24.7 million transfer to the Capital Improvement Fund. Item 12: Staff Report Pg. 16 Packet Pg. 235 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), Inflationary assumptions in this long range reflect the record ink.R7,3 at present with an assumption that the interest rate adjustments by the Federal Reserve will eventually level off inflationary increases. A 4% annual inflation is assumed throughout the ten-year forecast to estimate cost increases for non -salary services and equipment. Expenses are programmed to maintain service levels based on Council approval. As a result, some limited term programs are not extended through the entire ten-year forecast, but discussed later in this report to indicate that continuing the programs would require additional resources. A couple examples of these programs are the Psychiatric Emergency Response Team (PERT), and the PA Link on demand transit service. Both programs have partial funding in the LRFF but would need additional resources to continue them through the entire ten-year period. This LRFF also includes the City's committed investment of $7.0 million in operating expenses for the partnership with LifeMoves and Project Homekey site services ($1.0 million starting in FY 2025 and is programmed through FY 2031). The timing of the funding was shifted as a result of $2.0 million from FY 2023 and FY 2024 being approved by the Council to be used to fund expenses related to the Homekey Facilities capital project (PE -24005). TABLE 6: General Fund Expense Forecast and Year to Year Percentage Change Salary 78,150 91,250 41,2611 49,132 99,678 105,014 169,166 113,005 115,318 117,936 119,874 121,814 124,135 3.1% 1.8% Benefits 67,956 75,601 75,501 79,856 81,343 82,287 84,961 88,687 89,984 90,992 89,837 89,955 88,786 1.6% 1.1% Contract Servkkes 24,214 28,753 28,753 29,335 29,951 31,158 31,557 32,736 33,760 35,150 36,253 31,137 38,976 3.1% 1.1% Supplies&Material 3,048 3,332 3,332 3,458 3,596 3,740 3,890 4,046 4,208 4,376 4,551 4,733 4,922 4.0% 1.6% General Expense 7,515 19,092 19,092 9,824 9,815 9,838 9,863 10,094 10,3306 10,545 9,793 10,060 10,317 -6.9% 0.3% Rents&Leases 163 1,368 1,368 1,405 1,443 1,482 1,522 1,564 1,606 1,649 1,694 1,741 1,789 2.7% 1.1% Facilities & Equipment 446 799 799 458 476 495 515 536 557 579 602 626 651 -2.0% 1.6% Operating Transfers -Out 12,342 5,043 5,043 6,494 6,531 6,562 6,509 6;637 6,670 6,708 6,746 6,757 6,705 3.0% 0.2% Transferto I n fra structure -Base 14,673 16,140 16,140 16,607 19,575 20,009 20,523 21,053 21,599 22,161 22,740 23,336 23,950 4.0% 2.4% Salary 15.9% 0.0% 3.1% 5.9% 5.4% 4.0% 3.5% 2.0% 2.3% 16% 1.6% 19% Contract Services 18.7% 0.0% 2.0% 2.1% 4.0% 1.3% 3.7% 3.1% 4.1% 3.1% 4.1% 3.3% Supplies & Material 9.3% 0.0% 3.8% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% General Expense 154.1% 0.0% -48.5% -0.1% 0.2% 0.3% 2.3% 2.1% 2.3% -7.1% 2.7% 2.6% Rents&Leases 740.6% 0.0% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.8% 2.8% Facilities&Equipment 79.0% 0.0% -42.7% 3.9% 4.0% 4.0% 4.1% 3.9% 4.0% 4.0% 4.0% 4.0% Allocated Char es 14.3% 0.0% 7.2% 3.4% 3.5% 3.7% 3.1% 3.0% 3.1% 3.0% 3.4% 3.4% OperatingTransters-Out -59.1% 0.0% 28.8% 0.6% 0.5% 0.6% 0.6% 0.5% 0.6% 0.6% 0.1% 0.6% Transfertalnfrastructure-Base 10.0% 0.0% 2.9% 17.9% 2.2% 2.6% 2.6% 2.6% 2.6% 2.6% 26% 2.6% Tranxfertolofrastrlotlre-TOT 3.2% -2.4% 4.6% 6.0% 6.5% 4.8% 4.9% 5.0% 5.0% 5.2% 5.3% 5.2% Budget Stabilization Reserve The City's Budget Stabilization Reserve (BSR) serves as the primary General Fund reserve. By policy, the BSR is maintained in the range of 15 to 20% of General Fund operating expenditures, with a target of 18.5%. As part of the FY 2024 Adopted Budget, the Council approved keeping the BSR at the 20% level to mitigate risks associated with economic uncertainty. Maintaining the BSR at this higher level through FY 2025 is a policy decision to be determined as part of the development of the FY 2025 budget. Any reduction to the reserve below 15% requires City Council approval. Item 12: Staff Report Pg. 17 Packet Pg. 236 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- pod 2034 Long Range Financial Report (LRFF), The BSR is used to fund unanticipated one-time costs as opposed to CMR 2307-1773 ring operating expenditures; ongoing revenue or expense trends are updated as part of the annual budget process to adjust ongoing needs. The City's intent is to fund ongoing programs and services with ongoing dollars. Maintaining the BSR at 18.5% or higher provides flexibility for the City to deal with unforeseen issues that may arise. Furthermore, establishing, and following, sound fiscal reserve policies has been a strong factor in the City being rated AAA by rating agencies. Based on information reported in the FY 2023 Annual Comprehensive Financial Report (ACFR) CMR 2308-18572, the City's current BSR balance is $57.2 million, approximately $3.3 million above the 20% target of $53.9 million for FY 2024. Staff anticipates returning to Council in February 2024 with the FY 2024 Mid -Year Review and recommendations in alignment with the allocation below for the appropriation of BSR funds above the 20% level. These actions will leave the BSR at $53.7 million or $0.2 million below the 20% Council recommended level. TABLE 7: Budget Stabilization Reserve (BSR) Summary (in millions) General Fund BSR Balance, June 30, 2023 $61.5 FY 2024 Approved Adjustments to the BSR Balance ($4.3) Subtotal: BSR Balance, After Approved Adjustments $57.2 FY2024 RECOMMENDED Adjustments to the BSR Balance (to be considered in FY 2024 Mid -Year Budget Review, 115 Trust and Infrastructure Reserve contribution) ($3.5) Current Projected FY 2024 BSR Level, (June 30, 2024) $53.7 As mentioned previously, the increased major tax revenue trend has continued through the first quarter (Q1) of FY 2024 with several categories tracking higher than the FY 2024 Adopted Budget levels. In FY 2024, staff estimates an overall increase in total revenues of $3.1 million from the Adopted $279.6 million to $282.7 million. Further discussion of changes to specific categories can be found in Attachment C, but increases are anticipated in Sales Tax, Property Tax, and Utility Users Tax and slightly offset by decreases in Transient Occupancy Tax and Documentary Transfer Tax. If these additional revenues continue to materialize in FY 2024, Staff will return to Council as part of the FY 2024 Mid -Year Budget Review to recommend adjustments to the FY 2024 budget to recognize this one-time revenue to increase the uncertainty reserve to continue to bridge the near -term shortfalls seen in the first few years of this LRFF. In addition to the BSR, funding of approximately $10.1 million remains in an Uncertainty Reserve that was established as part of the FY 2023 Mid -Year Review to fund the two-year budget strategy for FY 2024 and FY 2025. The $10.1 million was assumed to be used to fund items deferred from z Finance Committee, November 28, 2023, CMR 2308-1857: https://cityofpaloaIto.primegov.com/portal/viewer?id=9637&type=3 Item 12: Staff Report Pg. 18 Packet Pg. 237 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), the FY 2024 A............................................. 07-1773 any potential shortfalls in FY 2025 ($9.0 million). These funds are one-time in nature so once they are spent, they are not available for ongoing needs. Assumptions NOT Included in Forecast It should be noted that this forecast does not include several potential impacts to the FY 2025- 2034 LRFF that are outlined below. These items are known projects or areas of investment that are priorities but have not been fully developed in terms of costs and timelines. This is not intended to be a comprehensive list nor in any priority order. Sustainability and Climate Action Plan (S/CAP): In early 2020, the City launched an update of the Sustainability and Climate Action Plan (S/CAP) Framework to determine the goals and key actions needed to meet its sustainability goals, including the goal of reducing greenhouse gas (GHG) emissions to 80 percent below 1990 levels by 2030 (the "80x30" goal). Investments have been made across various City funds related to S/CAP including: a new Grid Modernization for Electrification capital project (EL -24000), realignment of staff to manage infrastructure improvement projects; scaling existing successful energy efficiency programs; performing and analyzing research in alternative energy sources, sustainable water supplies, carbon sequestration options; and increasing incentives for voluntary electrification programs. The S/CAP Three -Year Work Plan Report was approved by Council in Spring 2023; however, continued implementation will require significant resources, including internal staffing and consultant expertise. Labor negotiations: As of the timing of this report, all labor agreements for full-time employees are scheduled to expire by June 2025 except for the Service Employees International Union (SEIU) agreement, which expires January 2025. Consistent with Council direction in previous LRFF's, a general 2% assumption is included for all employees starting in either January or July 2025 for all years of the forecast since negotiated wage rates are not yet available for that time; this is not as a commitment to future negotiations and is for forecasting purposes. Additionally, this forecast includes a level of reserve for potential changes in employee compensation in future agreements for competitive wages and other terms of employment. Actual funding needs may differ, depending on outcomes of future labor negotiations. Additional information on salary and benefit assumptions and reserves for future agreements is included in Attachment D. Capital Infrastructure 2014 Plan: The 2014 Council approved Infrastructure Plan of $125.8 million in project costs was based on construction and design costs with data from 2012. The Infrastructure Plan's funding status has shifted, as construction costs have increased and the City is required to pay prevailing wages. The FY 2024 Adopted Capital Budget anticipated that these projects would cost $270.7 million. Staff is working to maintain these projects within the current budget; however, project costs can fluctuate based on market conditions at the time of construction award. Item 12: Staff Report Pg. 19 Packet Pg. 238 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- 2034 Long Range Financial Report (LRFF), Grade Separation: The grade separation project consists of four at -grad CMR 2307-1773 the Caltrain corridor in the City of Palo Alto located at Palo Alto Avenue, Churchill Avenue, Meadow Drive, and Charleston Road. As part of the FY 2024 Capital budget, the Council approved two capital projects to separate them, specifying the funding sources and costs associated with Churchill Avenue (PL -24001) and Meadow Drive and Charleston Road (PL -24000) which are being designed together. Currently, the Rail Committee is reviewing alternatives for these crossings to further narrow and select the preferred alternative(s) for recommendation to the City Council. Studies were completed to refine underpass alternatives by seeking input from stakeholders such as the Pedestrian and Bicycle Advisory Committee, Palo Alto Unified School District, and Stanford University to assist in narrowing down grade separation alternatives. Following locally preferred alternative selection, the next phase will include preparing preliminary engineering and environmental documents for the three crossings. The Valley Transportation Authority (VTA) 2016 Measure B Caltrain Grade Separation funding is available to the City for additional studies and the next phases of the project which include preliminary engineering and environmental review, right-of-way, design, and construction. In addition to this, the City Council adopted advisory spending guidelines stating its intention to expend a portion of the revenues from the Business Tax on the rail grade separation project (Supplemental Memorandum AA13). The full funding needed to complete the grade crossings project is estimated as part of the capital projects that were established; however, funding necessary to complete this work will exceed funding currently identified for this project through the VTA and Business Tax revenue. Therefore, additional resources will need to be explored to plan and fund these grade separations, including City staff pursuing additional funding through grant opportunities as they become available and other financing mechanisms. Staff has been successful in grant applications and received notifications of grant awards for $6 million for Preliminary Engineering and Environmental work from the Federal Rail Administration and $23.8 million for final design of Churchill Avenue from the State. Parks Master Plan: The Parks Master Plan4 was finalized in 2017; however, when approved it identified a need to develop a funding strategy and this is still in process. As such, this forecast does not yet contemplate the necessary investments to fully execute this plan. City owned assets operated by non-profit organizations: This Forecast does not include any additional capital or operating investments for partners of the City such as but not limited to the Avenidas Senior Center, the Ventura Child Care Center, Palo Alto Animal Shelter facility, Palo Alto History museum (300 Homer Avenue Roth facility), Project Homekey, or the Sea Scout Building. Many of these have estimates or current projected liabilities, however, as projects evolve and 3 City Council, August 10, 2022, Supplemental Memorandum #AA1: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/at-places- memo/20220810apmccsm.pdf "Palo Alto Parks, Trails, Natural Open Space & Recreation Master Plan: https://www.cityofpaloalto.org/files/assets/public/public-works/palo-alto-parks-master-plan.pdf Item 12: Staff Report Pg. 20 Packet Pg. 239 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), costs change these are not included. As costs around potential capital or o CMR 2307 1773 nts for these assets solidify, staff will return to City Council to address them as appropriate. As part of the FY 2023 Adopted Capital Budget the City Council established the Roth Building Rehabilitation Phase 1 capital project (PF-23001) and directed a funding strategy for the Roth Building Rehabilitation Project, which consists of utilizing $5.4 million from a variety of funding sources. Cubberley Community Center Redevelopment: A new lease between the City and PAUSD for the school district owned portion of Cubberley commenced on July 1, 2020 and reduced the amount of building space leased to the City (discussed in the General Expense - Cubberley Lease section of this report). On March 13, 2023 the PAUSD Board of Education provided a letter to the City Council inviting the City to submit one or more proposals to transfer a portion of PAUSD-owned land at Cubberley to the City. This could be through a land swap, acquisition or ground lease. Based on discussions with Council (CMR 2380-19495) an Ad Hoc of the City Council and staff are developing the proposal. Staff is working on next steps for repair of Cubberley Gyms A and B, which have been closed since February 2022 due to damage caused by water line breaks. Remediation work of damaged areas has started, and the final phase of the repair work is scheduled to begin in February 2024. Replacement of the gym's heating system is not included in the scope of the remediation project. Loans for special projects: From time to time the City's General Fund will assist other City operations with modest cash flow loans to bridge fiscal years. Additions and other initiatives funded in other funds may need financial support from the General Fund to ensure they are fully implemented, examples include cashflow needs for the Regional Water Quality Control Plant upgrades, or major capital investments in which financing could be secured at a later time (e.g. a loan for the airport fund was established to ensure matching grant funds for major capital improvements). Legislative Updates: Various actions at the state and federal level that could impact the City of Palo Alto have not been incorporated into this forecast due to the changing context and uncertainty of the quantitative impacts of potential legislative changes. As the potential impacts of various legislative initiatives are clarified, appropriate adjustments will be identified and brought forward as part of future budget development cycles. Tax revenue alignment with updated Comprehensive Plan: The 2030 Comprehensive Plan was adopted in FY 2018, including the potential fiscal impact of various land use scenarios. The fiscal impact of this plan and various land use scenarios are not factored into this forecast. Aging or Noncompliant Infrastructure: The City maintains indoor and outdoor facilities, many of which have been identified in the City's ADA transition plan and by the Infrastructure Blue Ribbon Commission as requiring capital project work to bring them up to full ADA compliance and/or 5 City Council, October 16, 2023, CMR 2308-1949: https://cityofpaloaIto.primegov.com/portal/viewer?id=9323&type=3 Item 12: Staff Report Pg. 21 Packet Pg. 240 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), sufficient conditions. Facilities of concern include Cubberley Community L.CMR2307-1773 ark Restrooms, and Lucie Stern Community Theatre restrooms. Staff continues to program work needed in this area as part of the Americans with Disabilities Act Compliance capital project (PF- 93009); however, the entire scope of work needed in this area exceeds current resources. General Liability Umbrella Excess Premiums: The City's General Liability Program provides funding to cover various insurance policies for City -owned equipment and machinery. The City is self - insured for the first $1.0 million in losses per occurrence and participates in a Joint Powers Authority for coverage up to $55 million per occurrence. These expenses are allocated to citywide departments. General Liability Umbrella Excess Premiums are anticipated to increase in future years due to significant national events and natural disasters such as claim costs for Hurricane Ian. Staff will bring forward adjustments for these costs as part of future budget cycles as they become available. Significant Projects or Changing Operational Needs: Updates to several significant programs, codes and ordinances are expected to be necessary in the near future as staff work to implement programs and investments to major plans such as the City's housing element, fee and organizational studies for services such as planning and development services, and new facility needs under review such as a fire training center. Many of these projects and organizational needs are under way or being studies for further planning and will likely have financial impacts that are unknown at this time. Limited Term Programs: There are several programs currently in progress that are funded on a limited term basis per Council approval. If these programs are recommended to continue through the ten-year forecast period additional resources would be needed. - The Psychiatric Emergency Response Team (PERT) program in the Police Department pairs a police officer in plain clothes and a mental health clinician to respond to calls for mental health emergencies. PERT is recommended to be supported with Stanford University Medical Center (SUMC) funding through FY 2027. To continue the program in FY 2027, an additional $0.2 million would be needed, with an ongoing cost of $0.4 million annually starting in FY 2028. - PA Link, the on -demand transit service, is currently being administered as a pilot program with grant funding from the VIA. The program is partially funded in FY 2025, but an additional $0.7 million would be needed to fully fund the program with an ongoing annual need of approximately $1.8 million starting in FY 2026. - The Downtown Streets Team that provides cleaning services in the University Avenue area was previously funded through the Community Development Block Grant (CDBG); however, in FY 2023 this funding source was determined to be ineligible for these services and costs were shifted to the General Fund on a one-time basis. Funding for the program has been programmed through FY 2025; however, $0.2 million would be needed annually to maintain this program. Vehicle Fleet Electrification: Currently the City's policy is to consider electric vehicles and then other alternative fuel vehicles when replacing existing vehicles. Transitioning the vehicle fleet to Item 12: Staff Report Pg. 22 Packet Pg. 241 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- 2034 Long Range Financial Report (LRFF), full Electric Vehicles (EVs) is part of the City's sustainability goals. As part c4, cMR 2307-1773 .l1get process, it was estimated that approximately $6.0 million across all funds will be needed annually ($2.6 million above the FY 2024 budget) in order to replace all City vehicles with EVs. FY 2025 Budget Development Guidelines As discussed earlier in this document, this preliminary forecast represents the initial steps of the FY 2025 budget development process. Due to the clear overlap of projecting the City's fiscal condition and the need to shape service level expectations, staff recommends that the inclusion of Budget Development Guidelines be incorporated into the discussions at the beginning of an annual budget process. The FY 2025 Budget Development Guidelines, which are detailed in Attachment A, are meant to reflect the anticipated fiscal condition of the City and to provide high-level budgetary direction to the organization. These guidelines will shape and inform the annual financial planning and the allocation of resources across the organization, especially in the General Fund. Pairing Budget Development Guidelines with the forecast at the beginning of the budget process links the anticipated fiscal condition of the organization with the necessary context regarding service delivery prioritization and resource allocation that will be further explored through the process. This also ensures that the City is able to proactively address anticipated changes in its fiscal condition through the budget process. Human Services Resource Allocation Process (HSRAP) Funding Referral As part of the FY 2024 Adopted Budget, the Council directed staff to follow-up with additional work to, "Consider pegging HSRAP budget allocations to a benchmark, such as percentage of General Fund budgeted expenditures." In prior years funding has not been tied to a percentage of the General Fund budgeted expenditures, and the last time this was reviewed by the Policy and Services Committee (CMR 72896) there were four options for augmenting the HSRAP funding, but ultimately none of them were approved for recommendation to the Council. The status quo of increasing the funding by the Consumer Price Index (CPI) as funding was available in the General Fund continued. Attachment E contains additional historical data and analysis regarding the impacts on the LRFF base case for FY 2025 through FY 2027. 6 November 29, 2016 Policy and Services CMR 7289: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- c m rs/yea r -a rc h ive/2016/i d-7289-hs ra p. pdf Item 12: Staff Report Pg. 23 Packet Pg. 242 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), Conclusion CMR 2307-1773 This forecast maintains current service levels approved in FY 2024 and should be used for planning purposes to assist in gauging effects of major policy interventions against a likely "status quo" version of the future. The level of uncertainty in this forecast is similar to where it was a year ago in terms of impacts from economic and geo-political uncertainty and evaluating potential impacts on the local economy. Positive trends in major tax revenue categories that occurred in FY 2023 caused a one-time surplus of $3.3 million. These trends continue in the forecast, although increases in the near term may be flattened due to economic stagnation. Staff will return to Council in February 2024 with the FY 2024 Mid -Year Review to recommend, in alignment with Council policy specifying that the City Manager may direct amounts exceeding the BSR target, that the $3.3 million surplus be allocated to the Infrastructure Reserve (IR) in the Capital Improvement Fund ($1.65 million) and the City's Section 115 Pension Trust Fund ($1.65 million), as outlined in the Retirement Benefit Funding Policy. The LRFF Base Case assumes a weak economy in 2024, followed by a return to trend growth rates by 2025 and through the remaining ten-year forecast period. Revenue growth is anticipated to stagnate through the end of FY 2025 as a result of monetary policy tightening actions by the US Federal Reserve continuing in an effort to achieve a "soft landing", whereby a slowdown in economic growth avoids recession by stopping the economy from overheating and higher inflation. As a result, the LRFF projects a shortfall of $6.0 million in FY 2025, followed by shortfalls ranging from $5.4 million in FY 2026 down to $0.5 million in FY 2029. FY 2030 has a surplus of $6.6 million which continues to grow through FY 2034. These amounts are consistent with previous projections used as part of the two-year budget balancing strategy when adopting the FY 2024 Budget. Additionally, this LRFF projects $282.7 million in total revenues in FY 2024, reflecting $3.1 million or 1.1% above adopted budget levels. If these additional revenues materialize in FY 2024, staff anticipates returning to Council as part of the FY 2024 Mid -Year Budget Review to recommend using this funding to increase the uncertainty reserve to help mitigate impacts from a recession as well as smooth the near -term shortfalls seen in the first few years of this LRFF. Funding of approximately $10.1 million remains in an Uncertainty Reserve that was established as part of the FY 2023 Mid -Year Review to fund the two-year budget strategy for FY 2024 and FY 2025. The $10.1 million was assumed to be used to fund items deferred from the FY 2024 Adopted Budget as part of the FY 2024 Mid -Year Review ($1.1 million) and any potential shortfall in FY 2025 ($9.0 million). These funds are one-time in nature so once they are spent, they are not available for ongoing needs. Item 12: Staff Report Pg. 24 Packet Pg. 243 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), In addition to the Base Case Forecast, staff modeled an alternate foreca CMR 2307 1773 are discussed below. The first alternative reflects a 1% loss in economically sensitive revenue in FY 2025 compared to the Base Case, and increases the General Fund shortfall over the next ten years. FY 2025 increases from a shortfall of $6.0 million to $8.1 million, and revenues are not anticipated to be able to fund the annual expenditures until FY 2030. Staff also modeled an alternate forecast that reflects a 1% compensation adjustment and the impacts on the General Fund over the next ten years. The surplus in FY 2024 increases to $1.1 million, the shortfall in FY 2025 reduces to $1.9 million, and FY 2026 changes from a shortfall to a small surplus. These alternate forecasts were done separately to show the impacts of each scenario in isolation; however, aspects of both alternate forecasts may occur in conjunction in the future. Alternative Scenarios for Consideration Alternative Forecast Scenario A: Economically Sensitive Revenue Loss This alternative forecast models the impact of a 1% revenue loss on economically sensitive revenue. Since it is difficult to predict the timing of a recession, this scenario shows the cost of a revenue loss in FY 2025 and how it would impact the subsequent years of the forecast. The major taxes, charges for services, and permits and licenses revenue categories are typically impacted by economic changes, so the impact has been calculated on these revenue sources. The 1% loss from these revenue sources would reduce the overall revenue in FY 2025 by $2.1 million. The Base Case projected that by FY 2030, the City would begin to have a positive surplus; this alternative forecast increases the operating shortfalls from $0.5 million to $3.0 million in FY 2030. In this alternative, the General Fund would have a shortfall of approximately $8.1 million in the first year of the forecast. The summary table for this alternative forecast and the Net Operating Margin graph for this alternative forecast are below. TABLE 8: FY 2025 - FY 2034 Long Range Financial Forecast Alternative Forecast A ALTERNATIVE SCENARIO: RECESSION (1% Loss of Economically Sensitive Revenue In FY 2025) Total Revenue $254,799 $261,141 $264,281 273,760 286,825 296,692 310,139 322,682 337,041 350,335 362,971 376,979 390,943 859 Contribution (One -Time) - $3,440 $3,440 - - - - - - - - - - Reap ro elated Funds {One -Time $15,000 $15,000 Year aver Year inerease (revenue o.4r) 48% 4.8% 4.1% 38% 40% 4.4% 39% 36% 3.9% 3.7% Total Fxpend3ures 243,695 279,581 279,282 281,887 294,471 304A63 314,251 325,705 333,097 341,028 344,930 351,713 357,513 Yearaver Yearinaease 0.8% 4.5% 3.4% 32% 3.6% 2.3% 2,4% 1,1% 2.0% 1.6% Cumulative Net Operating Margin lone -Time) $61,304 Net operating Moron ($9,128) $481 $1976 $1,659 $1,089 $6,958 $5,363 $8,733 $7,221 $8,1691 Item 12: Staff Report Pg. 25 Packet Pg. 244 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), TABLE 9: FY 2025 —2034 Long Range Financial Forecast Net Oper CMR 2307-1773 Alternative Forecast A General Fund Net Operating Margin $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0 -$5.0 -$10.0 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Net One -Time Surplus/(Gap) t Net Operas ng Margin Alternative Forecast Scenario B: One-time Compensation Adjustment, Additional 1% Consistent with City Council direction and past practice, the Base Case assumes a 2% general wage adjustment in the years beyond the terms of existing Memorandum of Agreements (MOAs) since negotiated wage rates do not yet exist for that time. As of the timing of this forecast, MOAs are in effect through January 2025 (Service Employees International Union) (SEIU) and June 2025 (all other full-time labor groups). To support ongoing efforts for competitive wages and other terms of employment, the Base Case forecast includes a reserve for potential changes to future labor costs including, changes in vacancy rates, labor and benefit rate variability, and inflation assumptions. Offering competitive compensation plans aligns with industry standards for attracting and retaining a skilled and motivated workforce and better positions the City of Palo Alto as an employer of choice. This level of funding is intended to offset potential future costs and may differ from actual outcomes. Negotiations for new labor agreements are anticipated to occur in the next year for new terms beginning in FY 2025-26. This alternative scenario models the impact of a one-time adjustment in FY 2026 to increase compensation by an additional 1% above assumptions in the Base Case; this is the first full fiscal year for new MOA terms with all labor groups. As with other assumptions in the LRFF, this model is for forecasting purposes and does not reflect future commitment. The one-time compensation adjustment would increase expenditures in FY 2026 by $1.2 million. The Base Case projected that by FY 2030, the City would begin to have a positive surplus; this alternative forecast increases the operating shortfalls in the near -term, resulting in losses ranging from $6.0 million in FY 2026 to $1.9 million in FY 2029. Based on this scenario, the cumulative net operating margin, or ongoing surplus, during the forecast period is a surplus of $35.0 million. The summary table for this alternative forecast and the Net Operating Margin graph for this alternative forecast are below. Item 12: Staff Report Pg. 26 Packet Pg. 245 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), TABLE 10: FY 2025 - FY 2034 Long Range Financial Fore CMR 2307-1773 Alternative Forecast B ALTERNATIVE SCENARIO: ONE-TIME COMPENSATION AOIUSTMENT (AOOITIONAL 1%) in FY 2026 Total Revenue .re $254,799 $261,141 .v .r• .re .xe $264,261 275,$89 $289,060 $301,025 $312,566 $325,208 $339,684 $353,085 $365,820 $379,944 $394,026 850 Contribution (One -lime) - $3,440 $3,410 - - - - - - - - - Reappr0priated Funds. (One-Tmm - $15,000 $15,000 - - - - i'ec0w F ese.(revenueanly) 5b{ 4.2% 4.1% 3.0% 4.0% 45% 3.9% 3.47E 391% 37% TTts l Fupendltum 243,695 279,581 279,282 281,887 295719 305,761 315,587 327,082 334,501 342,460 346,392 353,206 359,033 Yvsaveri'enrrncrease 04% .10% 34% 35% 20% 23% 34% 11% 23% 13% Cumulative Net Operating Margin (One -Time) $74,676 Cumula8ve Net Oper01 rig Margin $34,993 Assumes that the annuof sturtfilis ore solved with angirng solutions end onnuol surpluses ore spent, r vngo,ng expenditures TABLE 11: FY 2025 - 2034 Long Range Financial Forecast Net Operating Margin Alternative Forecast B General Fund Net Operating Margin $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0 -$5.0 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 —4—Net One -Time Surplus/(Gap) +Net Operating Margin FISCAL/RESOURCE IMPACT Financial implications from this report and input from the Finance Committee will be considered in the City Manager's development of the Fiscal Year 2025 budget. STAKEHOLDER ENGAGEMENT The preliminary forecast for 2025-2034 represents the beginning of the fiscal year 2025 budget development process. Information provided in this report will be discussed with the City Council after the Finance Committee reviews and provides recommendations. Those conversations will provide direction to staff in the budget development process. It is anticipated that conversations with City Council and the community will occur through public budget hearings in Spring 2024, according to the standard budget adoption process. ENVIRONMENTAL REVIEW This report is not a project for the purposes of the California Environmental Quality Act. Environmental review is not required. Item 12: Staff Report Pg. 27 Packet Pg. 246 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), CMR 2307-1773 ATTACHMENTS Attachment A: FY 2025 Budget Policy Guidelines Attachment B: The Economy Attachment C: General Fund Base Case Revenue Assumptions Attachment D: General Fund Base Case Expense Assumptions Attachment E: Human Services Resource Allocation Process (HSRAP) Funding Referral APPROVED BY: Kiely Nose, Assistant City Manager Item 12: Staff Report Pg. 28 Packet Pg. 247 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025 - Attach ment A — FY 2025 Budget 2034 Long Range ines Financial Report (LRFF), CMR 2307-1773 1) Develop a structurally balanced budget that brings ongoing revenues and expenses into alignment. Develop a plan for any structural imbalance to ensure that the City maintains fiscal sustainability over the short, medium, and long-term. 2) Allocate one-time resources for one-time needs rather than committing one-time resources to ongoing services. Examine appropriate uses of revenue surpluses that exceed forecasted levels such as planning for recession needs, restoration needs, and strategic investments. 3) Review resource allocation for City Council's existing priorities and identify priority funding needs. 4) Focus on business process redesign to enhance quality, flexibility, and cost-effectiveness of service delivery (include examining opportunities to streamline, simplify, reorganize, and reallocate resources to avoid duplication of effort). 5) Explore alternative service delivery models (such as partnerships with non -profits or other public/private sector groups) to minimize overlap, maximize cost share, and effectively use resources. 6) Continue to thoroughly analyze non-personnel/equipment/other costs, such as contract services, for cost savings opportunities or realignment with current needs. 7) Explore the expansion of existing revenue sources or the addition of new revenue sources, including the alignment of existing charges for services and the opportunity to establish new fees, when appropriate. 8) Continue to analyze and prioritize resource augmentations, seeking to offset augmentations with reductions elsewhere for net -zero impacts to the budget whenever possible; however, ensuring when resource augmentations are added, it is in alignment with one-time and ongoing forecasted sources. 9) Continue to prioritize proactively funding long term liabilities including but not limited to debt obligations, pension obligations, and capital infrastructure in accordance with City policies as approved by Council. Item 12: Staff Report Pg. 29 Packet Pg. 248 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), CMR 2307-1773 T B The Economy At the national level, economic growth through the third quarter of calendar year 2023, was led by robust consumer (retail) spending despite a persistent high inflation rate and high borrowing costs with interest rates at their highest level in 22 years, 5.25% to 5.5%. The gross domestic product (GDP), a measure of all goods and services produced in the economy, increased at an annualized rate of 4.9%, well above the 2% range in the prior quarters and above the 2% expectation. As of October 2023, the consumer price index (CPI) which measures changes in the prices paid by consumers for a basket of goods and services, was 3.2%. This is lower than the 7.7% CPI from a year ago, but still indicates increasing costs. The unemployment rate, as of October 2023, is 3.9% which is up from 3.4% at the beginning of the 2023 calendar year and may indicate an economic slowdown in the coming quarters. The unemployment rate has been ranging between 3% to 4% as the economic cooling down is expected to bring the elevated inflation closer to the 2% federal reserve target goal. The above outlook is predicated on the federal reserve achieving a "soft landing" whereby there's a slowdown in economic growth that avoids recession for the purpose of stopping the economy from overheating and continuing to experience higher inflation. The UCLA Anderson outlook is "The oft -predicted but never seen 'recession next quarter' has now faded in the face of expansionary fiscal policy, a new national industrial policy, and a consumer who is happy to continue spending." This outlook projects a weak economy in 2024 followed by a return to trend growth rates by 2025. This weaker outlook translates into 1% to 2% GDP growth for the remainder of 2023 with the expectation this will gradually increase to a 2% to 3% growth through 2024. The elevated core inflation is expected to come down slowly with lower GDP growth which could allow the federal reserve to mildly cut rates in mid to late 2024. There are risks to monitor that could change the expected growth pattern such as a future protracted (U.S.) government shutdown, geopolitical events, and election resulting in changing national economic policies in 2025. The local economy continues to show strong performance in the first half of calendar year 2023. The UCLA Anderson outlook for California does not forecast a recession based on the state's strong employment and economic growth through, "the onshoring of technical activities and new investments in green technology and Al that should keep California growing faster than the U.S". The "continued demand for a limited housing stock, coupled with state policies inducing new home building" is expected to facilitate economic recovery for the next few years. The real personal income is forecasted to remain flat in 2023 and grow between 1% to 2% through 2025. California's unemployment rate, similar to the national trend, has risen in calendar year 2023 and is expected to be in the mid to high 4% through 2025. According to the U.S. Bureau of Economic Analysis (BEA), the "advance" estimate of the U.S. economy's real gross domestic product (GDP) percentage change, from the preceding quarter, changed in the second and third (calendar) quarters of 2023 at an annual rate of 2.1% and 4.9%, respectively. Real GDP is an inflation -adjusted measure that reflects the value of all goods and services produced by an economy in a given year. According to the BEA, in the third quarter the Item 12: Staff Report Pg. 30 Packet Pg. 249 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), increase in real GDP reflected increases in consumer spending, private i CMR2307-1773 ent, exports, state and local government spending, federal government spending, and residential fixed investment that were partly offset by a decrease in nonresidential fixed investment. Of the third quarter 4.9% increase, consumer spending represents rose 4%, led by consumption of housing and utilities, health care, financial services and insurance, food services and accommodations and nondurable goods (led by prescription drugs), recreational goods and vehicles. Imports, which are a subtraction in the calculation of GDP, increased. Table 1: National Gross Domestic Product (GDP) Real GDP: Percent Change from Preceding Quarter 40.00 % 20.00% 4.2 5.2 6.2 7 3.3 ----. 2020 2020 2021 2021 4.c 2.7 2.6 2.2 2.1 ®- -- 0.00% -2 -0.6 -20.00 % -40.00 % 2022 2022 2023 2023 TRAOINGECONOMICS.COM I U.S. BUREAU OF ECONOMIC ANALYSIS Item 12: Staff Report Pg. 31 Packet Pg. 250 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- pod 2034 Long Range Financial Report (LRFF), The national inflation rate remained steady but still high compared to the 2% ra CMR 2307-1773 federal reserve at 3.2% in October 2023, as a softer decline in energy prices offset slowing inflationary pressures in other categories. Energy costs fell by 4.5% versus -0.5% in September with gasoline declining 5.3%, utility gas service falling 15.8%, and fuel oil singing 21.4%. Additionally, prices increased at softer rates for food (3.3%), new vehicles (1.9%), apparel (2.6%), medical care commodities (4.7%), shelter (6.7%), and transportation services (9.2%). Table 2: National Inflation Rate (aka Consumer Price Index (CPI)) 9.1 8.6 8.3 8.3 8.2 8.5 8.5 7.5 79 , � , , ■ ■ 7.7 6.5 6.2 5.4 5.4 5.3 5.4 5 4.2 2.6 1.7 1.4 1 Jan 2021 Jul 2021 Jan 2022 Jul 2022 7.1 6.5 6.4 6 5 4.9 4.1 3.7 3.7 3 3.2 ■ ■ 3.2 Jan 2023 Jul 2023 10.00 8.00 6.00 4.00% 2.00% 0.00 % TRADINGECONOMICS.CCM I U.S. BUREAU OF LABOR STATISTICS The nation's unemployment rate is 3.9% as of October 2023, compared to a record high of 14.7% at the height of the pandemic in April 2020. According to UCLA Anderson outlook, the recent rise in unemployment is due to new entrants to the labor market rather than layoffs which is at historical low level. It is expected, by the U.S. Bureau of Labor Statistics, that the unemployment rate will rise due actions by the Federal Open Market Committee (FOMC or federal reserve) to further bring down the elevated inflation rate as well as more the new entrants into the labor market. Per the State of California's Employment Development Department, the state's unemployment rate as of September 2023 is 4.7% with the prior year being 4% and the County of Santa Clara is 3.2%. Historically, the Bay Area job growth has been led by the Peninsula for the past several years. The unemployment rate for the San Francisco Peninsula and Palo Alto is 3% and 2.8% respectively as of September 2023; last year it was 2.3% and 1.9%, respectively. Item 12: Staff Report Pg. 32 Packet Pg. 251 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), Table 3: U.S. Unemployment Rate CMR 2307-1773 6.3 6.2 6.1 6.1 5.8 5.4 5.4 5.2 4.8 111111111■4.2 Jan 2021 Jul 2021 6.50% 6.00% 5.50% 5.00% 4.50% 4 3.9 3.8 3.8 3.8 3.9 4.00% 3.6 3.6 3.6 3.6 3.7 3.7 3.6 3.6 3.7 3.6 3.5 3.5 3.5 3.4 3.5 3.4 3.5 lll 3.50 % 11111111 ' 1 ' ' , ' 3.00 % Jan 2022 Jul 2022 Jan 2023 Jul 2023 TRA0INGEC0NOMICS.00M I U.S. BUREAU OF LABOR STATISTICS The elevated inflation rate has resulted in the continued erosion of purchasing power; however, there is still growth in U.S. consumer spending. Personal consumption expenditures (PCE) are the primary measure of consumer spending on goods and services in the U.S. economy. It accounts for about two-thirds of domestic final spending, and thus it is one of the main factors that indicates future economic growth. Strength in PCE spending tends to prompt additional business spending. National personal spending increased by 0.7% and 0.4% over the prior months in August and September 2023, respectively. Services spending rose by 0.8% and spending on goods rose by 0.7%. Services spending was up for international travel, housing and utilities (mainly housing expenses), health care, and transportation. Goods spending was led by prescription drugs, motor vehicles and parts, and new motor vehicles. Item 12: Staff Report Pg. 33 Packet Pg. 252 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), Table 4: Personal Consumption Spending Growth CMR 2307-1773 6.00 % 4,00 % 1.7 -0.7 Jan 2021 1.3 1.4 1.3 1.2 1 0.9 0.6 0 8 0 5 0.7 0.6 0.8 0.6 0.6 02 0.3 1. 1 ■1I■Iu1©1■n Jul 2021 Jan 2022 Jul 2022 1.6 2.00% 0.8 0.7 0.3 0,4 0.4 0.4 0.4 •1•1 0,00% 0.1 -0.1 -2.00% Jan 2023 Jul 2023 TRADINGECONOMICS.COM I U.S. BUREAU OF ECONOMIC ANALYSIS Item 12: Staff Report Pg. 34 Packet Pg. 253 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- pod 2034 Long Range Financial Report (LRFF), CMR 2307-1773 T C Table 1: General Fund Base Case Revenue Assumptions Million: $95 - $90 $85 $80 $75 $70 $65 - $60 $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 Major General Fund Revenues tSales Tax —--Property Tax TOT - General Fund —c—Utility User's Tax $63.1 —a —Doc. Transfer Tax $56.6 tTOT - Infrastructure $51.1 $47.3 $42.8 $39.4 $36.9 $36.6 $36.5 $32.7 ........ $30.0 $29.9 $31.1 $30.6 $29.1 TOT - General Fund $15.2 $17.0 $16.1 b - $14.6 2.5 $8.7 $ $11.6 $10A Sales Tax $18.8 $15.6 $13.5 12.0 8 $5.8 $7;. Property Tax $72.1 $67.9 r ..... $63.8 �•... $92.5 A $86.3 $47.5 Sales Tax $45.9 $42.8 $44.4.......... ............♦ $39.6 $41.2.......�. 36.3 ..........+............ Utility User's Tax $24 7 $24.7 $20.0 $20.0 $20.6 $20.6 $21.5.......$22.5 $23 .1............ 618.5 $17.5 18.3 6A'A $14 9 $1 $159 $16.6 $141 • i $15.0 • $15.7 .....� $16.5 ........2.7__ $122 4 $ $134 $143 * ...............*..............A.... TOT - Infrastructure ....* $5.9 $6.2 $6.5 $6.8 $7.1 $7.3 $7.6 titititi�ry -1 tiry'2. �� �d ti�ryy tic≤ 1-c 1 ti sz9 ,, Fiscal Year Compared to FY 2019 pre -pandemic actuals of $36.5 million, sales tax revenue declined by $7.4 million, or 20.2%, during the pandemic in FY 2021. The recovery, which began in the last quarter of FY 2021, resulted in the FY 2022 and FY 2023 receipts increasing by $3.6 million or 12.3% and $4.2 million or 12.9%, respectively. This recovery growth has slowed in the first quarter of FY 2024, with the City's sales tax consultant forecasting a modest increase over the prior year. The general retail, food products (includes restaurants), and business to business (includes car leasing) categories experienced increases. This economic trend was mixed in the San Francisco Bay Area and in California. A few municipalities had double digit increases in the FY 2023 while most had single digit gains or decreases. The FY 2024 Adopted Budget for Sales Tax is $36.3 million, a $0.6 million or 1.8% decline from FY 2023 actuals of $36.9 million. However, in the revised forecast, FY 2024 is expected to earn $37.7 million, a 2.2% increase over FY 2023 actuals. In FY 2025, this revenue is anticipated to increase to $39.7 million, a $2.0 million or 5.3% increase over the FY 2024 revised forecast. The Base Case assumes 3.2 to 5.1% growth over the length of the forecast with a 10 -year compound annual growth rate (CAGR) of 3.4%. Item 12: Staff Report Pg. 35 Packet Pg. 254 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), TABLE 2: City of Palo Alto Sales Tax Revenues through FY CMR 2307-1773 $0- Millions Sales Tax $57 -, $52.9 $51 $49.1 ..�• • ••• . ' $55.1 $48 $45.9•..... $42.8 ... $45 Adopted ®_ .. $50.7 Budget $41.2 $42 B ..OR ... $44.4 $39 - $36.5 $36.3..: $•.... $36 $39.6 $29.4 $30.0 $36.9 $30 - —� $27 .:� $29.9 $24 - $29.7 $29.1 $21 - $25.6 $18 $15 I I I `Lc tic?%b �^5 �,�6 ;c<t ���b �,�9 �'1� �; `�1,' 0 ,3 `�2D� �1,h DS `LO1� 201, '5� Fiscal Year Property Tax Property tax revenue is the General Fund's largest revenue source and represents approximately 25% of the total revenues. Historically, the 10 -year compound annual growth rate (CAGR) was 8.2% with a low of 4.9% in FY 2022 and a high of 11.5% in FY 2015. During economic downturns, impacts to property tax occur a year later, as a result, the $2.8 million or 4.9% growth in FY 2022 was the lowest in the past decade. This category also includes receipts for excess Educational Revenue Augmentation Fund (ERAF) distributions from the County of Santa Clara. ERAF is the fund used to collect and disburse property taxes that are shifted to/from cities, the County, and special districts prior to their reallocation to K-14 school agencies. When the state shifts more local property tax than required to support schools, these funds are returned and known as excess ERAF. As a result of the volatility of ERAF, it is not considered a permanent local revenue source even though it has performed strongly in the past decade. ERAF Reserve: Since FY 2021, the City has engaged in several disputes over the calculation and disbursement of excess ERAF Funds. In response, the City established reserves for potential estimated losses at 25% of total Excess ERAF receipts. There were favorable resolutions with the State and Santa Clara County, followed by the State and California School Board Association, for two prior disputes. The associated reserves have been released to the Budget Stabilization Reserve (BSR) or consolidated for potential future at -risk amounts. As of the timing of this LRFF, the State Controller's Office issued a negative audit finding against Marin County. The state asserts that former Redevelopment Agency funds, which are now part of the regular property taxes, should be excluded from the excess ERAF calculation. Marin County is challenging this finding, and it is not known if this will be elevated to a court case. The estimate is, if this audit finding is sustained, 22% of excess ERAF is at risk for fiscal years 2021, 2022, and 2023. If the finding holds, the County of Santa Clara, as well as other Excess ERAF counties, could face similar audit findings likely starting in FY 2025. In FY 2023, $4.1 million was set aside for the Reserve of excess ERAF for the at -risk amount. In addition, 22% or $1.5 million in FY 2024 budget Item 12: Staff Report Pg. 36 Packet Pg. 255 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), has been reduced by this amount. Staff will continue to monitor the statuL CMR23074773 ing and report on any significant developments. Millions $115 $110 $105 $100 $95 $90 $85 $80 $75 $70 $65 $60 $25 $20 TABLE 3: City of Palo Alto Property Tax Actuals and Forecast through FY 2034 City of Palo Alto Property Tax Actuals and Forecast Total%Chg. 14% $42.8 $36.6 $39.4 $30.6$34.1 l $108.9.•.■ $103.1,.f'•$116.2 13% $• $92.5.. ,.f'•� 12% $86.3 •.W... 11% Adopted $81.4 ,f•''• Budget $76.6 f••" 10% $72.1 •• f•••' $67.9 .••• 9% $594 $63.1 $63.8 ••• f..•• $56.6 _/f.....;•..•- 8% Forecast $15 $10 It 22 us It 3C X us X N 9 9 e2 It 22 e2 3E 2C 22 3E 22 It 3E $5 N a ,•i M b °i ct Ot G ai R N a N M N N N at M W CO 00 b N N N CO N N N O ID N ID t0 {C ID ID N In N N of $0 v13 31A Q15 916 61 116 61.9 910 01"1 1:a L13 3tia Qti' 9'L6 60 11 t' 61'9 930 031 131' L33 93D ,L01 1L01 101 1L01 ,L01 161 1L01 ,L01 1L0'I. 1,01' .y01' 14 ,y0'L ,LO'L ,LO'L ,y0'L '59' ,LO'L ,L03 o ,L03 ,L03 Fiscal Years Transfer of ownership has been a significant driver of past growth; however, that growth is expected to moderate in FY 2024 due to the expected economic slowdown and the higher mortgage rates. For example, the median sales price of single family residential in the first (fiscal year) quarter of FY 2024 declined by 3% over the prior quarter. The FY 2024 Adopted Budget for Property Tax is $63.8 million, a $0.7 million or 1.1% increase over the FY 2023 actuals of $63.1 million. However, in the revised forecast, FY 2024 is expected to earn $64.6 million or 1.3% increase over the FY 2024 adopted amount. In FY 2025, this revenue is anticipated to increase to $67.9 million, a $3.3 million or 5.1% increase over the FY 2024 revised forecast level. The Base Case assumes 5.1 to 7.1% growth over the length of the forecast with a 10 - year CAGR of 5.4%. Transient Occupancy Tax (TOT) Revenue in this category is impacted by business and other leisure/non-leisure travel and experienced significant reductions in FY 2020 and FY 2021 due to public health orders, travel restrictions, and diminishing business and personal travel plans resulting from the pandemic. TOT revenue declined by $20.5 million or 79.8% in FY 2021, when comparing the FY 2019 pre - pandemic actuals of $25.6 million. As public health conditions improved and travel resumed, this revenue began to recover, significantly grew in FY 2022, and in FY 2023, this revenue recovered to pre -pandemic levels. The opening of the two Marriott hotels in mid and late FY 2021 and the re -opening of multiple hotels in FY 2021 and FY 2022 were positive developments that helped drive recovery for this tax revenue. The FY 2024 Adopted Budget for TOT revenue is $26.8 million, a $1.3 million or 5.3% increase over FY 2023 actuals of $25.5 million. In the revised forecast, FY 2024 is expected to earn $25.5 Item 12: Staff Report Pg. 37 Packet Pg. 256 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), million, which matches the FY 2023 actuals. In FY 2025, this revenue is antid e to plateau as the economy slows down to $26.7 million. Year-to-date (as of August 2023), daily average room rates declined by 11.4% from $252 per day to $223 per day while occupancy rate decreased by 9.6% from 74.3% to 67.1%. Revenue in this category is experiencing a near term stagnation; however, it's anticipated to continue growth in FY 2026 and beyond with 4.6 to 6.5% growth over the length of the forecast with a 10 -year CAGR of 4.8%. TABLE 4: City of Palo Alto Transient Occupancy Tax Actuals and Forecast through FY 2034 Millions Avg. Daily Room Rates Transient Occupancy Tax Actuals and Forecast Occupancy $45 1 $42.6 90% $42 $182 $208 $237 $264 $262 $274 $280.' $39 $257 80% $36 $31.6 $34.8 $40.5 Adopted ' $36.6 70% $33 $265 $195 $30.2 Budget $30 $28.3 $25.6 $26.8 `..� $24 $33.2 60% $27 $23.5 $116 A $22.4_ `... A ... $18.6 $16.9 50% $26.7 $21 * $25.5 $ 6. 40% $18 10.8 $15 $12.3 -+ 30% $12 $5.2,, $9 20% $6-.. o e e e e a e M W0% m o o r> ao c. c coao Actual Occupancy $3 ai of r 0) ao is o o i ao r r n n r r.. m . m m $0 0% ,Lc\t) 1y 'L�19 ,L01'1 2019 �0^9 2�� 2�ti� �zs$ �zsl �0tiD 2�.�y ,oy6 2011 j5 Fiscal Year Note: January 2015, TOT Rate went from 12% to 14% April 2019, TOT Rate went from 14% to 15.5% Utility User's Tax (UUT) The UUT is levied on electric, gas, and water consumption, as well as on telephone usage. Revenue in this category is impacted by consumption levels and has experienced reductions in prior periods due to water conservation programs and reduced workforces and business closures during the pandemic. This revenue has recovered as the local economy recovered and workers returned to the office in FY 2023. In addition, higher utility commodity costs resulted in sizable utility rate increases and higher UUT revenues. The FY 2024 Adopted Budget for UUT is $18.5 million, similar to the FY 2023 actuals of $18.8 million., however, the updated forecasted amount for FY24 is anticipated to be to be $19.7 million. In FY 2025, this revenue is anticipated to increase to $20.0 million, a $0.3 million or 1.5% increase over the FY 2024 forecasted amount. Revenue in this category is expected to experience growth at 2.6 to 6.6% over the length of the forecast with a 10 -year CAGR of 3.5%. Item 12: Staff Report Pg. 38 Packet Pg. 257 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), TABLE 5: City of Palo Alto Utility Users Tax Actuals and Forecast th cMR 2307 1773 Millions 30 Utility Users Tax 28 $27.3 .. 26 $25.5 ..........:r $28.2 24 Adopted $23.1,.. ' $26.4 Budget 22 $21.5 •... .........E,'' $24.7 $20.0 ...,a•.. 20 $18.8 $22.5 18 $16.4 $20.6 16 $142 ~�i4 < - $18.5 14 $15.4 $16.1 $15.6 12 $10.9 $10 9 $12.5 10 $11.0 $8 , � 'b ti�Asy �6 �� 2��$ �9� 2�2� 2� 2.1,3 ��yd ti��y 'c≤L6 `��1 tic�' Fiscal Year Documentary Transfer Tax (DTT) Revenue in this category is highly volatile and dependent on sales volume and the mix of commercial and residential sales. DTT experienced record receipts in FY 2021 and FY 2022 at $10.6 million and $12.0 million, respectively which was followed by a sharp decline in FY 2023 at $5.8 million. In both record years receipts, these milestones were a result of large commercial transactions, six in FY 2021 and nine in FY 2022, and robust residential sales. FY 2023, sales activities normalized. The FY 2024 Adopted Budget for DTT is $5.9 million, $0.2 million or 2.9% lower than FY 2023 actuals of $5.8 million. In FY 2025, this revenue is anticipated to increase to $6.2 million, a $0.4 million or 5.3% increase, from the FY 2024 forecast level of $5.8 million. As in past years, this revenue source is challenging to forecast and can fluctuate month to month depending on real estate transactions. The number of transactions through October 2023 (190) is the same as October 2022 with the total revenue from these transactions increasing by 15.1%. Though the Palo Alto housing market remains strong, as discussed in the Property Taxes section, single family residential median sales price in Palo Alto has slightly declined, which is an expected occurrence as the predicated economic downturn and higher mortgage rate will impact property sales activity in FY 2024. Item 12: Staff Report Pg. 39 Packet Pg. 258 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- pot 2034 Long Range Financial Report (LRFF), TABLE 6: City of Palo Alto Documentary Transfer Tax Actuals and Foreca CMR 2307-1773 4 Millions 3 - 2 $11 $10 $9 $8 $7 $6 $5 $4 $3 $6.8 $5.8 Documentary Transfer Tax Forecast $8.5 Adopted $7.9 Budget $7.3 .... $6.8 .....�......... 9 $88 .8 $6.2 .�.........�.... $8.2 1............ $7.1 �..... $6.5 $5.9 2Is^3 tiZNa tirs"y tiZNo 2ZN1 tie", 2rJ^9 �� 2s tress" tins" ,� tirisy 2 26 tii ti4b s9 3z 5N ab" tiZ,O a 5l, Fiscal Year Return on Investment The return -on -investment category reflects the interest earnings on the City's investment portfolio. This category is a combination of past investments, new investments at current market rates, and available investable cash which fluctuates seasonally and annually. As of the timing of this LRFF, the Federal Open Market Committee (FOMC) has raised the federal funds rate 11 times, from 0.25% to 5.55% (525 basis points) since it began tightening money policy in March 2022. It is expected that interest rates will be held steady, as inflation is expected to return to the 2% target in the economic outlook over the medium term. The average portfolio rate of return for the first quarter of FY 2024 was 2.20%, and a 2.31% average yield as of the fourth quarter of FY 2023. The adopted budget General Fund FY 2024 interest earning is $1.8 million. This is below the FY 2023 actual of $2.5 million, but the expectation is the actuals in FY 2024 will come in higher at $2.9 million. In FY 2025, the forecast reflects a 3.3% increase in interest earnings to $3.1 million with 3.0 to 4.2% increases through the ten-year period. Item 12: Staff Report Pg. 40 Packet Pg. 259 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), TABLE 7: Palo Alto Historical Investment Portfolio Yields and Citywide In 2 CMR 307-1773 Yields Investment Portfolio Yields and Interest Earnings Int. Earnings (Millions) 6.0% 5.88% $5.0 5.5% 5.25% City of Palo Alto 4.98 % $4.5 5.00% 4.92% 5.0% 5-Yr. Treasury 4.543/ $4.0 4.5% 4.17% 2 Yr. Treasury 3% 4.39/0 0 .31% 4.0% LAIF 4.00% 3.5% 3. % $3.0 2.88% 3.23% 3.42% 3.0% 2.63% $2.5 2.71% 2.47% 2.5% 1.80 0 $2.0 1.93% 1.66% 2.0% $1.5 1.5% 2.2 % 1.44% 1.10% 1.29% $1.0 1.0% 1.41% 0.5% $0.5 0.81% 0.25% 0.27% 0.0% $0.0 a8�a8�a8�a8�a8�ao�a$a8�aaao° a$ a a a a adaaadada3ada3aaaa CVO CVO ryO CVO CVO CVO ryO CVO CVO CVO ryO CVO CVO CVO ryO CVO CVO CVO ryO CVO CVO NO ryO CVO CVO NO ryO CVO CVO ry0 ry0 CVO 'VO ry0 ry0 CVO 'VO ry0 ry0 ry° CVO ry0 ry0 NO Fiscal Year Quarters Rental Income Rental Income of $16.9 million in FY 2025 primarily reflects rent paid to the General Fund from the City's Enterprise Funds and tenants at the Cubberley Community Center. There is an increase in rental income of $1.0 million compared to the FY 2024 Adopted Budget. The increase can be attributed to a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August -to -August period, and it is expected that revenues will be reviewed and revised subsequent to this forecast based on updated information, typically the December -to -December change in the CCPI. The City is no longer receiving rental income from the former Los Altos Treatment Plant (LATP) site, because the site is no longer available for traditional rental as a laydown yard. The site is planned for two uses: 1) an interim housing project with Project Homekey to provide opportunities for homeless individuals and families, and 2) a joint water purification project with the Santa Clara Valley Water District. Please see the Expense Assumptions General Expenses section of this report for additional information regarding Project Homekey developments at the former LATP site. The water purification project is being funded in the Wastewater Treatment Fund, so it is not part of the General Fund LRFF; however, funding needs for the project will be discussed in the development of the FY 2025 budget for the Wastewater Treatment Fund. Charges for Services and Permits and Licenses Revenues in the 'Charges for Services' and the 'Permits and Licenses' categories are anticipated to be $36.9 million and $11.5 million, respectively, in FY 2025. Together, these amounts total Item 12: Staff Report Pg. 41 Packet Pg. 260 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), $48.4 million and are approximately $3.1 million higher than the FY 202 CMR2307-1773 t of $45.3 million. Increases in these categories are primarily due to revenue adjustments for the agreement with Stanford to provide Fire and Dispatch services and adjustments to development center revenues. The revenue estimates in these categories are based on current activity levels. These revenue sources are primarily driven by the cost of staff to provide services to the community. Therefore, as part of the FY 2025 Municipal Fee process, staff will evaluate and bring forward recommendations to align fees with target cost recovery levels to cover general salary and benefits increases and CPI trends. One exception to this is Development Services activities and related revenue. Development Services fees are fully cost -recoverable, and the department has been modeled as cost -neutral in this forecast. Staff will analyze municipal fee revenue activity as part of the FY 2025 Budget development process and bring forward adjustments as appropriate. Charges for Service - Stanford Fire and Dispatch Services: The City and Stanford have two separate agreements for the provision of fire response and emergency dispatch services. The fire response services agreement became effective in July 2018 and outlines service level terms and a new cost allocation methodology as the baseline for agreement costs. The term extended through June 2023, with annual renewals in effect through June 2028 unless otherwise terminated. The agreement includes a staffing deployment model for suppression and medical services, which was approved by the City Council in October 2017 and deployed in January 2018. This forecast aligns with the new staffing model and, in accordance with the agreement, adjustments to revenue from Stanford have been aligned with the year -over -year changes to the operating expenses in the Fire Department over the forecast period. Similarly, changes to the revenue received for dispatching services have been aligned with the operating expenses in the Technical Services Division of the Police Department where the costs to provide these services are budgeted. For fire and police revenue, additional adjustments may be applicable if new labor agreements are negotiated for the forecast period. Revenues for these services are based on current anticipated changes in salary and benefits costs within the Fire Department and Police Department Dispatch Unit. Charges to Other Funds The main source of revenues in this category is General Fund administrative cost allocation plan charges to the Enterprise and Internal Service Funds. Internal support departments such as Administrative Services, Human Resources, and Council Appointed Offices provide services to Enterprise and Internal Service Funds. The costs for these services are recovered through the administrative cost allocation plan charges. The FY 2025 estimate for Charges to Other Funds of $13.2 million reflects a decrease of $2.3 million or 15.0% from the FY 2024 Adopted amount of $15.9 million. This is primarily attributed to adjusting the proportion of the allocated charges split between the General Fund and other funds to account for large capital projects, mainly in the enterprise funds. This adjustment will account for the portion of projects that are supported by internal support departments, but exclude the larger construction cost portions to better align the cost plan methodology. Item 12: Staff Report Pg. 42 Packet Pg. 261 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), Operating Transfers -in CMR 2307-1773 Operating Transfers -in materialize as expenses in other funds throughout the City and as a revenue in the General Fund. This budget category includes repayment of a previous loan from the General Fund to the Airport Fund, funding for police patrol in the downtown area, and the equity transfer from the Electric and Gas funds. Overall, the Operating Transfers -in are estimated to be $26.1 million, a $2.2 million increase from the FY 2024 level of $23.9 million due to the increase from the Gas Fund. In accordance with the methodology approved by the City Council in June 2009, the electric to general fund equity transfer has been calculated by applying a rate of return on the capital asset base of the Electric Fund. This rate of return is based on PG&E's rate of return on equity as approved by the California Public Utilities Commission (CPUC). The gas to general fund equity transfer calculation was updated based on the passage of Measure L on the November 2022 ballot. As outlined in the ballot measure language, the gas to general fund equity transfer can be up to 18% of annual gross gas retail revenue. In order to maintain steady gas rate projections and avoid a spike in the gas equity transfer, this LRFF increases the transfer to 16% in FY 2025 and FY 2026 and up to 18% by FY 2027 through FY 2034. Other Revenue and Revenue from Other Agencies Funding in these two categories is expected to be $3.8 million in FY 2025, which is slightly down by $0.2 million from $4.0 million in FY 2024. These two revenue categories mainly account for grants or reimbursements from the federal and state governments or other local jurisdictions. Other Revenue increases slightly by $0.1 million in FY 2025 as a result of limited time funding from LifeMoves for reimbursement related to the Homekey Facility; however, this funding is removed in FY 2026 through the end of the LRFF period. Revenue from Other Agencies decreases by $0.3 million in FY 2025 and then by another $0.8 million in FY 2026, because FY 2025 is the last year of the Staffing for Adequate Fire and Emergency Response (SAFER) grant funding awarded to the City in FY 2022. Item 12: Staff Report Pg. 43 Packet Pg. 262 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), CMR 2307-1773 T General Fund Base Case Expense Assumptions Salary and Benefits Consistent with prior years, the FY 2025 salaries and benefits costs represent approximately 62% of the General Fund budget expenditures. Salary and Benefits are projected to increase $7.1 million or 4.3% from the prior year, from $166.9 million to $174.0 million. Discussed in the following sections, this is primarily attributable to increases in salaries ($2.9 million or 3.1%) and pension costs ($4.5 million or 10.2%). These increases are partially offset by reductions in department allocations for Workers' Compensation expense (-$0.3 million or -5.3%). Salary Consistent with the City's salary budget methodology for recent budgets, positions are budgeted at the actual rate of pay of employees including benefit selections as of Fall 2023. Then, by position, salary costs are updated in accordance with applicable Memorandum of Agreements (MOA's) between the City and its labor groups and the Management and Professional Personnel and Council Appointees Compensation Plan(s). In FY 2023, the City Council engaged with labor groups to negotiate new agreements for wages, benefits, and other terms and conditions of employment. These agreements extend through January 2025 (SEIU) and June 2025 (all other labor groups) for full-time staffing and include target market adjustments to align salaries with benchmark studies, Cost of Living Adjustments (COLAs), and other benefits such as a flexible compensation benefit. The forecast assumes step increases for employees in applicable positions, including Service Employees International Union (SEIU), International Association of Fire Fighters (IAFF), and Palo Alto Peace Officers' Association (PAPOA), and merit increases for Management and Professional employees including Utilities Management & Professional Association of Palo Alto (UMPAPA). A general wage adjustment of 2% is included for all employees starting in either January 2025 or July 2025 for all years of the forecast since no MOA's would be in effect at that time. This is consistent with prior Council direction in previous LRFF reporting to use the 2% increase as a forecasting assumption, not as a commitment to future negotiations. The FY 2025 Budget includes MOA terms for a 4% COLA adjustment (all labor groups), 2% market alignment (Safety only), and increase in flexible compensation payment from $100 to $200 per month (all labor groups except SEIU). A reserve is included for potential changes to future labor costs including changes in vacancy rates, labor and benefit rate variability, and inflation assumptions. Offering competitive compensation plans aligns with industry standards for attracting and retaining a skilled and motivated workforce and better positions the City of Palo Alto as an employer of choice. This level of funding does not reflect a commitment to future negotiations and may differ from actual outcomes. Negotiations for new labor agreements are anticipated to occur in the next year for Item 12: Staff Report Pg. 44 Packet Pg. 263 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), new terms beginning in FY 2025-26. An alternative scenario is included in th CMR 2307-1773 ses beyond the assumptions described above. Additionally, the budget includes vacancy savings that are expected to materialize as positions are vacated and new employees are hired through the normal course of business. As of the timing of this LRFF, the vacancy rate is approximately 13.5% in the General Fund, excluding public safety. This preliminary vacancy rate is point in time and does not consider actions currently in progress for recruitments, promotions, and other staffing shifts. Vacancy savings from public safety positions are typically exhausted by uses such as backfill, hire ahead programs, and overtime. To better align with the status of vacancies, this forecast increases the vacancy estimate from previously assumed rate of 3% to 5% in all years. This results in additional savings of approximately $2.5 million annually, or $5-6 million total each year. Consistent with past practice, the vacancy assumption is lower than the actual vacancy rate to allow departmental use of those savings for other staffing strategies, such as filling staffing gaps by contracting for professional services, hiring ahead to allow overlap and smooth transitions, piloting new technologies to increase efficiency in the absence of staff, and supporting a summer internship program. Benefits Pension: Pensions are budgeted based on CaIPERS determined rates as of the June 30, 2022 valuation for the City's miscellaneous and safety plans (CMR 2308-18601). CaIPERS determines the City's total contributions for a given Fiscal Year as the sum of two factors: Normal Cost (NC) and Unfunded Accrued Liability (UAL). Together the NC and the UAL expressed as a percentage of payroll is the 'blended rate' and is used to represent total costs in the discussion below. The Normal Cost (NC) is expressed as a percentage of payroll and is paid as part of the payroll reporting process of active employees. Commonly referred to as the 'pay -go' cost, the NC is variable and increases or decreases directly with the salary levels of the City. It represents the necessary funding for the City to pay for employees presuming that CaIPERS meets the current set of assumptions. In a year that CaIPERS does not meet assumptions, due to plan changes, assumption changes, method changes, or plan experience (including investment gains/losses), there is an increase or decrease to the Unfunded Accrued Liability (UAL). Commonly referred to as the 'catch-up' cost, the UAL is expressed as a dollar amount and is calculated over an amortized period with defined annual payments, similar to a mortgage. The contributions for UAL are billed as a flat dollar amount as opposed to a percentage of payroll due to potential funding issues that could arise from a declining payroll or number of active members in the plan. However, CaIPERS provides an estimated percentage of payroll for UAL to allow a consistent comparison of total costs. 1 Finance Committee, September 19, 2023, CMR 2308-1860: https://cityofpaloaIto.primegov.com/Portal/Meeting?meetingTemplateld=13152 Item 12: Staff Report Pg. 45 Packet Pg. 264 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), In the miscellaneous plan, total costs are projected to increase from the curCM•R• 2307-1773 024 to 47.4% in FY 2025. In the safety plan, total costs are projected to increase from the current 74.0% in FY 2024 to 83.1% in FY 2025. These rates do not consider the employee pick-up of the employer share; that pick-up materializes as savings in the City's pension costs. Consistent with applicable MOAs, the LRFF presumes that the miscellaneous plan will pick up 1 to 2% of the employer pension cost and that safety plan members will pick up 3 to 4%. The FY 2024 and FY 2025 budgets are impacted by significant swings in investment gains and losses earned by CaIPERS in the periods ending June 30, 2021 and 2022. The FY 2024 budget reflects significant investment returns of +21.3% (+6.8% target) and changes to economic and demographic assumptions resulting from the CAPERS Asset Liability Management (ALM) process and Experience Study completed in November 2021. As part of the ALM, the CaIPERS board approved a reduction to the discount rate (from 7.0 to 6.8%), revised actuarial assumptions (price inflation from 2.5 to 2.3%), and a new asset allocation targeting 1/3 investment in private assets, 5% leverage, and reduced public equity exposure. FY 2025 in the LRFF reflects an investment loss of -6.1% (+6.8% target), nearly offsetting the positive impacts experienced in the prior year's investment gains. Since the issuance of the current valuation, CaIPERS announced a preliminary investment return of +5.8% (+6.8% target) for the period ending June 30, 20232. These results will be included in the CaIPERS valuation report issued in Fall 2024 to inform the development of the 2026-2035 LRFF and FY 2026 budget. The resulting liability from investment returns that did not meet target levels will be amortized over 20 years with a 5 -year ramp -up period. To inform this LRFF, staff used the CaIPERS Pension Outlook Tool to calculate the estimated impacts, resulting in additional costs of $0.2 million ($0.1 million in the General Fund) in FY 2026, and increasing to $1.2 million ($0.5 million in the General Fund) at the peak of the 5 -year ramp in FY 2030. In the General Fund, it is anticipated the City will spend a total of $49.0 million on total pension costs in FY 2025, including both CaIPERS contributions and supplemental Pension Trust Fund contributions. This is approximately $4.6 million higher than the prior year costs of $44.4 million, or a 10.2% increase. These expenses represent approximately 17% of the General Fund's total expenses. TABLE 1: CaIPERS' Projected FY 2024-2034 Blended Retirement Rates (percentage of payroll) FY FY FY FY FY FY FY FY FY FY FY 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Miscellaneous 44.8 47.4 45.5 42.0 42.4 44.6 44.1 43.4 39.7 38.1 35.2 Safety 74.0 83.1 84.5 85.7 86.2 89.5 88.5 86.8 82.6 79.9 74.8 2 CaIPERS Reports Preliminary 5.8% Investment Return for 2022-23 Fiscal Year: h tt p s: //www. ca I p e rs. ca . gov/p a ge/n ews roo m/ca I p e rs-n ews/2023/ca l pe rs-preliminary-investment-return-fi sca (- year-2022-23?utm source=esubscriptions&utm medium=email&utm campaign=CaIPERS-News Item 12: Staff Report Pg. 46 Packet Pg. 265 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), CMR 2307-1773 Retiree Healthcare/Other Post -Employment Benefits (OPEB): Retiree Medical is based on the June 30, 2021 actuarial study prepared by Foster & Foster (previously Bartel Associates), which is completed every two years. The most recent study was completed in June 2022 to inform the development of the FY 2023 and FY 2024 operating budgets (CMR 14112 as amended by CMR 145023). An updated valuation as of June 30, 2023 to inform FY 2025 and FY 2026 is expected to be transmitted in June 2024. Consistent with City Council direction and the Retiree Benefit Funding Policy, this forecast continues the practice to budget the full payment of the Actuarial Determined Contribution (ADC) for retiree healthcare and uses alternative assumptions, such as a more conservative 5.75% discount rate (6.25% assumption), to transmit amounts above the recommended payment as an additional discretionary payment ("prefunding") to the California Employers' Retiree Benefit Trust (CERBT) Fund. CaIPERS blends active employees with pre -Medicare retirees and charges the same medical premium, even though younger employees on average consume less healthcare. The higher premium to younger employees thereby subsidizes older employees and retirees who, on average, have higher claims and premiums. The LRFF estimates $16.9 million ($10.8 million in the General Fund) in FY 2025 for ADC, an approximate $0.5 million or 2.9% increase from FY 2024 levels of $16.4 million ($10.5 million in the General Fund). The implied subsidy is $3.3 million in FY 2025 and effectively lowers the funding necessary to meet the ADC. TABLE 2: Retiree Medical General Fund Contributions FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 $10.5 $10.8 $11.1 $11.4 $11.8 $12.1 $12.5 $12.9 $13.4 $13.8 $14.2 Retiree Benefit Funding Policy (formerly "Pension Funding Policy"): The City has taken several proactive steps to address rising pension costs and long-term liabilities, including cost -sharing in labor agreements, establishing an irrevocable Section 115 Pension Trust ("Pension Trust") and California Employers' Retiree Benefit Trust (CERBT) Fund, and adopting a policy that guides financial planning of these benefits (CMR 11722 as modified by 2212-05134). The City initially contributed to the Pension Trust in FY 2017 on an ad -hoc basis, using one-time savings or excess revenues. Beginning in FY 2019, the City Council directed staff to use a more conservative discount rate as compared to CAPERS for the Normal Cost (NC) portion of the 3 Finance Committee, June 7, 2023, CMR 14112 as amended by CMR 14502: https://www.citvofoaloalto.orR/files/assets/public/aeendas-minutes-reports/aeendas-minutes/finance co m m ittee/2022/20220607/20220607 pfcsm-fi n a 1. pdf 4 City Council, November 30, 2020, CMR 11722: https://www.cityofpaloalto.org/files/assets/public/agendasmi nutes-reports/reports/city-manager-reports- c m rs/yea r-archive/2020-2/i d-11722. pdf City Council, February 6, 2023, CMR 2212-0513: https://cityofpaloaIto.primegov.com/Portal/Meeting?meetingTemplateld=1067 Item 12: Staff Report Pg. 47 Packet Pg. 266 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), payment and transferring the supplemental funding beyond CaIPER CMR23071773 yer contributions to the Pension Trust. This practice was reinforced with Council approval of the Retiree Benefit Funding Policy, and as of FY 2024 the City's NC discount rate is 5.3% as compared to CaIPERS 6.8%. Additionally, one-time contributions continue to be made each year if excess revenues or unspent savings are available, subject to City Council approval. As part of policy goals, the City seeks to reach a 90% funded status by FY 2036. Every four years, the City's Retiree Benefit Funding Policy requires that staff consult with an actuary to inform the City Council of progress the City has made towards achieving a 90% funded status goal and assess and respond to changes impacting the City's retiree benefit plans. This comprehensive review was most recently completed in FY 2023 and resulted in several policy revisions, most notably reducing the discount rate used to calculate supplemental contributions to the Pension Trust from 6.2% to 5.3% and extending actuary reporting from 3 to 4 years to align with the CaIPERS ALM Study. Additionally, the title of the policy was revised from the Pension Policy to the Retiree Benefit Policy to recognize actions approved by the City Council to proactively plan for retiree healthcare plans in a similar manner to pensions, including the use of a lower 5.75% discount rate (CMR 2212-05135). The most recent actuary analysis projects that the City will meet a 90% funded goal for pension plans by FY 2034 (miscellaneous plan) and FY 2036-37 (safety plan); the City's practice of transmitting excess one-time savings will help reach these goals sooner. In this forecast, approximately $13.8 million ($8.3 million in the General Fund) in supplemental contributions to the City's Pension Trust is assumed in FY 2025. This reflects a $0.5 million ($0.4 million in the General Fund) increase over the prior year, primarily due to the addition of new staff. Through FY 2024, a total of $67.6 million ($44.6 million in the General Fund) in principal contributions are expected to be made to the Pension Trust for pension benefits. Through FY 2024, it is expected that $11.1 million in principal contributions will be made to the CERBT Fund for retiree healthcare benefits. Healthcare: Consistent with the most recent labor agreements between the City and its bargaining units, the City's contribution amounts towards medical costs for employees are based on a flat rate contribution from the City, with the employee contributing towards the remaining medical plan premium. Like salaries, healthcare costs are updated in accordance with applicable Memorandum of Agreements (MOA) between the City and its labor groups and the Management and Professional Personnel and Council Appointees Compensation Plan(s). Workers' Compensation: The budget appropriation for workerscompensation includes an estimate for claims incurred and reserves for current filings at an 85% confidence level, based on actuarial studies completed by Bickmore. In FY 2023, program expenditures decreased by $3.0 million or 50%, from $6.0 million to $3.0 million from the prior year. The lower year over year claims is reflective of delays for claims incurred but not yet reported, and trend of declining total 5 City Council, February 6,2023, CMR 2212-0513: https://cityofpaIoaIto.primegov.com/portal/viewer?id=6143&type=3 Item 12: Staff Report Pg. 48 Packet Pg. 267 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), claims, along with rising cost on a per claim basis, and reduction of claim-..CMR 2307 1773 and severity. This forecast uses savings accumulated in fund balance to reduce department allocations by $0.4 million ($0.3 million in the General Fund) in FY 2025 and maintains allocations at the same level through FY 2027. Actuarial estimates completed in August 2022 informed FY 2024 budget levels of $7.3 million (approximately 65% in the General Fund). More recent actuary estimates completed in August 2023 project expense levels consistent with current budgeted levels. Staff will continue to monitor expenditures in the fund and bring forward adjustments as necessary. Claim estimates and reserves for FY 2025 are $7.6 million, representing a $0.3 million or 4.0% increase from the FY 2024 Adopted Budget. Estimates for workers' compensation increase in the forecast at rates consistent with general CPI increases. Contract Services This forecast assumes contract services of $29.3 million in FY 2025, a 2.0% increase from the FY 2024 Adopted budget of $28.8 million. This increase is driven primarily by new negotiated contracts for citywide services such as custodial, landscaping, and management of the animal shelter partially offset by the removal of one-time costs adopted in FY 2024 for S/CAP studies and Plan Check Review. The increase is also supported by a general 4.0% CPI cost increase through the ten-year forecast period on smaller contracts that do not have defined annual increases, based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August -to -August period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust contract funding needs as part of the FY 2025 budget process. Contract Services - Committed Additions The Committed Additions included in this forecast account for anticipated operating and maintenance (O&M) costs in the General Fund for capital projects anticipated to come online within the ten-year forecast period. Costs for projects that came online in FY 2024 have been annualized into the ongoing General Fund operating budget as part of the LRFF. The preliminary total estimate is $44,500 for costs associated with the following projects anticipated to come online in FY 2025: Dog Park Installation (PG -18001), Library Automated Materials Handling (LB - 21000), and Park Restroom Installation (PG -19000). Also, estimated operating impacts from the Fire Station 4 (PE -18004) project are included starting in FY 2026. Additional cost increases of 4.0% annually are included throughout the ten-year forecast based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August -to - August period. Timing and analysis of the funding needs for these projects will be evaluated as part of the FY 2025 Budget process and development of the 2025-2029 Capital Improvement Plan (CIP). TABLE 3: FY 2024 — FY 2033 Committed Additions (Millions) FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 $0.04 $0.07 $0.07 $0.08 $0.09 $0.10 $0.11 $0.12 $0.13 $0.14 Item 12: Staff Report Pg. 49 Packet Pg. 268 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), Supplies and Materials CMR 2307-1773 The FY 2024 Adopted Budget for the General Fund included $3.3 million for Supplies and Materials, which is anticipated to increase by a 4.0% CPI cost increase in FY 2025 to $3.5 million based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August -to -August period. This annual increase is continued through the ten-year forecast period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust funding for supplies and materials as part of the FY 2025 budget process. General Expense This category includes costs for travel and meetings, telephone and non -city utilities, contingency accounts and reserves, bank card service charges, and subsidies and grants provided through the Human Services Resource Allocation Program (HSRAP). The FY 2024 Adopted Budget of $19.1 million is expected to decrease to $9.3 million in FY 2025, primarily due to the anticipated use of the Budget Uncertainty Reserve to balance the FY 2025 budget. This $14.0 million reserve was partially used to balance the FY 2024 Adopted Budget ($3.9 million), leaving approximately $10.1 million to fund one-time needs in the FY 2024 Mid -Year Budget Review ($1.1 million) and an anticipated gap in FY 2025 ($9.0 million). The reduction is partially offset by a 4.0% annual CPI cost increase on smaller items that do not have a set annual budget, based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August -to -August period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust funding for general expense items as part of the FY 2025 budget process. General Expense — Project Homekey: On September 27, 2021 the City Council directed staff to apply for Project Homekey funding in conjunction with LifeMoves to build an emergency shelter at the former Los Altos Treatment Plant (LATP) site (CMR 135956). This project will deploy modular housing to provide interim housing opportunities for homeless individuals and families in the City of Palo Alto. Project Homekey is a program, funded by the State of California Department of Housing and Community Development, intended to provide grant funding and facilitate a partnership with the State to quickly acquire, rehabilitate, or master lease a variety of housing types. Once developed, these projects provide interim or permanent housing options for persons experiencing homelessness and who are also at risk of health concerns. The site will be operated for at least fifteen years as interim housing per the program's durational requirement. This project will utilize a combination of funding sources including the Project Homekey Program for capital expenses and donations, grant funds, and City support for ongoing operations expenses. This LRFF includes the City's committed investment of $7.0 million in operating expenses ($1.0 million annually FY 2025 through FY 2031). This funding was previously programmed from FY 2023 through FY 2029; however, the first two years of operating funding was redirected to the Homekey Facilities capital project (PE -24005) in order to complete the 6 City Council, September 27,2021, CMR 13595: https://www.cityofpaloalto.org/files/assets/public/agendas- mm n utes-reports/agendas-minutes/city-cou nci l-agendas-minutes/2021/09-septem ber/20210927/210927accsm- amended-final.pdf Item 12: Staff Report Pg. 50 Packet Pg. 269 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), housing infrastructure. This LRFF maintains the original $7.0 million comm CMR 23071773 ity. Some operating funding support is expected from Project Homekey as well as the County of Santa Clara. Any remaining gaps in funding will need to be closed by fundraising, operating cost containment strategies, and/or grant funds. General Expense - Cubberley Lease: In FY 2015, the City and Palo Alto Unified School District (PAUSD) agreed to a five—year extension of the Cubberley lease from January 2015 to December 2019. In October 2019, the City Council directed staff to negotiate with PAUSD to extend the lease agreement an additional five years, through December 2024 (CMR 1073077-). A new Cubberley lease was approved by the City Council in June 2020 (CMR 114609) for a smaller portion of the Cubberley site with a correspondingly lower base rent payment (CMR 113862). As part of the original lease agreement, the City Council approved creation of the Cubberley Infrastructure Improvements Fund supported by an annual $1.9 million transfer from the General Fund, which is classified as an Operating Transfer -Out and discussed in further detail in that section of this report below. With the Cubberley Infrastructure funds set aside, the annual base rent for the Cubberley premises is $2.6 million plus an additional $0.8 million for child daycare sites and utilities. A pending factor at the Cubberley site that is part of ongoing discussions, but not included in the LRFF estimates, is a proposal to lease the Cubberley site from PAUSD (CMR 2308-194910) in order to facilitate the development of a new community center facility. Rents and Leases The Rents and Leases expense category for FY 2025 is estimated to increase from the FY 2024 Adopted Budget level by approximately 2.7% to $1.4 million. This is based on current lease terms that include previously negotiated lease increases This category includes the lease agreement for Development Services staff at locations outside City Hall (285 Hamilton and 526 Bryant) as well as lease with Stanford for El Camino Park. A new lease agreement was executed in December 2020 for the Development Services office location at 526 Bryant Street, limiting the space to the basement level (CMR 1142611). The lease was amended in September 2022 to extend the term initially for 12 months with the right to automatically extend for four successive 12 -month periods, potentially through January 31, 2028 (CMR 14713). In June 2021, the City entered into a seventh amendment for the Development Services office lease at 285 Hamilton Avenue to extend the term from February 2022 to January 2025 (CMR 12334U). As expenses for rent for Development Services are adjusted, a corresponding revenue adjustment will be made to ensure Development Services maintains cost recovery levels. 7 City Council, October 7, 2019, CMR 10730: https://www.cityofpaloalto.org/civicax/filebank/documents/73558 $ City Council, June 23, 2020, CMR 11460: http://cityofpaloalto.org/civicax/filebank/documents/77365 City Council, June 15, 2020, CMR 11386: http://cityofpaloalto.org/civicax/filebank/documents/77073 11 City Council, October 16, 2023, CMR 2308-1949: https://cityofpaloa Ito.primegov.com/portal/viewer?id=9323&type=3 11 City Council, December 14, 2020, CMR 11426: https://www.cityofpaloalto.org/files/assets/public/agendas- m i n utes-reports/reports/citv-ma naeer-reports-cm rs/vea r-archive/2020-2/id-11426. odf?t=59979.32 12 City Council, June 21, 2021, CMR 12334: https://www.cityofpaloaIto.org/files/assets/public/agendas-minutes- reports/reports/city-ma nager-reports-cm rs/2021/id-12334. pdf Item 12: Staff Report Pg. 51 Packet Pg. 270 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), CMR 2307-1773 Facilities and Equipment Along with funding for various equipment needs across departments, this budget category includes subscription payments for equipment like public safety radios. The Facilities and Equipment expense category is expected to increase from the FY 2024 Adopted level of $460,000 to $480,000 due to a 4.0% CPI cost increase based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August -to -August period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust funding for equipment needs as part of the FY 2025 budget process. Allocated Charges Allocated Charges represent expense allocations by the City's Enterprise and Internal Service Funds for services and products they provide to other departments. The FY 2024 Adopted Budget for the General Fund included $25.8 million for these expenses, including utilities usage, general liability insurance, technology costs, vehicle equipment maintenance and replacement costs, and other charges for services provided by other City departments and funds. The FY 2025 allocated charges in the LRFF update the revenues and expenses for these various allocations based on the information available at the time of the LRFF development. FY 2025 is anticipated to experience an increase of 7.2% to a total of $27.7 million. This increase is primarily due to anticipated higher costs associated with technology services and utilities for City facilities such as water, electricity, and gas. Operating Transfers Out Operating Transfers Out include transfers from the General Fund to Debt Service Funds, the Technology Fund, and various other funds but excludes transfers to the Capital Improvement Fund, which are detailed in the following Transfer to Infrastructure section. The FY 2024 Adopted Budget included Operating Transfers Out of $5.0 million. In FY 2025, Operating Transfers Out are anticipated to increase to $6.5 million due to anticipated funding needs in the University Avenue, California Avenue, and Residential Permit Parking Funds. One-time loans of $450,000 and $50,000 to the California Avenue and Residential Permit Parking Funds, respectively, were approved in FY 2024; however, a total of $2.0 million across all three funds is factored into this LRFF. Staff will continue evaluating these funds as part of the FY 2025 budget development and will bring forward recommendations as needed to keep the parking permit funds solvent. Transfer to Infrastructure Recovery from the COVID-19 pandemic is reflected in improved revenue levels in the FY 2024 budget compared to the FY 2023 budget. The total General Fund transfer to the Capital Improvement Fund budgeted in FY 2024 is $24.7 million compared to the $22.9 million transferred in FY 2023. This is comprised of a $12.3 million base transfer including interest earnings, and $12.4 million from TOT revenue generated through voter -approved rate increases and new hotels that is dedicated to the Capital Improvement Fund to support the 2014 Council Infrastructure Plan, consistent with City Council direction. Estimated transfers from TOT revenues in FY 2025 are currently projected to increase to $13.0 million and the base transfer to increase to $15.2 million for a total $28.2 million transfer to the Capital Improvement Fund. This forecast Item 12: Staff Report Pg. 52 Packet Pg. 271 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- port 2034 Long Range Financial Report (LRFF), continues the goal established as part of the 2022-2026 Capital lmprovemerL R 2307-1773 ore the base portion of this transfer to pre -pandemic levels by FY 2026. This budget category also includes the separate $1.9 million transfer to the Cubberley Property Infrastructure Fund. This transfer to the Cubberley Property Infrastructure Fund supports facility systems maintenance needs at the Cubberley Community Center facility as well as capital improvement projects to maintain and upkeep the facility. Item 12: Staff Report Pg. 53 Packet Pg. 272 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- pod 2034 Long Range Financial Report (LRFF), CMR 2307-1773 JJT E Human Services Resource Allocation Process (HSRAP) Funding Referral As part of the FY 2024 Adopted Budget, the Council directed staff to follow-up with additional work to, "Consider pegging HSRAP budget allocations to a benchmark, such as percentage of General Fund budgeted expenditures." Staff researched previous discussion of this item and found a reference of a recommendation for increasing HSRAP funding as part of a Policy and Services meeting on November 29, 2016 (CMR 72891). There were four options for augmenting the HSRAP funding, but ultimately none of them were approved for recommendation to the Council. The status quo of increasing the funding by the Consumer Price Index (CPI) as funding was available in the General Fund continued. Staff also compiled historical data back to FY 2001 to determine the percentage of funding for human services programs compared to the General Fund expenditures budget in each year, and what amount of funding would be needed if funding for human services programs was pegged to 1% of the General Fund expenditures budget in the future using the base case LRFF numbers. Prior to FY 2016 funding for Avenidas and Palo Alto Community Childcare (PACCC) was determined as part of the HSRAP process; however, starting in FY 2016 these two programs were funded through a direct funding allocation and separated from the HSRAP process. Table 1 below shows the total funding for human services programs with funding projections through FY 2027, the first three years of the LRFF. Table 1 Fiscal Year HSRAP Funding Avenidas & PACCC Funding Total Human Services Funding General Fund Adopted Budget % of GF Budget HSRAP Total Human Services Funding FY 2001 $386,245 $845,716 $1,231,961 $108,778,000 0.36% 1.13% FY 2002 $433,254 $871,088 $1,304,342 $125,766,000 0.34% 1.04% FY 2003 $444,862 $897,221 $1,342,083 $125,908,000 0.35% 1.07% FY 2004 $335,835 $870,220 $1,206,055 $116,686,000 0.29% 1.03% FY 2005 $375,835 $870,220 $1,246,055 $116,015,000 0.32% 1.07% FY 2006 $331,453 $845,936 $1,177,389 $120,692,000 0.27% 0.98% FY 2007 $331,453 $845,936 $1,177,389 $125,074,000 0.27% 0.94% 1 November 29, 2016 Policy and Services CMR 7289: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2016/id-7289-hsrap.pdf Item 12: Staff Report Pg. 54 Packet Pg. 273 of 341 Item 12 Attachment I - General Fund Long Range F Attachment A - FY 2025- pert 2034 Long Range Financial Report (LRFF), Fiscal Year HSRAP Funding Avenidas & PACCC Funding Total Human Services Funding General Fund Adopted Budget CMR 2307-1773 o o u ge HSRAP Total Human Services Funding FY 2008 $300,453 $860,941 $1,161,394 $139,185,000 0.22% 0.83% FY 2009 $300,453 $860,941 $1,161,394 $145,308,000 0.21% 0.80% FY 2010 $285,430 $817,894 $1,103,324 $142,089,000 0.20% 0.78% FY 2011 $285,430 $817,894 $1,103,324 $146,711,000 0.19% 0.75% FY 2012 $300,737 $809,715 $1,110,452 $146,360,000 0.21% 0.76% FY 2013 $300,737 $809,715 $1,110,452 $152,800,000 0.20% 0.73% FY 2014 $348,163 $881,950 $1,230,113 $159,700,000 0.22% 0.77% FY 2015 $425,594 $890,583 $1,316,177 $171,100,000 0.25% 0.77% FY 2016* $436,660 $913,738 $1,350,398 $185,700,000 0.24% 0.73% FY 2017 $448,013 $937,495 $1,385,508 $194,200,000 0.23% 0.71% FY 2018 $503,213 $960,933 $1,464,146 $210,400,000 0.24% 0.70% FY 2019 $515,793 $984,956 $1,500,749 $210,700,000 0.24% 0.71% FY 2020 $535,908 $1,023,369 $1,559,277 $230,800,000 0.23% 0.68% FY 2021 $549,306 $1,048,953 $1,598,259 $196,900,000 0.28% 0.81% FY 2022 $549,306 $1,048,953 $1,598,259 $209,200,000 0.26% 0.76% FY 2023 $622,377 $1,093,009 $1,715,386 $247,400,000 0.25% 0.69% FY 2024 $851,035 $1,147,660 $1,998,695 $279,581,000 0.30% 0.71% FY 2025 $885,076 $1,193,566 $2,078,643 $281,887,000 0.31% 0.74% FY 2026 $920,479 $1,241,309 $2,161,789 $294,473,000 0.31% 0.73% FY 2027 $957,299 $1,290,961 $2,248,260 $304,465,000 0.31% 0.74% * FY 2016 was the first year Avenidas and Palo Alto Community Childcare (PACCC) were funded through separate human service contracts For HSRAP funding, the average percentage of funding compared to the General Fund budgeted expenditures is 0.26% from FY 2001 through FY 2024. Comparing total funding for human services programs from FY 2001 through FY 2024, including HSRAP, Avenidas, and PACCC, to the General Fund budgeted expenditures shows that the percentage has ranged from over 1% down to 0.68% with an average of 0.83%. For FY 2025 through FY 2027, numbers from the base case LRFF indicate that human services funding will be approximately 0.74% of the General Fund budgeted expenditures. To increase human services funding to 1% of the General Fund budgeted expenditures in the future, an additional $0.8 million would need to be allocated for human services programs annually. This would increase the current projected deficits in FY 2025 through FY 2027 to $6.8 million, $6.2 million, and $4.2 million respectively. Item 12: Staff Report Pg. 55 Packet Pg. 274 of 341 Item 12 Attachment I - General Fund n Attachment A - FY 2025-2034 Long pert cial Report (LRFF), .:, Range FinanCMR 2307-1773 �� O wwritunfniInIto.org Packet Pg. 275 of 341 DECEMBER 5, 2023 Item 12: Staff Report Pg. 56 OVERVIEW Item 12 Attachment I - General Fund Lon Attachment A - FY 2025-2034 Long pod Range Financial Report (LRFF), CMR 2307-1773 • Economy continues to demonstrate resiliency to formal recession • Forecast reflects stagnation offset by inflation �- u CITY OF PALO ALTO • LRFF consistent with FY 24 Adopted Budget, reflects near -term deficits • FY 2025 shortfalls resolved with Uncertainty Reserve • Consistent with FY 2024 Adopted Budget two-year strategy • Measure K (Business Tax) included for approved projects • Measure L (Equity Transfer) phased to 18% by FY 2027 • Expense projections based on current approved service levels • Assumes 20% BSR to mitigate uncertainty (typical target =18.5%) • Cost of labor, inflation, and vacancies are key factors • Estimated surplus in FY 2024 ($3.4M) from Major Tax Revenue; to be reviewed at Mid -Year Item 12: Staff Report Pg. 57 Packet Pg. 276 of 341 THE ECONOMY Item 12 Attachment I - General Fund Lon Attachment A - FY 2025-2034 Long p°d Range Financial Report (LRFF), CMR 2307-1773 Local economy continues to show strong performance in the first half of calendar year 2023 and indicators reflect strong employment and economic growth UCLA Anderson forecasting in line with Palo Alto that a recession is unlikely; this LRFF assumes economic stagnation at the beginning of the 10 -year period National Gross Domestic Product (GDP) Real GDP: Percent Change from Preceding Quarter • 5.2 6.2 7 4.2 3.3 ..0 7.s -28 2020 2020 2021 2021 2022 40,00 20.00 4.9 5.45.4535.4 2,7 2.6 2.2 2.1 5 MM��m 0.00% liii 4.2 -2 0.6 2.6 20.00% 1111111 1,4 L7 •40.00 % 111111111 2022 2023 2023 Jan 2021 Jul2021 National Inflation Rate / Consumer Price Index (CPI) 9 8.6 , 8.3 7.9 7.5 IIII 6.2■,1 8.5 8.3 8.2 7.? 7.i 16.5 6.4 111114,1 Jan 2022 Jul2022 Jan 2023 10.00%. 8.00% 6.00% 3.7 3.7 4.00% 3 3.2 3.2 iiili 2.00% M==== 0.00% Jul 2023 TRADINGECONOMICS.COM I U.S. BUREAU OF ECONOMIC ANALYSIS TRADINGECONOMICS.COM I U.S. BUREAU OF LABOR STATISTICS CITY OF PALO ALTO Item 12: Staff Report Pg. 58 Packet Pg. 277 of 341 Iem 12 FISCAL YEAR 2025 - 2034 BASE CASE FO'RECASTndLon Attachment At Y2025-2034 Long Range Financial Report (LRFF), CMR 2307-1773 LTO Total Revenue $254,799 $261,141 $264,281 275,889 $289,060 $301,025 $312,564 $325,208 $339,684 $353,085 $365,820 $379,944 $394,026 BSR Contribution (One -Time) - $3,440 $3,440 - - - - - - - - - - Reappropriated Funds (One -Time) - $15,000 $15,000 - - - - - - - - - - I.I Year over Year increase (revenue only) 5.6% 4.8% 4.1% 3.8% 4.0% 4.5% 3.9% 3.6% 3.9% 3.7% Total Expenditures $243,695 $279,581 $279,282 $281,887 $294,473 $304,465 $314,253 $325,708 $333,099 $341,030 $344,933 $351,721 $357,516 Year over Year increase 0.8% 4.5% 3.4% 3.2% 3.6% 2.3% 2.4% 1.1% 1.0% 1.6% Cumulative Net Operating Margin (One -Time) Forecasted One -Time Gap after Use of Uncertainty Reserve ($0)I Cumulative Net Operating Margin Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures $40.0 $35.0 Revenues catch up to Expenses in FY 2030 $30.0 $25.0 Mild economic stagnation through end of FY 2025 $20.0 Uncertainty Reserve offsets FY 2025 shortfall, $10.0 consistent with 2-yr balancing strategy in prior year, $5.0 so.o -$5.0 -$10.0 2025 Item 12: Staff Report Pg. 59 General Fund Net Operating Margin 2026 2027 2028 2029 rC30 2031 2032 2033 203 - Packet Pg. 278 of 341 $87,220 $36,511 4 MAJOR TAX REVENUE P ROJ ECT 1 0 N S Attachment I- General Fund Lon O F A Item 12 LT 0 Attachment A - FY 2025-2034 Long Financial Report (LRFF), Range CMR 2307-1773 " lions Major General Fund Revenues $95 $ 90 $ 85 $ 80 $ 75 $70 $ 65 $60 $55 $50 $51.1 o .3 $4s $42.V _ ;39.1!_=t' $40 ;3e� $35 $30.0 $23.3 i-" =91.=30.6 $23.1 $ 30• $25 TOT - General Find $ r4 I'.0 20 t $I42 $IS' CIS. $95 i2.5 10.6 =6.9 $0 %1 tia1, $36.3 $32.' F)'I'Ht, Tai x'2.1 I" Bale i Tai $444 =4S.9 �.5 =a1.2 =42.8 „�.,...�........•- $ 3S.c �.....,...-.� '.4.,,, Uility User's Tax $21, =2 3.1 '' = 20.6 21.5 $22.5 , .....S Ie.s Ia.5 ;20.0 ; ...... a......... 6. ; • I, .5 Is.3 15.6 �;� �.... .. = 119 $15.3 = 16.6 _ ; 14.1 ... . 12.0 ... ,.., ........ , :...�., ... �..'... X15.0 =15.' ;I6. 113 $12.4 12.7 13.1 = T�,T-h1raIUucbore ; 12.0�� ...........* .............Z. ,, ......- 8 =S.a $5.3 $C.2 U.S =6.a $7.1 $7.3 $7.6 ti1 Item 12: Staff Report Pg. 60 Packet Pg. 279 of 341 17 'leA!1 hJ CITY OF PALO ALTO ASSUMPTIONS NOT IRCLUDI Item 12 Attachment A - FY 2025-2034 Long Range Financial Report (LRFF), CMR 2307-1773 • Labor Negotiations (contracts expire in Jan/Jun 2025); LRFF includes an estimated reserve for changes in vacancy rates, labor and benefit variability, and inflation • Capital Improvements: Parks Master Plan, Railroad Grade Separation, Vehicle Fleet Electrification • Cubberley Community Center Redevelopment • Limited Term Programs: • Psychiatric Emergency Response Team (PERT) • PA Link • Downtown Streets Team • Project Homekey Item 12: Staff Report Pg. 61 Packet Pg. 280 of 341 Item 12 Attachment I - General Fund Lon Attachment A - FY 2025-2034 Long I port ALT SCENARIO N. ECONOMICALLY SENSITIVE REVENUE IN FY25 Range Financial Report(LRFF),CMR ALTO 2307-1773 Total Revenue $254,799 $261,141 $264,281 BSR Contribution (One -Time) - $3,440 $3,440 Reappropriated Funds (One -Time) - $15,000 $15,000 Year over Year increase (revenue only) Total Expenditures 243,695 279,581 279,282 Year over Year increase Cumulative Net Operating Margin (One -Time) Cumulative Net Operating Margin 273,760 286,825 298,692 310,138 322,682 337,041 350,335 362,971 376,979 390,943 4.8% 4.8% 4.1% 3.8% 4.0% 4.4% 3.9% 3.6% 3.9% 3.7% 281,887 294,471 304,463 314,251 325,705 333,097 341,028 344,930 351,718 357,513 0.8% 4.5% 3.4% 3.2% 3.6% 2.3% 2.4% 1.1% 2.0% 1.6% ($8,128) $481 $1,876 $1,658 $1,089 $6,968 $5,363 $8,733 $8,169 General Fund Net Operating Margin $35.0 Models the impact of a 1% loss in revenue $30.0 from major taxes, charges for services, and $25.0 $20.0 permits and licenses s $150 2 $10.0 $5.0 Revenues decrease by $2.1M in FY 2025 and 500 increase projected shortfalls -$5.0 -510O Item 12: Staff Report Pg. 62 2025 2026 2027 2028 2029 20?- 203: 2032 2033 2034 Packet Pg. 281 of 341 Item 12 ALT SCENARIO B: COMPENSATION ADJUSTMENrl'NTY26 Lon Rttach nan alRe22025-2034 25-2 34LonR ALTO 2307-1773 Total Revenue $254,799 $261,141 $264,281 275,889 $289,060 $301,025 $312,564 $325,208 $339,684 $353,085 $365,820 $379,944 $394,026 BSR Contribution (One -Time) - $3,440 $3,440 - - - - - - - - - - Reappropriated Funds (One -Time) - $15,000 $15,000 - - - - - - - - - - Year over Year increase (revenue only) 5.6% 4.8% 4.1% 3.8% 4.0% 4.5% 3.9% 3.6% 3.9% 3.7% Total Expenditures 243,695 279,581 279,282 281,887 295,719 305,761 315,587 327,082 334,501 342,460 346,392 353,208 359,033 Year over Year increase 0.8% 4.9% 3.4% 3.2% 3.6% 2.3% 2.4% 1.1% 2.0% 1.6% Cumulative Net Operating Margin (One -Time) Cumulative Net Operating Margin $35.0 $30.0 $25.0 Models the impact of a 1% compensation $20.0 $15.0 adjustment once negotiated agreements sunset $10.0 $5.0 Expenses increase by $1.2M in FY 2026 ando increase projected shortfalls -Slo.0 2025 2026 2027 ?028 2029 2030 2031 2032 2033 2034 Item 12: Staff Report Pg. 63 1 Packet Pg. 282 of 341 I $7,057 General Fund Net Operating Margin $74,676 $34,993 FY 2025 BUDGET DEVELOPMENT GUIDRINES1 Item 12 Attachment A - FY 2025-2034 Long Range Financial Report (LRFF), CMR 2307-1773 • Develop a structurally balanced budget to maintain fiscal sustainability • Examine appropriate use of surpluses • Review resource allocation for City Council's identified priorities • Focus on business process redesign and explore alternative service delivery models • Explore expansion of existing revenue sources or the addition of new revenue sources • Continue to prioritize proactively funding long term liabilities CITY OF PALO ALTO Item 12: Staff Report Pg. 64 Packet Pg. 283 of 341 HSRAP FUNDING REFERRAL EY Item 12 AttachmeeeneralFund Lon Attachment A - FY 2025-2034 Long pod Range Financial Report (LRFF), CMR 2307-1773 Council Referral: Consider pegging the Human Services Resource Allocation Process (HSRAP) budget allocations to a benchmark, such as percentage of General Fund budgeted expenditures. HSRAP funding averaged 0.26% of the General Fund budget from FY 2001- FY 2024 Total human services funding averaged 0.83% $0.8M needed annually to increase total human services funding to 1% of the General Fund budget in FY 2025 - FY 2027 of the LRFF base case Human services funding never approved to be tied to the General Fund budget Prior to FY 2016 HSRAP included Avenidas & Palo Alto Community Childcare (PACCC), after FY 2016 these programs were funded through direct allocation separate from HSRAP CITY OF PALO ALTO Item 12: Staff Report Pg. 65 Packet Pg. 284 of 341 CONCLUSION AND NEXT STEPS Item 12 Attachment I - General Fund Lon Attachment A - FY 2025-2034 Long pod Range Financial Report (LRFF), CMR 2307-1773 • Revenue trends indicate near term economic stagnation followed by return to growth • 2025-2034 LRFF consistent with FY 2024 Adopted Budget two-year strategy • Focus on investing only in key areas of priority or urgent needs • Alternative scenarios increase projected shortfalls • Uncertainty Reserve and one-time surpluses are critical to manage the near -term fiscal stability and investments in priority initiatives • FY 2024 Mid -Year will include recommendations for addition of key resources and appropriation of funds as directed by Council Next Steps Annual Budget Process • Review of objectives deferred as outlined in • Jan 2024: FY 2024 Adopted Budget • Feb 2024: p g • May 2024: OCITY OF PALO ALTO Item 12: Staff Report Pg. 66 Council review LRFF FY 2024 Mid -Year Budget r\ / 0% /1111 r r% I n Item 12 Attachment I - General Fund Lon Attachment A - FY 2025-2034 Long eport RECOMMENDED ACTION Range Financial Report (LRFF), CMR 2307-1773 Staff recommends that the Finance Committee: Review and recommend that the City Council accept the Fiscal Year 2025 — 2034 Long Range Financial Forecast Base Case and the FY2025 Budget Development Guidelines (Attochment A). Direct staff to use this forecast as a starting point for the FY 2025 budget process. CITY OF PALO ALTO Item 12: Staff Report Pg. 67 Packet Pg. 286 of 341 Item 12 Attachment I - General Fund Lon Attachment A - FY 2025-2034 Long port Range Financial Report (LRFF), CMR 2307-1773 CITY OF PALO ALTO Paul Harper Budget Manager Paul. Harper@CityofPaloAlto.org Jessie Deschamps Budget Manager Icci ra Item 12: Staff Report Pg. 68 Packet Pg. 287 of 341 Item 12 Attachment B - FY 2025 Attachment II — FY 2025 Budget L Ines Budget Development Guidelines 1) Develop a structurally balanced budget that brings ongoing revenues and expenses into alignment. Develop a plan for any structural imbalance to ensure that the City maintains fiscal sustainability over the short, medium, and long-term. 2) Allocate one-time resources for one-time needs rather than committing one-time resources to ongoing services. Examine appropriate uses of revenue surpluses that exceed forecasted levels such as planning for recession needs, restoration needs, and strategic investments. 3) Review resource allocation for City Council's existing priorities and identify priority funding needs. 4) Focus on business process redesign to enhance quality, flexibility, and cost-effectiveness of service delivery (include examining opportunities to streamline, simplify, reorganize, and reallocate resources to avoid duplication of effort). 5) Explore alternative service delivery models (such as partnerships with non -profits or other public/private sector groups) to minimize overlap, maximize cost share, and effectively use resources. 6) Continue to thoroughly analyze non-personnel/equipment/other costs, such as contract services, for cost savings opportunities or realignment with current needs. 7) Explore the expansion of existing revenue sources or the addition of new revenue sources, including the alignment of existing charges for services and the opportunity to establish new fees, when appropriate. 8) Continue to analyze and prioritize resource augmentations, seeking to offset augmentations with reductions elsewhere for net -zero impacts to the budget whenever possible; however, ensuring when resource augmentations are added, it is in alignment with one-time and ongoing forecasted sources. 9) Continue to prioritize proactively funding long term liabilities including but not limited to debt obligations, pension obligations, and capital infrastructure in accordance with City policies as approved by Council. Item 12: Staff Report Pg. 69 Packet Pg. 288 of 341 Item 12 Attachment C - Additional Information as Requested T C by Finance Committee Additional information as Requested by Finance Committee CITY OF PALO ALTO Vacancy Analysis The current vacancy rate is approximately 13.5% in the General Fund, excluding public safety. This preliminary vacancy rate is point in time and does not consider actions currently in progress for recruitments, promotions, and other staffing shifts. Vacancy savings from public safety positions are typically exhausted by uses such as backfill, hire ahead programs, and overtime. To better align with the status of vacancies, this forecast increases the vacancy estimate from previously assumed rate of 3% to 5% in all years. This results in additional savings of approximately $2 million annually, or a projected $5 million in total vacancy savings each year. This additional funding fully forecasts the savings the City has seen in recent years of $1.7 million as shown in Table 1. Consistent with past practice, the vacancy assumption is lower than the actual vacancy rate to allow departmental use of those savings for other staffing strategies, such as filling staffing gaps by contracting for professional services, hiring ahead to allow overlap and smooth transitions, piloting new technologies to increase efficiency in the absence of staff, and supporting a summer internship program. For example, vacancy savings have been used to hire on -call inspectors and planners on a limited -term basis to meet changing demands. Additionally, these savings have bridged changes in employee compensation when labor terms are completed outside of the regular budget cycle, and they support professional recruitment services for hard to fill positions. Lastly, these savings give flexibility to start or expand projects and programs during the fiscal year, ahead of the formal budget process. A recent example is the Planning and Development Services Department's use of vacancy savings to hire consultancy services to advance work related to the North Ventura Coordinated Area Plan (NVCAP). This approach facilitates continuity of the project while the department continues efforts to fill staffing vacancies in the Long -Range Planning division. Table 1 provides a historical summary of budget to actuals variance in the Salary and Benefits category for General Fund departments. The budget includes the budgeted vacancy factor assumption, therefore this savings is what has been achieved beyond planned levels. The table includes the annual vacancy rate and the percentage difference from budgeted funding levels. As shown below, the vacancy savings from the previous year have varied from -$1.7 million to +$1.7 million over the last five years from the budgeted vacancy assumption, reflecting a variance of less than 1.5% as compared to the budgeted. TABLE 1: Historical General Fund Vacancy Savings ($'s in Millions) 2019 2020** 2021** 2022 2023 Item 12: Staff Report Pg. 70 Packet Pg. 289 of 341 Item 12 Attachment C - Additional Information as Requested T C 1. by Finance Committee Additional information as Requested by Finance Committee Total General Fund Vacancy Savings I $1.3M $1.3M -$1.7M $1.6M $1.7M Annual Vacancy Rate I 12% 12% 15% 12% 13% General Fund Adjusted Budget* $123.3M $134.7M 124.1M $134.3M $148.4M Variance to Budget 1.1% 1.0% -1.4% 1.2% 1.2% * The annual budget reflects salaries and benefits net of the forecasted vacancy factor each year. ** FY 2020 and FY 2021 are anomaly years as they were significantly impacted by adjustments made due to the COVID-19 pandemic where a number of factors are impacting these rates including but not limited to a hiring freeze as well as eventual position reductions citywide. Economic Recovery Advisory Report During the LRFF review, the Finance Committee raised questions regarding the processes to develop LRFF assumptions and variability in actual results. As a follow up to this discussion, this report includes references to an audit completed by the Office of the City Auditor (OCA) in April 2022 to review the City's long-term financial planning models and inputs (CMR 139151). The purpose of this audit was to offer recommendations for improvement, identify and evaluate key revenue source categories that present long term risk to the City's financial sustainability and perform scenario analysis. The OCA conducted analysis of major revenue sources, including historical trends, the distribution of revenue by type, identification of major payors and their geographic locations, historical relationships between economic factors and revenue, sensitivity analysis based on relevant drivers, and a comparison of per -capita revenues by type to those of similar cities. The analysis also involved evaluating economic factors affecting each revenue source and assessing the use of relevant factors for predictive purposes. The OCA results indicated that the City's was able to forecast revenues at no more than a 9% difference from original estimates over a five-year period, from FY 2016 to FY 2020. Further, the results indicated that the City has a robust process for forecasting and uses reliable information for assumptions. Overall, the OCA determined that the City's long-term financial planning models and inputs align with the OCA's considerations and best practices. Historical Grant Funding and Funding from Other Agencies From FY 2019 through FY 2023, various federal, state, local, and other agencies allocated funds for programs and initiatives across the General Fund and the Capital Improvement Fund. The City's practice is to recommend allocation of these funds after formal agreements are in place with the granting agency or jurisdiction. In addition, since these funds are designated for specific needs, staff strives to use these funding sources first in order to maximize resources. 1 City Council, April 11, 2022; Staff Report # 13915, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=81750 Item 12: Staff Report Pg. 71 Packet Pg. 290 of 341 Item 12 Attachment C - Additional Information as Requested T C by Finance Committee Additional information as Requested by Finance Committee Operating - General Fund 2019 2020 2021 2022 2023 Funding by Fiscal Year (in Millions) $0.8 $0.8 $1.1 $8.8 $12.1 Notably, the Federal Transportation Agency (FTA) contributed to transportation -related projects along with the Santa Clara County Measure B Transportation Improvement Program, and Stanford University supporting the PA Link program. The Institute of Museum and Library Services (IMLS) and Pacific Library Partnership (PLP) supported library partnerships and initiatives and Federal Health and Human Services (HHS) funding was appropriated for mental health services. The funding landscape also encompassed grants for housing and planning awarded by the Metropolitan Transportation Commission (MTC) and California Senate Bill 2 (CA SB2), COVID- 19 relief through CARES and American Rescue Plan Act (ARPA) funds, fire fighter staffing funding via Staffing for Adequate Fire and Emergency Response (SAFER), and investments in safety equipment through the Santa Clara County Office of Emergency Services (SCC OES). Significant sources of funding in each year are as follows: • 2019: FTA and PLP • 2020: FTA, SCC OES, CA SB2, and IMLS • 2021: CARES Act and IMLS • 2022: ARPA, SAFER, and MTC • 2023: ARPA, Measure B, Federal HHS, SAFER, MTC, and Stanford (via transit revenue sharing) Capital Improvement Fund External revenues supporting capital improvement projects fall into three broad categories: local/regional grants (including Measure B), state grants, and federal grants. The table below summarizes the amounts, sources, and uses of these revenues by fiscal year from FY 2019 -FY 2023. The amounts in each fiscal year, which total $50.5 million, do not include reappropriations. 2019 2020 2021 2022 2023 Funding by Fiscal Year (in Millions) $12.4 $4.3 $12.6 $4.0 $17.0 Details of funding sources and capital projects supported are discussed below. • 2019: Local/regional grants comprised $8.4M ■ $7M supporting the Highway 101 pedestrian/bicycle overpass ■ $1.4M of Measure B supporting transportation projects o State grants of $3M for the Newell Road/San Francisquito Creek bridge replacement Item 12: Staff Report Pg. 72 Packet Pg. 291 of 341 Item 12 Attachment C - Additional Information as Requested T C by Finance Committee Additional information as Requested by Finance Committee o $1M of federal grants supported street maintenance • 2020: Local/regional grants comprised $3.4M ■ $2M supporting the Highway 101 pedestrian/bicycle overpass ■ $1.4M of Measure B supporting transportation projects. o $0.5M of federal grants supported Churchill Avenue/Alma Street railroad crossing safety improvements o $0.4M of state grants supported street maintenance • 2021: State grants comprised $5.1M ■ $4.6M supporting the Newell Road/San Francisquito Creek bridge replacement ■ $0.5M supporting street maintenance o Federal funding comprised $4.3M ■ $4.0M for Churchill Avenue/Alma Street railroad crossing safety improvements, ■ $0.3M was given in support of JMZ renovation. o Local/regional grants comprised $3.3M ■ $1.5M went to the Highway 101 pedestrian/bicycle overpass ■ $1.3M of Measure B for transportation projects and street maintenance ■ 0.5M supported Safe Routes to School and JMZ renovation • 2022: Local/regional grants comprised $2.6M ■ $2M of Measure B supporting transportation projects and street maintenance ■ $0.6M of other grants supporting the Highway 101 pedestrian/bicycle overpass and the Civic Center electrical upgrade & EV charger installation o $1M of state grants supported the Newell Road/San Francisquito Creek bridge replacement and street maintenance o $0.3M of federal grants supported JMZ renovation • 2023: State grants comprised $13.3M ■ $12.5M for the Newell Road/San Francisquito Creek bridge replacement, ■ $0.5M for street maintenance ■ $0.3M for Boulware Park improvements and the Charleston/Arastradero Corridor o Local/regional grants comprised $4.8M, ■ $2.5M supported Roth Building rehabilitation ■ $1.3M of Measure B supported transportation projects. Turning to currently budgeted revenues in the Capital Improvement Fund, the table below shows how Measure K, the City of Palo Alto's business tax, and Measure B, a Santa Clara sales tax that benefits transportation projects, are currently planned to be allocated across capital Item 12: Staff Report Pg. 73 Packet Pg. 292 of 341 Item 12 Attachment C - Additional Information as Requested T C by Finance Committee Additional information as Requested by Finance Committee improvement projects based on the 2024-2028 Capital Improvement Plan (CIP). These allocations may change based on staff recommendations and Council direction during the FY 2025 budget and 2025-2029 CIP development cycle. 2024 2025 2026 2027 2028 Measure K - City of Palo Alto Business Tax $0.75 $1.5 $3.0 $3.0 $3.0 PL -24000 - Meadow Dr./ Charleston Rd. Rail $0.43 $0.75 $2.0 $2.0 $2.0 Grade Separation and Safety Improvements PL -24001 - Churchill Avenue Rail Grade $0.32 $0.75 $1.0 $1.0 $1.0 Separation and Safety Improvements Measure B - Santa Clara County Sales Tax $10.5 $7.8 $27.3 $27.3 $20.3 PL -05030 - Traffic Signal and Intelligent $0.6 $0.3 $0.3 $0.3 $0.3 Transportation Systems PL -12000 - Transportation and Parking $0.5 - - - - Improvements PL -17001 - Railroad Grade Separation and $1.9 $1.0 $2.0 $2.0 $1.0 Safety Improvements PL -24000 - Meadow Dr./Charleston Rd. Rail $4.5 $4.5 $15.0 $15.0 $15.0 Grade Separation and Safety Improvements PL -24001 - Churchill Avenue Rail Grade $3.0 $2.0 $10.0 $10.0 $4.0 Separation and Safety Improvements Human Services Resource Allocation Process (HSRAP) As part of the LRFF, staff provided additional details to facilitate the City Council's review of a referral to consider pegging HSRAP budget allocations to a benchmark, such as a percentage of General Fund budgeted expenditures. Staff confirmed that funding levels in prior years were not tied to a percentage of the General Fund budgeted expenditures. The Policy and Services Committee's previous review (CMR 72892) presented four options for augmenting HSRAP funding, but none were approved for recommendation to the City Council. Instead, funding has been adjusted based on the Consumer Price Index (CPI) as funds were available in the General Fund. As part of the LRFF review, the Finance Committee elected to continue the discussion on this referral in February 2024 with any recommended changes forwarded to the City Council for consideration as part of the FY 2025 budget process. The status of the referral has been updated from 'complete' to 'in progress', as indicated in the status update completed on December 5, 2023 (CMR 2307-17943). 2 Policy and Services Committee, November 29, 2016; Staff Report # 7289, https://www.cityofpaloaIto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2016/id-7289-hsrap.pdf 3 Finance Committee, December 5, 2023; Staff Report # 2307-1794, Item 12: Staff Report Pg. 74 Packet Pg. 293 of 341 Item 12 Attachment C - Additional Information as Requested T C by Finance Committee Additional information as Requested by Finance Committee https://recordsportal.paIoaIto.gov/WebIink/DocView.aspx?id=64178 Item 12: Staff Report Pg. 75 Packet Pg. 294 of 341 Item 13 Item 13 Staff Report City Council Staff Report From: City Manager CITY O F Report Type: ACTION ITEMS PALO Lead Department: City Manager ALTO Meeting Date: January 22, 2024 Report #:2309-2063 TITLE Update regarding State and Federal Legislation and Approval of the Annual Legislative Guidelines and Legislative Platform as Recommended by the Policy & Service Committee. CEQA Status — Not a Project :i���]�JI►IhhU7_'IV[9LI The Policy & Services Committee recommends that the City Council approve the 2024 Federal and State Legislative Guidelines / Legislative Platform (Attachment A) and accept a legislative update. BACKGROUND The Policy and Services Committee heard this item at the December 12, 2023 Committee meeting and voted to advance it to the full City Council for adoption. Information about the upcoming months in Sacramento and Washington, D.C. will be provided by Townsend Public Affairs as a supplemental memo and will include information about the Governor's budget (budget release is January 10, 2024). ANALYSIS As part of the City's state and federal legislative advocacy program, staff and the City's contracted federal and state advocates work to identify and analyze potentially impactful legislation and communicate the City's public advocacy positions to legislators. The program is guided by the Advocacy Process Manual, last approved by City Council on January 13, 2020 (CMR #10772). In addition to the Manual, the City maintains a City Council -approved set of legislative guidelines that provide additional City Council policy direction to staff and the City's state and federal legislative advocates. The legislative guidelines are used by staff in consultation with the Mayor to respond to bills and other issues that emerge throughout the year. They allow for efficiency in the fast -paced legislative environment. Item 13: Staff Report Pg. 1 Packet Pg. 295 of 341 Item 13 Item 13 Staff Report The 2024 draft guidelines were first discussed at the Legislative Matters Ad Hoc Committee in November 2023 and then at the December 12, 2023 Policy & Services Committee. The 2023 adopted guidelines were discussed in October 2022 at Policy and Services Committee and subsequently at City Council during discussions of the contract for federal and state advocacy. Legislative Guidelines The Legislative Guidelines enhance and add content to the City Council's overarching priorities; they do not supplant them. The guidelines provide direction to staff and the City's legislative advocates on issues that are both (a) important to the City Council, and (b) likely to become a legislative issue in 2024. The guidelines are not rank ordered and are intentionally reasonably broad rather than specifically narrow to allow for a flexible and quick response. Further, the guidelines are not proactive instructions; they act as a means by which staff and advocates can respond to federal and state government action, without returning to the City Council each time a bill is introduced or amended. The draft 2024 guidelines are a compilation of the current, approved guidelines, City Council's 2023 priorities, and policy issues staff and the City's legislative advocates have heard interest in. Attachment A is an updated Legislative Guidelines with feedback from the City Council Legislative Matters Ad Hoc Committee and the Policy and Services Committee. The recommendation from the Policy and Services Committee is for the full City Council to discuss and adopt the guidelines. Legislative Update The City's legislative advocates in Sacramento and Washington, D.C. (Townsend Public Affairs) will be present to provide advocacy updates and information about the coming weeks and months in Sacramento and D.C. if there are questions from the Committee. FISCAL/RESOURCE IMPACT There is no additional funding needed for this report. The City Council budgets annually for the legislative advocacy services and these efforts are led by staff in the City Manager's Office with stakeholder support across departments on key issues. ENVIRONMENTAL REVIEW The City's legislative advocacy activities are not a project under section 15378(b)(25) of the California Environmental Quality Act Guidelines (administrative activities that will not result in direct or indirect physical changes in the environment). ATTACHMENTS Attachment A: Draft 2024 Legislative Guidelines APPROVED BY: Ed Shikada, City Manager Item 13: Staff Report Pg. 2 Packet Pg. 296 of 341 Item 13 Attachment A - Draft The City of Palo Alto's 20243 Federal and State Legislativ 2024 Legislative Guidelines These Guidelines reflect and activate the City Council's priorities; they do not supplant them. They work to guide staff and the City's legislative advocates on issues that are important to the City Council, and likely to become a legislative issue. These Guidelines are not rank- ordered and are meant to allow for a flexible and quick response by staff and advocates, without the need to return to the City Council to seek guidance. The Guidelines work in conjunction with the City Council -approved Advocacy Process Manual and the City Council action to do "Strategic Weighing in on Issues of Interest" (June 22, 2021 CMR 12344; Minutes). The City Council's annual priorities are also guidance for the City's legislative platform. The below Foundational Principles represent the ideals that form the core of the City's policy agenda. The Legislative Guidelines all rise from and strengthen four foundational principles: 1. Promote Local Fiscal Sustainability: Support measures that promote fiscal stability, predictability, financial independence, and preserve the City's revenue base and maximum control over local eovernment budeetine. Also Pprotect local revenue sources and prevent unfunded mandates. 2. Support Funding Opportunities: Protect, seek, and increase funding for programs, projects, and services; pursuc grants. Seek opportunities that allow the City to compete for regional, state and federal funding. Support funding for programs including, but not limited to, economic development, infrastructure investment, housing, transportation projects (such as road improvements, rail grade separations, bicycle and pedestrian safety, multi -modal transportation systems and transit - oriented development), air quality, water quality and local water reliability, parks and recreation, historic preservation, natural resources, hazard mitigation, public safety and public health. 3. Preserve Local Control: Preserve and protect the City's powers, duties, and discretion to enact and engage in local processes and policy making concerning local affairs and oppose efforts and legislation from state and regional bodies that preempt local authority. Advocate for longer lead times for implementation of new legislation that impacts Palo Alto. Protect and incr„as local government discretion. Oppose items that preempt or reduce the authority or ability of local government to determine how to effectively operate local programs, services, activities, and governance. 4. Protect the health and safety of the community: Support policies and funding that enrich the quality of life for the Palo Alto community with services that provide for a safe, fulfilling, and vibrant life. Support policies that promote equity. Page 1 of 5 Item 13: Staff Report Pg. 3 Packet Pg. 297 of 341 Item 13 Attachment A - Draft The City of Palo Alto's 20243 Federal and State Legislativ 2024 Legislative Guidelines The Legislative Guidelines create the framework for organizing the City's policy interests, while guiding staff and contracted lobbyists in their advocacy efforts on behalf of the City. The items below provide direction for the City's efforts when addressing reasonable government actions. Transportation The City supports government action that: • Deters single occupancy drivers and alleviates local traffic congestion • Supports local and regional public transportation • Regulates technology that diverts traffic into residential neighborhoods •Provides funding for rail grade separations, rail efficiency improvements, and other means of reducing the local impacts of regional transportation systems • Streamlines funding between the state, federal, and local governments that help reduce the amount of time and resources it takes to fund and complete transportation projects. • Sustains local, regional, and state funding sources for the development and maintenance of transportation and does not condition receipt of funds on non -transportation related factors • Supports expansion and/or maintaining of public transit options throughout Palo Alto, especially funding for transit • Supports state legislation that maximizes local control related to land use requirements near transit (especially if it impacts the City's approach to planning for complete communities) Climate and Environment The City supports government action that: • Reduces GHG emissions and supports progress toward GHG reduction and carbon neutrality goals • Reduces airplane noise, health impacts, and/or airplane emissions •Promotes residential, commercial, and vehicle electrification programs • Promotes workforce development to provide increased workforce needed for electrification and grid modernization • Promotes the use of renewable resources, water conservation, and the flexible use of existing resources Page 2 of 5 Item 13: Staff Report Pg. 4 Packet Pg. 298 of 341 Item 13 Attachment A - Draft The City of Palo Alto's 20243 Federal and State Legislativ 2024 Legislative Guidelines • Continues supports for a statewide ban on polystyrene containers and packaging materials • Provides opportunities for staff, in partnership to -work with the San Francisquito Creek Joint Powers Authority and other regional stakeholders, to advances efforts to improve the creek's watershed and floodplain (especially related to local bridges) • Supports efforts to protect local communities from sea level rise and other impacts of climate change • Supports proper disposal responsible processing of recyclables once removed from Palo Alto and other communities. including aromotine orocessing facilities and recvclables markets within the United States •Strengthen and modernize the State and Local electric grids • Su000rts the protection of our natural environment. including open space. trees/tree canopy, and biodiversit Financial The City supports government action that: • Supports the long-term stability of CaIPERS and the ability of local governments to mitigate and manage with flexibility its pension obligations • Protects the funding sources and levels of City servicesfor the sustainable delivery of City services Provides for COVID 1 9 related expenses and revenue losses •Supports the continued deductibility of tax-exempt municipal bonds and the restoration of Advance Refunding of Tax -Exempt Municipal Bonds • Supports the lowering or maintaining of voter thresholds for local revenue measures • SuDDorts maximum flexibility for local negotiations rnment in contracting and contract • Supports efforts to attract and retain resources for current and future smaller businesses in Palo Alto • Preserves local discretion in the assessment. collection. and usage of develoament fees Governance, Transparency, and Human ResourcesPublic Employment The City supports government action that: •Preserves local government's ability to manage its own employment issues, including, but not limited to hiring, evaluating, disciplining, and/or terminating and negotiating collective bargaining agreements with employees' representatives • Supports reasonable regulatory efforts surrounding policies regarding cybersecurity, drones, shared mobility services, returning to Obama-era net neutrality regulations. and smart city initiatives Page 3 of 5 Item 13: Staff Report Pg. 5 Packet Pg. 299 of 341 Item 13 Attachment A - Draft The City of Palo Alto's 20243 Federal and State Legislativ 2024 Legislative Guidelines • Protects individual privacy and allows the City to safeguard customer information • Maintain existing records collection and retention requirements • Promote teleconferencing flexibilities under the Ralph M. Brown Act • Allows the City to support the collaborative work of regional partners. trade associations. other local governments and organizations, and Joint Powers Authorities • Provides for the equal treatment of all individuals �� _+,-. �_�J Housing The City supports government action that: • Supports reasonable housing policies that recognize local autonomy to maintain the local public process and preserve local government's ability to determine land use policies and development standards • Provides funding for (a) affordable housing, (b) homelessness, and (c) infrastructure (such as parks, utilities, roads, and transit) required to support the increased housing production and keep pace with local development goals • Promotes the development and enhancement of safe and affordable housing and accessible housing within the City for all economic segments of the population • Promotes funding and tax incentives for the identification, acquisition, maintenance, adaptive reuse, and restoration of historic sites and vacant structures • Fosters reasonable ratios between jobs and housing •Supports the development and implementation of efficient and environmentally sustainable land use and building practices • Supports the provision of greater lead times (extended effective dates of state legislation) for local jurisdictions to implement state legislation which offers Palo Alto the opportunity to apply new land use and housing requirements within the local context PoliccPublic Safety The City supports government action that: • Supports efforts which seek to modify policing services, including but not limited to alternative public safety models and funding to address community mental health issues, expansion of requirements regarding police data and rules regarding prior Page 4 of 5 Item 13: Staff Report Pg. 6 Packet Pg. 300 of 341 Item 13 Attachment A - Draft The City of Palo Alto's 20243 Federal and State Legislativ 2024 Legislative Guidelines employment information transparency, and expansion of data and communications including radio encryption. • Provides for greater public safety support resources especially related to organized retail theft operations • Reduces weapons -related violence via the enactment of common-sense firearm reforms • Enhances fire and emergency training and response capabilities. Mitigate fire safety risks. Advocate for funding and policy to mitigate wildfire risks and funding for fire services in general as well as funding for emergency services. • Updates. implements. and refines processes, services, and programs affecting the City. This includes, but is not limited to, public safety reform efforts and streamlining reporting mandates • Support legislation that would address ongoing safety concerns and help prevent acts of violence motivated by hate, including improving data collection and reporting I-.-- T6;,- ,.I. „J.,. L.. �+ ,.+ I:.- +,..J i Page 5 of 5 Item 13: Staff Report Pg. 7 Packet Pg. 301 of 341 Item 14 Item 14 Staff Report CITY OF PALO ALTO City Council Staff Report From: City Manager Report Type: INFORMATION REPORTS Lead Department: Transportation Meeting Date: January 22, 2024 Report #:2312-2331 TITLE Bicycle and Pedestrian Transportation Plan (BPTP) Update: an active transportation plan -- Introduction & Overview, Community Engagement, Context & Baseline Conditions, and Next Steps RECOMMENDATION Receive this Bicycle and Pedestrian Transportation Plan (BPTP) Update —Introduction & Overview. EXECUTIVE SUMMARY Staff is providing this Information Report as an overview to the City Council on the recently launched effort to update the City's existing 2012 Bicycle and Pedestrian Transportation Plan (BPTP). The City's existing BPTP is a critical planning, policy, and implementation document that supports efforts to improve the safety and attractiveness of walking, biking, and rolling as a means of transportation and recreation. The objectives of the BPTP Update are to seek robust community feedback; reevaluate implementation progress from previous plans to adjust recommendations for new policies, facilities, and programs; and to determine appropriate criteria and metrics to prioritize recommendations and network routes. The BPTP Update effort will also further investigate safety data to propose impactful recommendations, explore the role of emerging transportation technologies such as electric -bicycles and micro -mobility devices, and establish big -picture planning to expand bicycling and walking for all user types in support of the City's 2030 Comprehensive Plan, the Sustainability/Climate Action Plan, a Safe System approach, and other planning documents and policies. The Plan Update effort will be an 18 -24 -month process, with the Plan Update adoption anticipated for Summer 2025. BACKGROUND At its May 17, 2021 meeting, the City Council adopted a resolution supporting the City's grant application for the State Transportation Development Act (TDA) Article 3 Funds for the BPTP Update project, and in September 2021, the Metropolitan Transportation Commission (MTC) approved of the allocation of Transportation Development Act Article 3 (TDA3) funds to the City Item 14: Staff Report Pg. 1 Packet Pg. 302 of 341 Item 14 Item 14 Staff Report of Palo Alto in the amount of $334,852 for the purposes of updating the 2012 Bicycle and Pedestrian Transportation Plan. At the June 19, 2023 meeting, the City Council approved a professional services contract with Kittelson & Associates, Inc. with subconsultants Mobycon, to prepare this BPTP Update. ANALYSIS The existing conditions and needs analysis is underway. The following section presents a brief discussion of each of the topics covered in this task. Network Mapping and Facilities Inventory. Available data has been compiled and the GIS-based infrastructure inventory has been updated to reflect the existing pedestrian and bicycle network. DemographicAnalysis. The City of Palo Alto has a population of 68,680 according to the American Community Survey (ACS) 2021 5 -year estimates. The working age population cohort (ages 20 to 64) represents the largest population segment in the City at 57% of the total population. Palo Alto residents are highly educated, with the majority (98%) of people aged 25 years or older having at least a high school graduate degree. 53% of the population is White, 7% of the population identify as Hispanic or Latino, and 35% Asian.; Chinese, Asian Indian, and Korean constitute the major Asian ethnic groups in the City. Approximately 61% of the population exclusively speaks English at home. Asian and Pacific Island languages make up about 22% of the population, with around 32% of this group not speaking English proficiently. Other Indo- European languages account for 11%, of which roughly 14% do not speak English very well. There are no Equity Priority Communities or Disadvantaged Communities within the City of Palo Alto but there are Equity Priority Communities in Stanford University and East Palo Alto. Program and Policy Inventory. Over twenty relevant planning documents and programs were reviewed to develop an enhanced understanding of the policy and planning environment for walking and biking in Palo Alto. This work also supports the creation of an updated inventory of existing programs and policies relevant to biking and walking and identifies gaps or needs that could be addressed by the Plan. Bicycle Friendly Community Assessment. Since 2003, the League of American Bicyclists' (LAB) Bike -Friendly America program has been evaluating states, communities, businesses, and universities with the aim of rewarding excellence and raising standards and expectations for what constitutes a bicycle -friendly environment. As of 2023, Palo Alto was designated as a Gold -level cycling community. It has been listed as a Bicycle -Friendly Community since 2003 and has been a Gold -level community since 2010. The 2023 application increases the emphasis on addressing gaps in the low -stress network with Item 14: Staff Report Pg. 2 Packet Pg. 303 of 341 Item 14 Item 14 Staff Report the most recent report card indicating that neighborhood streets are underutilized in Palo Alto, which could easily become low -stress linkages in the cycling network for a relatively low cost. If the City decides to pursue progressing to a "Platinum" level to assist reaching S/CAP goals, specific opportunities identified for the City of Palo Alto are as follows (based on the 2021 Report Card and the 2023 application criteria): • Increasing the overall mileage of bicycle network with a specific focus on addressing gaps in the low stress cycling network. • Increase high -quality cycle parking, especially near major activity centers and transit. • Expand cycling education efforts to reach adults, especially women, seniors, underrepresented groups, and English learning communities (noting the large Chinese and Hispanic groups present). Further, the LAB suggests that Palo Alto could offer bicycle friendly training to motorists, particularly commercial drivers and fleet operators (such as delivery drivers). • Creating a bicycle -friendly environment through laws & ordinances. It is considered that working towards the above suggestions could increase cycling mode share from a modest 9% closer to the Platinum -level average of nearly 14% in the City. This would have the added benefit of reducing crash and fatality rates by increasing overall road safety which would also work towards a Platinum -level community designation. The Bicycle and Pedestrian Transportation Plan can also help to identify opportunities to achieve the items that were identified as opportunities to improve. Bicycle Level of Traffic Stress (LTS). Bicycle level of traffic stress (LTS) is a rating given to a road segment or crossing indicating the traffic stress it imposes on bicyclists. Levels of traffic stress range from 1 to 4 with LTS 1 indicating low stress facility and LTS 4 indicating a high stress facility. The segment analysis considers roadway functional classification, vehicle volume, posted or prevailing vehicle speeds, number of vehicle lanes, the presence of on -street parking, and vehicle parking and bicycle lane widths. The crossing analysis considers the right -turn lane configuration and length, bike lane approach, vehicle turning speeds, and the presence of a median refuge. The results of the LTS analysis will inform the locations and types of treatments and facilities needed to create a low -stress all ages and abilities bicycle network. Pedestrian Barriers. The analysis of pedestrian barriers will examine linear barriers (such as freeways, water bodies, and rail lines) and barriers near transit (including gaps in sidewalks, curb ramps, signals, or disconnected cul-de-sacs) that force people to take detours and increase the and types of treatments and facilities needed to create direct connections and reduce the length of walking trips. Safety and Collisions. A detailed spatial analysis of the five most recent years of reported collision data involving bicyclists and pedestrians will be conducted to identify pedestrian and bicycle high Item 14: Staff Report Pg. 3 Packet Pg. 304 of 341 Item 14 Item 14 Staff Report injury networks (HINs). Additionally, available variables in the collision data will be analyzed to identify patterns or trends based on temporal characteristics, lighting conditions, location characteristics (intersection versus segment), primary collision factors, age, and gender. These collision profiles will provide a better understanding of the common risks, and where and how efforts should be focused to most effectively make streets safer for people walking and biking. The safety analysis also includes a high-level review of the ten most recent years of reported collision data involving bicyclists and pedestrians has been conducted to understand how the number and severity of pedestrian and bicycle involved collisions are changing over time. The following charts illustrate a general decrease in the total number of pedestrian and bicycle involved collisions. Bicycle Collisions 120 98 100 80 60 40 20 0 104 5 4 2 2 4 5 2 4 2 1 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total -Fatal and Severe Injury Item 14: Staff Report Pg. 4 Packet Pg. 305 of 341 Item 14 Item 14 Staff Report Pedestrian Collisions 45 40 35 30 25 20 15 10 5 0 40 3 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total -Fatal and Severe Injury Activity and Benefits. The analysis will utilize various data sources, including counts and location based data, to estimate existing and future walking, biking, and rolling activity in the City and forecast benefits of investments in the active transportation network. Next Steps The City's Office of Transportation will host a Visioning Workshop with stakeholders on January 31, 2024 to craft the Vision and Goals for the Plan Update effort. Additionally, the existing conditions and needs analysis will be completed over the next few months and presented to working groups and committees for review and input as part of Phase 2 engagement, anticipated for Spring 2024. Following committee review and input, the City Council will review the existing conditions and needs analysis in Spring/Summer 2024. Further along in the project, Council will provide input to shape the process during the later phases, when we get to the criteria development, prioritizing projects, and ultimately the draft and final plan. FISCAL/RESOURCE IMPACT The BPTP Update project cost is $333,945, including a 10% contingency. The City is eligible to cover project expenditures under MTC's TDA Article 3 program and can request an allocation of up to $334,852 for the effort. City staff anticipates that all eligible costs incurred will be reimbursed through the TDA Article 3 payment reimbursement process. These funds are included in the FY 2024 Adopted Budget in the Bicycle and Pedestrian Transportation Plan Implementation Project (PL -04010). Item 14: Staff Report Pg. 5 Packet Pg. 306 of 341 Item 14 Item 14 Staff Report STAKEHOLDER ENGAGEMENT The goals of the community engagement for the BPTP Update include: • Communicate timely information to the public and agency partners throughout the Plan Update • Actively seek feedback prior to key milestones during the development of Plan Update • Provide meaningful opportunities for involvement • Demonstrate how community input has influenced the Plan Update's development • Seek participation of potentially underserved and disadvantaged communities • Ensure consistency with applicable state and federal laws and regulations, as well as local policies, goals, and objectives • Coordinate with ongoing community engagement efforts carried out through other plans and programs such as the Safe Streets for All Plan and Safe Routes to Schools (SRTS) Community engagement is divided into three phases: 1) Visioning; 2) Needs & Concerns; and 3) Recommended Projects and Programs. The community engagement effort includes a combination of digital outreach and in -person events. • Project website and interactive map. The project website can be accessed at: https://www.cityofpaloalto.org/bikepedplan. The website recently included an interactive map that allowed respondents to provide geographic input on key issues and opportunity locations for walking, biking, and rolling in Palo Alto. The interactive map was open from early October through December 31, 2024 and received a total of 956 individual comments. The comments used will inform the BPTP Update vision, goals, and priorities, as well as identify areas of concern and opportunities for upgrading the pedestrian and bicycle network and improving safety and comfort for those walking and rolling in the city. • Committee and Working Group Meetings. The project team will engage the following committees and working groups at three key points over the course of the plan: o Pedestrian and Bicycle Advisory Committee o City School Transportation Safety Committee o Planning and Transportation Commission o Parks and Recreation Commission o Rail Committee o City Council o Interagency Staff Working Group • Neighborhood and Focus Group Meetings. Four neighborhood meetings will be held during the second phase of engagement. These meetings will be jointly organized by the consultant team and community partners and will be distributed geographically throughout the city. Community partners will provide a range of roles, including distributing materials, promoting events, hosting events, providing translation and notetaking, facilitating focus groups, and reviewing material for the inclusion in the Plan. • Street Level Engagement: Four street level engagement events will be held at various locations, to be selected with recommendations from City staff, working groups and committees. These events will include tabling to introduce the project and seek input on community needs and recommendations at key locations such as farmer's markets, City fairs, community events, and Item 14: Staff Report Pg. 6 Packet Pg. 307 of 341 Item 14 Item 14 Staff Report pop -ups during peak lunch, dinner, and drop-off/pick-up hours on site (e.g., downtown, California Ave., middle and high schools). o The project team tabled at the Bike Palo Alto event on Sunday, October 1, 2023 to introduce the project and to receive input from the community on specific locations that need improvement. • Community Meetings. Two community meetings will be hosted and are planned to be hybrid, offering both in person and virtual options for participation. o Meeting #1: Visioning Workshop (January 31, 2024). The goal of the visioning workshop will be to identify the direction of the Plan and set forth objectives and goals. The outcomes from the visioning workshop will be revisited at the STAR Analysis workshop as part of the multi -day in -person collaborative work sessions. Stakeholders will be invited to this meeting. o Meeting #2: System Development & Network Priorities (June 2024). The goal of the second meeting is to refine project recommendations and gather feedback on prioritization. Stakeholders will be invited to this meeting. Multi -Day Collaborative Work Sessions. Mobycon staff will be curating and executing a multiday collaborative work session at two points along the project. The first will occur in Spring 2024. Activities conducted during this time will set the stage for the network evaluation and project identification process to follow. The second session will occur in Fall 2024. Activities will focus on solidifying network recommendations and developing a process to prioritize projects, programs, and policies for implementation. Phase 1 Community Engagement Themes Phase 1 community engagement themes included an interactive map, public survey (developed and distributed in partnership with the Safe Streets For All Action Plan team), a series of seven committee and working group meetings, and an in person pop-up event at Bike Palo Alto. A community meeting visioning workshop is scheduled for January 31, 2024. A high-level overview of what we heard through these Phase 1 engagement activities is presented in this section. • Interactive Map. A total of 956 unique comments were received between September 28 and December 31, 2023. Commenters had the option to select four different comment categories, including safety concern, infrastructure needed, destination you want to access, and other. Over half of the comments (54%, or 516 comments) were categorized as a "Safety Concern", followed by 29% (276) of comments categorized as "Infrastructure Needed", 14% (136) of comments were categorized as "Other", and the remaining 3% (28) of comments were categorized as "Destination You Want to Access". Participants were given the option to view and like comments from other users. Notably, comments advocating for improved infrastructure to address connectivity gaps in existing bicycle facilities, safety enhancements, wider bike lanes for increased rider comfort, and the provision of bike infrastructure near schools garnered the highest number of likes. The project team will be further reviewing the comments in the upcoming months. • Committee and Working Group Meetings. The BPTP Update team engaged with several standing committees and commissions and created a working group to guide the development of the work. The Phase 1 working group and committee feedback covers a wide range of topics related to Item 14: Staff Report Pg. 7 Packet Pg. 308 of 341 Item 14 Item 14 Staff Report safety, transportation infrastructure, across barrier connections, transformative technologies, and future development. Key themes that emerged from these meetings include: 1. Safety is a top priority. People expressed concerns about pedestrian and bicyclist safety at various locations, especially for students walking to and from school. 2. There is demand for high quality transportation infrastructure. Suggestions to support more walking and biking included implementation of more bicycle boulevards with traffic calming treatments on neighborhood streets, as well as additional secure and long-term bicycle parking, and separated bike lanes on higher speed higher volume roadways. There was general agreement that quality was more important than quantity when it comes to transportation infrastructure for walking and biking. 3. Across barrier connections are needed. Committee and working group members recognized the presence of major barriers, such as U.S. 101 and the Caltrain tracks, and acknowledged the need for low -stress connections to overcome these barriers. There was a sense of urgency around selecting a preferred location for grade - separated crossing(s) of the Caltrain tracks. 4. Power and potential of transformative technologies. The presence of new travel modes, including e -bikes and e -scooters, as well as the availability of new technologies such as LiDar and vehicle to infrastructure sensors, has rapidly changed the landscape of transportation planning and facility design. Committee and working group members expressed an interest in considering and incorporating these transformative technologies in the BPTP Update analysis and recommendations. 5. Plan for the future. There is substantial growth planned in Palo Alto, particularly within select priority development areas. The BPTP Update must consider land use changes and development patterns. Bike Palo Alto event. The BPTP Update team participated in the Bike Palo Alto event, which was held on October 1, 2023 from 1-3 p.m. at Fair Meadow Elementary School. The team received comments from about 40 participants who expressed concerns related to walking and biking safety, supported implementation of protected bike lanes, and identified El Camino Real as a barrier to connectivity within the city. ENVIRONMENTAL REVIEW California Senate Bill 922 (2022) exempts active transportation plans, such as bicycle transportation plans like the BPTP Update from environmental review under the California Environmental Quality Act (CEQA). ATTACHMENTS Attachment A: Existing Bicycle Facilities Map (Dated 01/05/2024) Attachment B: Basemap Attachment C: Bicycle Friendly Community Benchmarking Memo Attachment D: Literature Review Summary APPROVED BY: Philip Kamhi, Chief Transportation Official Item 14: Staff Report Pg. 8 Packet Pg. 309 of 341 MENLO PARK Menlo Park Caltrain 0 F/C dh/l7 O 'QPd/ 8 PJ0 Alto Palo AI[S High School STANFORD UNIVERSITY EAST PALO ALTO Park Cd Midc din Schc °Red 9 a / o9 Robles vaa `` Ja j� Park Pare c � as ( �a :r _ Middle Schooll Alta Mesa Memorial Park LOS ALTOS Item 14 Attachment A- Existing Bicycle Facilities Map (Dated 01/05/2024) x Palo Alto Airport Byxbee Park ._. •G SAO .-•, . y MOUNTAIN San Antonio VIEW Cal train EAST MOUNTAIN LOS ALTOS PORTOVIEW HILLS LA VALLEY i�i• % i % LA HONDA ALTOS r:xre, Class I - Shared Use Path ® Ped/Bike Bridge m Library Class Ila - Bike Lane IN Ped/Bike Underpass 0 Caltrain Stop Class Ilb - Buffered Bike Lane Q City of Palo Alto IH Railroad Class Illa - Bike Route Park/Open Space Class Illb - Bike Boulevard School/University ,ICLE S p. Class IV - Separated Bikeway Commercial Center Fsrp ---------- Trail 0 Community Center 0 1 2 I Miles Data Sources: City of Palo Alto, MTC Existing Bicycle Facilities Map 01/05/2024 Item 14: Staff Report Pg. 9 Packet Pg. 310 of 341 Item 14 Attachment B - Basemap EAST PALO ALTO MENLO PARK Menlo Park Caltrain Q Pie Palo Alto /j Airport // �e O �e M• ay/ Eleanor =e' Pardee `Park \Charming o p Ave rsaca4\\� STANFORD UNIVERSITY o O RParks ya�` oc y4 PJa. c iqP^ oA O3, � �. a h ac P�1 �.• �y Bol d� Oy � v Park MOUNTAIN VIEW �aa '�' San Antonio Captain OOf Gunn Q Fletcher ISchool High Middle School EAST £, PALO ALTO LOS MENLO 1° ALTOS PARK \ 101 STANFORD PALO ALTO UNIVERSITY Pearson-Arastradero Preserve MOUNTAIN LOS ALTOS VIEW HILLS PORTOLA VALLEY LOS LA HONDA ALTOS Q City of Palo Alto 0 Community Center Park/Open Space 0 Library School/University 0 Caltrain Stop Commercial Center I Railroad 0 1 2 Miles Data Sources: City of Palo Alto, MTC Item 14: Staff Report Pg. 10 Packet Pg. 311 of 341 17Z K ITT E LS O N 155 Grand Avenue, Suite 505 Oakland, CA 94612 &ASSOCIATES P510.839.1742 Technical Memorandum August 22, 2023 To: Ozzy Arce City of Palo Alto, Office of Transportation From: Kittelson & Associates, Inc. and Mobycon CC: Sylvia Star -Lack, City of Palo Alto, Office of Transportation Item 14 Attachment C - Bicycle Friendly Community Benchmarking Memo Project# 28476 RE: Palo Alto Bicycle and Pedestrian Transportation Plan Update - Bicycle Friendly Community This memo provides a review of the criteria for a "Bicycle Friendly Community" as outlined by the League of American Bicyclists and a comparison of the City of Palo Alto (the City) to Gold- and Platinum -rated peer communities. We will also examine the detailed evaluation metrics to identify areas for improvement in Palo Alto and provide suggestions to help Palo Alto improve from a Gold to Platinum -level Bicycle Friendly Community. The Importance of Walking & Wheeling Walking (or moving by wheelchair or mobility device) is the most fundamental form of transportation available. Regardless of what mode one chooses, there is a point at the beginning and end of their trip in which they are a pedestrian. Additionally, walking or moving by wheelchair is the one form of transportation available to everyone, regardless of age or ability to drive or ride a bike. Similar to walking, wheeling (by any one of the various means from cycling or scootering to using a wheelchair or mobility device) is, in theory, a widely accessible means of transportation and recreation. In comparison to owning a vehicle or even purchasing a transit pass, using any of the various wheeling devices is a low-cost (and sometimes no -cost) way to travel throughout one's community. Active modes of travel have a wide variety of benefits for individuals and society as a whole. Walking and wheeling (when requiring human effort), provide users with exercise opportunities that can be incorporated into their daily routine. Exercise has been found to improve both physical and mental health, improving overall public health and wellbeing. This can have significant benefits to the health system and result in economic benefits as well. This can have significant benefits to public health with one study finding that a moderate increase in active transport (40.5 to 53.4 minutes per person week) - in line with preferred transportation scenarios from the five largest California transportation planning regions - could result in an annual reduction of 909 deaths and 16,084 disability adjusted life years (DALYs) which is the sum of years of life lost due to premature Kittelson & Associates, Inc. Item 14: Staff Report Pg. 11 Packet Pg. 312 of 341 August 22, 2023 Palo Alto Bicycle and Pedestrian Transportation Plan Update Item 14 Attachment C - Bicycle ge 2 Friendly Community nity Benchmarking Memo mortality and years of living with disability. A significantly more ambitious scenario, increasing cycling to 283 mins per person per week could result in 8,543 fewer annual deaths and 194,003 fewer DALYs.1 In addition to public health improvements, active transportation provides economic benefits in a variety of ways, from reductions in healthcare costs associated with a healthier population, to increased property values, business revenue, and tourism. Such benefits have been observed across the country with Northwest Arkansas seeing $137 million in economic benefits from investments in cycling2, Indianapolis generating a $1.01 billion increase in property values adjacent to the Indianapolis Cultural Trails, and the Miami Valley in Ohio attracting $13 million worth of goods and services income annually associated with the trails in the region4. It is well-known that walking and wheeling by human -powered modes is also much more environmentally friendly than travelling by motor vehicles, whether powered by fossil fuels or electric motors. Achieving higher mode share of zero carbon emission (walking) and low carbon emission (cycling) modes can significantly reduce greenhouse gas emissions and improve air quality, linking back to public health outcomes due to reduced pollution. Motor vehicles also produce a significant amount of environmental microplastic pollution from tire wear, an issue that is of growing concern with larger, heavier vehicles that wear down tires more quickly. This is especially pertinent with the growing number of large vehicles on streets and roads (such as SUVs and pick-up trucks) as well as electric cars (which weigh more than internal combustion vehicles). It is noted that bicycles (both pedal -powered and electric) produce emissions through the logistics and assembly chain, as well as brake and tire particulate during use, however at almost insignificant levels compared to motor vehicles. Walking and wheeling are also economically more sustainable for communities as walking and wheeling infrastructure tends to be cheaper to provide and maintain, as well as being more space efficient in moving similar numbers of people as car infrastructure. In almost all cases, walking and wheeling are the cheapest forms of transportation even when compared to transit. Finally, providing well -planned and designed walking and cycling networks ensure residents and visitors have mobility options to safely and comfortably travel within their community. Traditional auto -centric planning and street design has created auto -dependent cities where using sustainable forms of transportation can be uncomfortable and even dangerous. Without access to a car, people can be excluded from opportunities to participate in society. This has manifested within Palo Alto through historical zoning practices relegating non-residential uses to a concentrated location resulting in significant travel distances for day-to-day errands. Providing diverse transportation networks allows people of all ages, abilities, incomes, and ethnic backgrounds to choose what form of transportation is best suited to their needs and desires, contributing to the creation of a more equitable community. I https://www.sciencedirect.com/science/article/pii/S2214140516302419 2 https://www.waltonfamilyfoundation.orglabout-us/newsroom/bicycling-provides-137-million-in-economic-benefits-to-northwest-orkansas 3 https.11uli.org/wp-content/uploads/ULI-Documents/Active-Transportation-and-Real-Estate-The-Next-Frontier.pdf 4 haps://uli.org/wp-content/uploads/ULI-Documents/Active-Transportation-and-Real-Estate-The-Next-Frontier.pdf https://www. mvrpc. orp/sites/default/files/20l3trailsurvevreport. pdf Kittelson & Associates, Inc. Item 14: Staff Report Pg. 12 Packet Pg. 313 of 341 August 22, 2023 Palo Alto Bicycle and Pedestrian Transportation Plan Update Principles of Good Network Design Item 14 Attachment C - Bicycle ge 3 Friendly Community nity Benchmarking Memo To create a truly sustainable transportation network, high quality facilities for all road users must be provided. Five key principles are considered for network planning and design. By ensuring all five principles are met within the network, a system of streets and spaces are created that improve access and connectivity while encouraging people to walk and cycle for all kinds of trips, from the work commute to daily errands and beyond, thus serving a wide variety of users. Cohesion - A cohesive active transportation network is one that allows users to get from A to B using active modes, with key origins and destinations linked as a cohesive whole that can be easily navigated by bike or on foot. Gaps in sidewalks or cycling facilities undermine cohesion as they present barriers for users to overcome, forcing users into environments that are not suited to them, such as a busy roadway. Directness - A direct trip by active means, or any mode for that matter, is one that can be completed quickly and with minimal effort. Since walking and cycling are human -powered modes, it is important that unnecessary detours are avoided. Such detours may require excessive time or energy for the user, presenting a barrier to active modes. Routes that are short and quick for pedestrians and cyclists result in walking and cycling trips that are competitive to other forms of transportation, increasing the likelihood of their use. Safety - Safety is a key aspect in an active transportation network. Unsafe conditions, such as mixing active users with vehicles on high speed and volume roadways is a major deterrent to a large proportion of the population. A key aspect of creating a safe environment is minimizing differences in speed and mass. In practice, this means providing dedicated spaces for pedestrians and cyclists in the form of sidewalks and cycle tracks where traffic speeds and volumes are high. In some cases, such as local streets where volumes are low, mixing users can be safe as long as the street is designed to slow vehicles to 20 mph or less, a speed that is safe for vulnerable road users. When creating a safe environment, perceived safety must also be taken into consideration. If an environment feels threatening to active users, even if there is no real danger, that environment will be avoided when possible. Comfort - Comfort is an often -overlooked aspect of designing an active transportation network. Frequent stops at stop signs and red lights can negatively impact user comfort as this increases the physical exertion required of cyclists when starting from a stop and can be irritating for pedestrians. Other aspects that can negatively influence comfort include bumpy or uneven surfaces and excessive noise from vehicles or other sources. Perceived safety, as mentioned above, can also be linked to comfort as a feeling of being unsafe undermines feelings of comfort. Attractiveness - While attractiveness is a personal opinion, there are certain elements that have been found to be widely considered as attractive along an active transportation route. Open spaces with greenery, a well -maintained route, quiet streets, and an aesthetic built environment are generally seen positively while traffic congestion, certain land uses (such as industry), and poorly lit routes are considered unattractive and deter from the use of a route or network. What Makes a Great Cycling Community? Since 2003, the League of American Bicyclists' (LAB) Bike -Friendly America program has been evaluating states, communities, businesses, and universities with the aim of rewarding excellence and raising standards and expectations for what constitutes a bicycle -friendly environment. As of May 2023, there were 506 Bicycle Friendly Communities, though nearly 900 have applied. Communities hoping to be recognized as a Bicycle Friendly Community must complete an extensive application process covering bicycling facilities, maintenance, last -mile connections, education, media presence, data -collection, promotion, regulations, planning, staffing and other conditions. The LAB report Kittelson & Associates, Inc. Item 14: Staff Report Pg. 13 Packet Pg. 314 of 341 August 22, 2023 Palo Alto Bicycle and Pedestrian Transportation Plan Update Item 14 Attachment C - Bicycle ge 4 Friendly Community nity Benchmarking Memo card uses information from the application as well as federally available data to make decisions regarding awards. The League of American Bicyclists has identified five elements' essential to great cycling communities: Equity & Accessibility, Engineering, Education, Encouragement and Evaluation & Planning. • Equity refers to fostering a fair and inclusive planning process and cycling environment that seeks to include all potential users, regardless of background, and re -balance historical inequities by proactively reaching out to and providing extra support for marginalized groups. Accessibility means expanding the traditional "cycling" umbrella to include a wider range of mobility options which can open mobility opportunities to those with a range of disabilities. • Engineering means designing, building, and maintaining safe and convenient places to cycle and park. High -quality cycling environments are connected networks of trails, quiet streets, and protected cycle - tracks. They also include a variety of convenient, secure cycle parking options. • Education means providing a wide variety of opportunities for community members to acquire the skills and confidence to ride - from bike classes in elementary schools to accessible courses for beginner adult riders. • Encouragement includes providing a range of incentives and opportunities to get and keep people cycling - from Bike to Work programs to National Bike Month Activities and Open Streets events. • Evaluation & Planning means planning for and evaluating the cycling system to measure current gaps and challenges and plan for future improvements. League of American Bicyclists - Bicycle Friendly Communities The most recent publicly available report card for Palo Alto is from spring 2021. The Bicycle Friendly Communities application has been offline for a significant update (discussed in more detail below) but still focuses on the core Five E aspects. As of 2023, Palo Alto was designated as a Gold -level cycling community. It has been listed as a Bicycle - Friendly Community since 2003 and has been a Gold -level community since 2010. The following table shows awards made to comparable peer communities6. Platinum -level communities include Davis, CA; Fort Collins, CO; Boulder, CO and Madison, WI. Peer gold -level communities include Oakland, CA and Santa Cruz, CA. 5 https://bikeleague.org/bfa/5-es/ 6 https://bikeleague.org/bfa/award-database/#community Kittelson & Associates, Inc. Item 14: Staff Report Pg. 14 Packet Pg. 315 of 341 August 22, 2023 Palo Alto Bicycle and Pedestrian Transportation Plan Update Item 14 Attachment C - Bicycle ge 5 Friendly Community nity Benchmarking Memo Davis, CA Platinum 69,289 Suburban Palo Alto, CA Gold 67,082 Suburban Santa Cruz Gold 59,946 Suburban Boulder, CO Platinum 108,090 Small town Santa Monica, CA Gold 90,401 Urban Fort Collins, CO Platinum 174,871 Urban core surrounded by low density suburban areas Madison, WI Platinum 258,054 Urbanized area Benchmarks for Palo Alto Applicants for the Bicycle Friendly Communities complete an extensive application7 in order to be evaluated on a series of metrics. Palo Alto submitted an application and was evaluated in spring 2021 by the League of American Bicyclists on these measures relative to the average platinum -level community, as shown in the following table. High Speed Roads 36% 80% Exceeds average for with Bike Facilities Platinum communities Bicycle Education GOOD VERY GOOD Exceeds average for in Schools Platinum communities Share of 14% 76% Exceeds average for Transportation Platinum communities Budget Spent on Bicycling Bike Month and VERY GOOD VERY GOOD Meets average for Platinum Bike to Work Events communities httos://bikeleaaue.orals ites/default/files/Guide to the Bicycle Friendly Community Report Cord.odf Kittelson & Associates, Inc. Item 14: Staff Report Pg. 15 J [ Packet Pg. 316 of 341 ] I August 22, 2023 Palo Alto Bicycle and Pedestrian Transportation Plan Update Item 14 Attachment C - Bicycle ge 6 Friendly Community nity Benchmarking Memo Presence of Active YES YES Meets average for Platinum Bicycle Advocacy communities Group; Active Bicycle MEETS AT LEAST MEETS AT LEAST Meets average for Platinum Advisory MONTHLY MONTHLY communities Committee Bike Plan is Current YES YES Averaa and is Being Implemented Total Bicycle 80% 33% Below average for Platinum Network Mileage to communities Total Road Network Mileage Bicycle -Friendly VERY GOOD ACCEPTABLE Below average for Platinum Laws & Ordinances communities Bike Program Staff 1 per 21k 1 per 26.8k Below average for Platinum to Population communities Cycling Ridership 13.6% 9.19% Below average for Platinum communities Crashes per 10k 100 281.05 Below average for Platinum bicycle commuters communities Fatalities per 10k 0.4 0.69 Below average for Platinum bicycle commuters communities Palo Alto scores well on the percentage of high-speed roads with bike facilities, bicycle education in schools, and share of transportation budget spent on cycling. However, Palo Alto has a much higher rate of crashes and a lower cycling mode -share than the average Platinum community. The League of American Bicyclists provides numerous resources8 to communities aspiring to become Bicycle Friendly Communities or improve their awards. The site includes resources to improve on the Five E's but also guidance on conducting a bicycle parking inventory, organizing bicycle events, and forming a bicycle advisory committee. 8 https://bikeleague.org/bfa/community/resources/ Kittelson & Associates, Inc. Item 14: Staff Report Pg. 16 Packet Pg. 317 of 341 August 22, 2023 Palo Alto Bicycle and Pedestrian Transportation Plan Update Item 14 Attachment C - Bicycle ge 7 Friendly Community nity Benchmarking Memo Opportunities for Improvement and 2023 Application Year Last year, the League of American Bicyclists announced a change in their awards process9. The biggest change is the addition of the Equity and Accessibility section as part of the Five E's but the new process also puts emphasis on other criteria. A review of the 2023 application for Bicycle Friendly Communities includes the following additions: Understanding community socioeconomic and demographic information including: o median age of the community o languages other than English spoken at home o foreign born population o median household income o poverty rate o bicycle commute by sex o percent of household without vehicles o disability characteristics o racial and ethnicity distribution • Defining the bicycle network for on -road and off -road cycling facilities and adoption of a Safe System approach to the delivery of the bicycle network. • Updating bicycle infrastructure to make it more accessible for all ages and abilities, including people with physical and/or cognitive disabilities. • Network maintenance and use of mechanisms (e.g., 311) for cyclists to identify issues, problems and hazards on the network as well as funding mechanisms for ongoing maintenance. • Providing bicycle access to transit • Regional coordination of bicycle facilities to ensure network connectivity and cohesion across municipal boundaries. The 2023 application increases the emphasis on addressing gaps in the low -stress network with the most recent report card indicating that quiet streets are underutilized in Palo Alto, which could easily become low -stress linkages in the cycling network for a relatively low cost. Specific opportunities identified for the City of Palo Alto to progress up to "Platinum" level community are as follows (based on the 2021 Report Card and the 2023 application criteria): • Increasing the overall mileage of bicycle network with a specific focus on addressing gaps in the low stress cycling network, especially on quiet neighborhood streets where traffic calming can create safe cycling spaces for a relatively low cost. The 2023 application has been adjusted to place a heavier emphasis on building a cohesive low -stress network rather than disjointed pieces of infrastructure, reflecting the Safe Systems Approachlo. • Increase high -quality cycle parking, especially near major activity centers and transit. • Expand cycling education efforts to reach adults, especially women, seniors, under -represented groups, and non -English-speaking communities (noting the large Chinese and Hispanic groups present). Further, the LAB suggests that Palo Alto could offer bicycle -friendly training to motorists, particularly commercial drivers and fleet operators (such as delivery drivers). • Creating a bicycle -friendly environment through laws & ordinances: o The BFC application asks about the following Bike -Friendly policies: ■ Banning parking in bike lanes and harassing cyclists 9 https://bikeleague.org/change-coming-bicycle friendly -community -awards/ 1° https.-11sofety.fhwa. dot. gov1zerodeoths1docs1FHWA SofeSystem Brochure V9 508 200717.pdf Kittelson & Associates, Inc. Item 14: Staff Report Pg. 17 Packet Pg. 318 of 341 August 22, 2023 Palo Alto Bicycle and Pedestrian Transportation Plan Update Item 14 Attachment C - Bicycle ge 8 Friendly Community Benchmarking Memo • Banning cell phone use while driving and harassing cyclists (now enacted statewide) • Penalties for failing to yield to a cyclist when turning, 'dooring' cyclists ■ Vulnerable road user and safe passing distance laws ■ A law that allows cyclists to treat a stop sign as a yield sign (i.e. whether the "Idaho Stop" is legal in your state), a law that allows cyclists to treat an unresponsive red light as a stop sign (i.e. "Dead Red" law) and a law that allows bicyclists to follow pedestrian signals instead of motor vehicle traffic lights at signalized intersections The BFC application also asks communities about bike -unfriendly policies and ordinances. The City seems to require cyclists to use bike lanes, where available. The City also prohibits riding on sidewalks in the central business district and bans "trick riding". The following are other bike -unfriendly policies the BFC application asks about: o Where Cyclists Can/Must Ride: Local law requires bicyclists to use side paths and/or bike lanes regardless of their usability, laws requiring cyclists to ride as far to the right of the road as practicable without exceptions, restrictions on sidewalk riding inside and/or outside of the Central Business District, dismount zones/regulations on shared -use paths and the banning of cycles from non -highway roads that are open to vehicles. o What/How Cyclists Can Ride: Local law restricts usage of electric -assist bicycles, mandatory bike registration and/or helmet use for all ages and bans on exhibition or "trick riding" (e.g. wheelies). o Who Can Ride: Local or school policies restrict youths from riding to school, "Bicycle safety checks" or other legal or de facto enforcement stops occur. It is considered that working towards the above suggestions by building a more extensive/robust cycling network, increasing the amount of high -quality cycle parking and access to transit, expanding education efforts across different demographic groups and improving cycle -friendly ordinances through policies could increase cycling mode share from a modest 9 per cent closer to the Platinum -level average of nearly 14 per cent. This would have the added benefit of reducing crash and fatality rates by increasing overall road safety which would also work towards a Platinum -level community designation. Kittelson & Associates, Inc. Item 14: Staff Report Pg. 18 Packet Pg. 319 of 341 Item 14 K ITT E LS O N 155 Grand Avenue, Suite 505 Attachment D - Literature IZA &ASSOCIATES Oakland, CA 94612 P510.839.1742 Review Summary Technical Memorandum 1� October 24, 2023 Project# 28476 To: Ozzy Arce City of Palo Alto, Office of Transportation From: Kittelson & Associates, Inc. RE: The Bicycle and Pedestrian Transportation Plan (BPTP) Update - Literature Review (Task 2.2) The Bicycle and Pedestrian Transportation Plan (BPTP) Update will examine the existing bicycle and pedestrian infrastructure, guide investments in active transportation and recommend policies and practices to build a safer and better pedestrian and bicycle network in the City of Palo Alto. The purpose of this memorandum is to provide a synthesis and summary of existing plans, programs, and polices from recent documents. This will help develop an understanding of the policy and planning environment for walking and biking in Palo Alto. Documents List The following table lists the relevant documents and programs that were reviewed, summarized, and synthesized for this task. Table 1. List of Documents Reviewed '. 1. City of Palo Alto Bicycle and Pedestrian Transportation Plan 2012 2 3 4 5 City of Palo Alto Comprehensive Plan 2017 City of Palo Alto Sustainability and Climate Action Plan 2023 City of Palo Alto Parks, Trails, Natural Open Space and 2017 Recreation Master Plan City of Palo Alto Green Stormwater Infrastructure Plan 6. City of Palo Alto Public Art Master Plan 2019 2016 Kittelson & Associates, Inc. Item 14: Staff Report Pg. 19 Packet Pg. 320 of 341 Item 14 October 24, 2023 Attachment D - Literature1 ge 2 The Bicycle and Pedestrian Transportation Plan (BPTP) Update - Literature Review (Task 2.2) Review Summary Jvjew 7. City of Palo Alto Safe Routes to School (SRTS) 2021 8. Palo Alto SRTS Five -Year Work Plan, Safe Routes to School 2021 Partnership Consensus Statement 9. Adopted Palo Alto Unified School District (PAUSD) Safe Routes 2021 to School Policies 10. Santa Clara Countywide Bicycle Plan 2018 11. The County of Santa Clara Stanford University Community Plan 2022' 12. 2050 Plan Bay Area 2021 13. VTA Bicycle Technical Guidelines 2022 14. VTA Valley Transportation Plan (VTP) 2040 2014 15. Metropolitan Transportation Commission's (MTC) Regional 2009 Bicycle Plan for the San Francisco Bay Area Update 16. Central Bikeway Feasibility Study Alternatives Analysis 2022 2022 (Peninsula Bikeway Study) 17. VTA Bicycle Technical Guidelines 2012 18. Caltrans District 4 Bike Plan 2018 19. Caltrans District 4 Pedestrian Plan 2021 20. Caltrans Bay Area Bike Highway Study 2022 21. Palo Alto's Local Road Safety Plan by VTA 2022 ' Track changes version available - httas://static 1.sauaresoace.com/static/5ef397ab7a79e3 1 5cd9066ae/t/648a 1 d95f21 c5553baf74820/1686773154192/SCP +Draft+Board+of+Supervisors+ 12.13.22+Tracked+Changes.pdf KittelSon & Associates, Inc. Item 14: Staff Report Pg. 20 1 Packet Pg. 321 of 341 Item 14 October 24, 2023 Attachment D - Literature ge 3 The Bicycle and Pedestrian Transportation Plan (BPTP) Update - Literature Review (Task 2.2) Review Summary Jview Topics and Key Themes The following relevant topics were reviewed and summarized for each document and overall themes within each topic and across all reviewed documents are synthesized in this section. • Vision and goal statements • Existing policies and programs related to active transportation • Established needs, issues, and concerns raised in the study • Current/planned projects coming from the study • Community feedback captured in the document • Community partners/contact information if available • Data documentation to incorporate The complete summary for each document is provided as an attachment to this document. Key themes from this review are presented in this section. Vision and Goals There is strong alignment among the vision and goals established in the documents reviewed, particularly surrounding sustainability and climate action. For example, the 2012 Palo Alto Bicycle and Pedestrian Transportation Plan support the goals identified in the City of Palo Alto Comprehensive Plan and reflect specific targets mentioned in the 2007 Palo Alto Climate Protection Plan. Common themes around vision and goals from the review of these plans include: • Increasing biking and walking trips for all purposes • Constructing and maintaining safe and accessible streets for walking and biking to all modes and people of all ages and abilities • Developing a network of bikeways, pathways, and traffic -calmed streets that connects various business districts, residentials areas, open spaces and parks • Improving the aesthetics of walkways and bike paths to attract more walking and biking trips • Reducing overall vehicle miles traveled • Seeking to improve the quality of life, as well as environmental quality, economic health and social equity Policies and Programs Most of the policies and programs mentioned in each plan aim to promote the goals and vision of that specific plan. They are also in line with the vision of similar plans that promote non -motorized transportation. For example, the 2030 City of Palo Alto Comprehensive Plan introduced programs and policies that focus on collecting bicycle counts and conducting surveys to understand bicycle use (Program Ti .16.1); encouraging participation in local walking and biking events (Program T1.16.4); providing facilities that encourage walking and biking (policy T-1.19); prioritizing investments for enhanced pedestrian access and bicycle use within Palo Alto (Program T1.19.2) etc. These policies and programs are in line with the goals and visions of the Comprehensive Plan and are consistent with the 2021 City of Palo Alto Safe Routes to School (SRTS) Plan as well. Metropolitan Transportation Commission's (MTC) Regional Bicycle Plan for the San Francisco Bay Area 2009 Update mentions programs and policies such as Bike -to -Work day, pedestrian and bicycle training, resolution KittelSon & Associates, Inc. Item 14: Staff Report Pg. 21 Packet Pg. 322 of 341 Item 14 October 24, 2023 Attachment D - Literature1 ge 4 The Bicycle and Pedestrian Transportation Plan (BPTP) Update - Literature Review (Task 2.2) Review Summary Jview 8752, resolution 37653 etc. developed by MTC that aim to make bicycling safer and more accessible throughout the region. These existing programs and policies mentioned in the relevant plans are consistent with the purpose of the BPTP Update and will be reflected in the Plan. Needs and Challenges Common themes surrounding needs and challenges per review of the plans include: • Improving access to neighboring commercial centers • Improving bicycle parking facilities • Defining a core network of crosstown and recreational routes • Introducing traffic calming strategies • Drastic changes in future environmental conditions due to climate change • Enhancing comfort and making parks more welcoming • Safety concerns such as unsafe crossings due to high vehicular speeds and volumes and unfriendly freeway interchanges • Traffic congestion in educational districts during peak hours • Issues related to optimizing bicycle safety such as angle of crossing, smoothness of crossing, gap between the flangeway and roadway, and closing bike paths at night • Uncertainty of funding opportunities • Improving level of traffic stress of bicycle facilities on major and minor bike corridors • Failure to yield to pedestrians on the roadway • Bicycle theft Plans and Projects Some plans and projects recommendations that have been initiated through adoption of these plans include: • Across barrier connections across the City (Adobe Creek Highway 101 Overcrossing, Caltrain/Alma Barrier Crossing at Matadero Creek etc.) • Trails and Shared Use Pathway projects (Embarcadero Road / Rinconada Park Sidepath, Adobe Creek Reach Trail etc.) • Bicycle boulevard projects (Casfilleja-Park-Wilkie Bicycle Boulevard, Bryant Street Bicycle Boulevard etc.) • Intersection spot improvements (El Camino Real Intersection Through -Markings, Charleston Road at Middlefield Road Bicycle Through -Lanes etc.) • Infrastructure Programs (Bicycle Parking Corral / Rack Installation Program, Pedestrian Countdown Signals & Crossings Program etc.) • System rehabilitation and Maintenance (Castilleja Street -Park Boulevard, Lytton Avenue etc.) • Design, Feasibility, and Planning (Middlefield Road "Complete Street" Plan Line Study, Embarcadero Road Plan Line Study etc.) • Non -Infrastructure - Education Encouragement (Citywide Traffic Counts and Data Collection, Bike Palo Alto! / Palo Alto Sunday Streets etc.) 2 First adopted in 1980 and most recently amended in 2005, this resolution guides the allocation of the "Transportation Development Act, Article 3," which funds $2.9 million worth of Bay Area bicycle projects annually 3 This resolution, adopted in 2006, requires agencies applying for regional transportation funds to document how the needs of bicyclists and pedestrians were considered in the process of planning and/or designing the project for which funds are requested KittelSon & Associates, Inc. Item 14: Staff Report Pg. 22 Packet Pg. 323 of 341 Item 14 October 24, 2023 Attachment D - Literature1 ge 5 The Bicycle and Pedestrian Transportation Plan (BPTP) Update - Literature Review (Task 2.2) Review Summary Jview • Plan, design and construct 10.5 -acre site in Baylands for park uses; plan, design and redevelop Cubberley Community Center • Incorporate 7.7 -acre site into Foothills Park • Demonstration projects: Hale Avenue Extension, SkyLANE, 101/Blossom Hill Road, Lundy Place Connector, Diridon Bicycle Connections • Freeway interchange improvements (1-280/Page Mill Interim Improvements) • Planned Bicycle Bridge/Undercrossing (Stanford Avenue /Seale Avenue, San Francisquito Creek, Adobe Creek Bridge) Public Input Community feedback and public input is a crucial factor throughout long-term planning processes. It helps inform and shape the final recommendations of plans. Most plans significantly invested in conducting public workshops, public surveys, open houses and community engagement events to hear from the public throughout the development of the plan. Common themes and takeaways per the review of the relevant plans include: • Providing accessible and safe active transportation (walking, biking, etc.) routes to natural open space, community centers and parks is a high priority • Enhancing physical and mental well-being is a critical function of parks for people who live, work and play in Palo Alto. Loop trails, bicycle and pedestrian paths to parks and places to relax are top priorities, along with exercise equipment or additional classes • Low -stress bicycle facilities are desired • Frequently requested bicycle infrastructure improvements include more trail lighting, better accommodation at signalized intersections, better access and signage to bicycle paths, more frequent maintenance, more space to store bicycles on transit vehicles, secure bicycle parking • Access to Berryessa BART, connections to east San Jose, completion of the Coyote Creek Trail and Guadalupe River Trail, north -south connections in east and central Santa Clara County are desired • Design safer and more intuitive highway crossings and interchanges • Streamline and communicate the process for local agencies to engage with Caltrans and for Caltrans to engage with local communities • Increase investment in bicycle facilities on state highways • Preference for fully dedicated bike facilities that is separate from traffic and has space for multiple modes • Bike highways should prioritize access and connection for low-income and disadvantaged communities and people without personal access to vehicles Community Partners and Champions Community partners and champions involved in the formulation of some of these plans include: • The Junior Museum and Zoo • The Children's Theatre • Cubberley Artist Studio Program (CASP) • Palo Alto Art Center (PAAC) • Police Department staff • PTA Transportation Safety Representatives at each PAUSD school • Student representatives • School principals • PAUSD staff in Sustainability • County Department of Public Health • Silicon Valley Bicycle Coalition KittelSon & Associates, Inc. Item 14: Staff Report Pg. 23 Packet Pg. 324 of 341 Item 14 October 24, 2023 Attachment D - Literature1 ge 6 The Bicycle and Pedestrian Transportation Plan (BPTP) Update - Literature Review (Task 2.2) Review Summary Jvjew • Almaden Valley Cycling Club • County Parks and Recreation Department • Santa Clara Valley Water District • Bicycling advocacy organizations • Bay Area Air Quality Management District (Air District) • Bay Conservation and Development Commission (BCDC) • Business Community • Community -Based Organizations, Advocates and Non -Profits • County Transportation Agencies (CTAs) Data and Other Resources Data that would be relevant to this Plan based on the review of the relevant plans include: • Percentage of workers who bike to work, by place of residence, in Santa Clara County (2015) - (Santa Clara Countywide Bicycle Network, 2018) • Financially constrained projects in Santa Clara County - (VTA Valley Transportation Plan (VTP) 2040, 2014) • Regional bikeway network mapping - (MTC's Regional Bicycle Plan for the San Francisco Bay Area Update, 2009) • Average Bay Area weekday bicycle trips (2000) - (MTC's Regional Bicycle Plan for the San Francisco Bay Area Update, 2009) • Motor vehicle/bicycle collision analysis - (MTC's Regional Bicycle Plan for the San Francisco Bay Area Update, 2009) • Unbuilt regional bikeway network mapping - (MTC's Regional Bicycle Plan for the San Francisco Bay Area Update, 2009) • Santa Clara County top tier projects - (Caltrans District 4 Bike Plan, 2018) • Collision data - (Palo Alto's Local Road Safety Plan by VTA, 2022) • Collision classification - (Palo Alto's Local Road Safety Plan by VTA, 2022) • Bicycle/pedestrian collisions - (Palo Alto's Local Road Safety Plan by VTA, 2022) • Top collision trends - (Palo Alto's Local Road Safety Plan by VTA, 2022) • High injury network - (Palo Alto's Local Road Safety Plan by VTA, 2022) KittelSon & Associates, Inc. Item 14: Staff Report Pg. 24 Packet Pg. 325 of 341 Item 15 Item 15 Staff Report City Council Staff Report From: City Manager CITY O F Report Type: INFORMATIONAL REPORT PALO Lead Department: Administrative Services ALTO Meeting Date: January 22, 2024 Report #:2307-1774 TITLE First Quarter Fiscal Year 2024 Financial Status Report RECOMMENDATION This report is informational and does not require an action by the City Council. EXECUTIVE SUMMARY The purpose of this report is to provide the City Council with information on the financial status of the City's General Fund and Enterprise Funds as of the end of the First (15t) Quarter of Fiscal Year (FY) 2024 (July 1, 2023 through September 30, 2023). The figures presented here are unaudited. For the 15t quarter, General Fund revenues totaled $28.4 million, 8.2% lower than the same period of the prior year. Expenditures totaled $54.5 million, 14.9% higher that than prior year and are tracking at 19.4% of Adjusted Budget, comparable to prior year trend. All Enterprise Funds, except Gas Fund, resulted to a positive change in net position. The total change in position increased by $4.6 million, or 26.1%, higher than the same period of the prior year. BACKGROUND This report summarizes the financial information of the General and Enterprise Funds for First(15t) quarter ending September 30, 2023 of Fiscal Year (FY) 2024 and compares those amounts to the same period of the prior year and to the FY 2024 Adjusted Budget. Attachment A provides a breakdown of revenues by source and expenses by function, with separate columns for Adopted Budget and Adjusted Budget. The Adjusted Budget column includes prior year commitments that were carried forward into this fiscal year and amendments to the FY 2024 Adopted Budget through September 30. Encumbrances and actual expenses for the three-month period are also reported. Item 15: Staff Report Pg. 1 Packet Pg. 326 of 341 Item 15 Item 15 Staff Report ANALYSIS GENERAL FUND As of September 30, 2023, General Fund expenditures ($54.5 million) exceeds the revenue receipts ($28.4 million). First quarter General Fund receipts are not indicative of the annual expected receipts in FY 2024 due to timing of major revenues received over the fiscal year. Revenues and expenditures are tracking within the FY2024 adjusted budget. General Fund revenues (excluding operating transfers) for the 1st quarter are $28.4 million, or 11.7% of the current year Adjusted Budget. Actual revenues totaled $28.4 million, 8.2% or $2.5 million lower than the same period of the prior year. Major taxes increased slightly compared to the same period of prior fiscal year driven primarily by Utility Users Tax revenue. As discussed in the Long -Range Financial Forecast', while the economy is currently not trending into recessionary period that was predicted for the past several quarters, first quarterly results indicate a stagnant economy or modest growth. For the 1st quarter, General Fund expenses totaled $54.5 million, $7.lmillion or 14.9% higher than the prior year and tracking at 19.4% of Adjusted Budget, comparable to the prior year trend. The following is a detailed discussion of the most significant revenue and expense items. Revenue Highlights for 1st Quarter FY 2024 The following highlights the City's major revenue sources for the 1st Quarter, compared to Pt Quarter YTD, compared to the same period of the prior year. Revenue for each period is expressed as a percentage of the Adjusted Budget. 1 Finance Committee, December 5, 2023, Item #1: https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=64163 Item 15: Staff Report Pg. 2 Packet Pg. 327 of 341 Item 15 Item 15 Staff Report Table 1 General Fund Revenue FY 2024 1st Quarter YTD (000's) 1st Quarter Actuals Adjusted Budget Revenues FY 2024 FY 2023 Inc/(Dec) % change FY 2024 % FY 2023 % Property Tax $85 $174 ($89) -51.1% $63,785 0.1% $59,770 0.3% Sales Tax 2,548 2,551 (3) -0.1% 36,272 7.0% 32,580 7.8% Charges for Services 6,462 6,427 35 0.5% 35,131 18.4% 30,786 20.9% Transient Occupancy Tax 2,723 2,663 60 2.3% 26,834 10.1% 18,199 14.6% Utility User Tax 3,876 3,495 381 10.9% 18,457 21.0% 15,579 22.4% Permits and Licenses 2,597 1,781 816 45.8% 10,256 25.3% 9,499 18.7% Documentary Transfer Tax 1,368 1,207 161 13.3% 5,920 23.1% 7,217 16.7% All Other Revenue Sources 8,741 12,644 (3,903) -30.9% 46,462 18.8% 41,851 30.2% Total Revenue $28,400 $30,942 (2,542) -8.2% $243,117 11.7% $215,481 14.4% Property tax revenue in the 1St quarter of the fiscal year is only a nominal amount as property tax receipts are paid by the County over three months beginning in the month of November and then again beginning in March. FY 2O23 actual property tax revenue was $63.1 million, $2.9 million or 4.7% higher than the FY 2O23 adjusted budget and $3.8 million or 6.4% over the prior fiscal year. The increase is primarily driven by change in assessed values due to ownership change in FY 2O22 and FY 2O23 plus the 2% Proposition 13 overall annual increase. Excess Educational Revenue Augmentation Fund (ERAF) distributions from the County of Santa Clara in fiscal years 2O21, 2O22, and 2O23 receipts were $5.6 million, $6.6 million, and $6.4 million, respectively. In FY 2O23, the reserve for Excess ERAF, representing the at -risk amount related to the State Controller's Office auditing finding on Marin County, totaled $4.1 million. The state's assertion is former Redevelopment Agency funds which are now part of the regular property taxes should be excluded from the excess ERAF calculation. Marin County is challenging this finding and it is not known if this will be elevated to a court case. The estimate is, if this audit finding is sustained, 22% of excess ERAF is at risk for fiscal years 2O21, 2O22, and 2O23. If the finding holds, the County of Santa Clara, as well as other Excess ERAF counties, could face similar audit findings likely starting in FY 2O25. This reserve is consistent with prior year methodology of assumptions for this challenge. The FY 2O24 updated forecast is $64.7 million, $1.6 million or 2.5% higher than the prior year's actual revenue. This is $0.9 million higher than the budgeted amount of $63.8 million and has been reduced by $1.5 million for the on -going FY 2O24 Excess ERAF audit at -risk .9amount. Item 15: Staff Report Pg. 3 Packet Pg. 328 of 341 Item 15 Item 15 Staff Report Without this reduction the forecasted amount would have been a $3.1 million, or 4.9%, increase compared to prior year's actual revenue. Sales tax revenue cash receipts totaled $2.5 million for the 15t quarter. This represents one month's sales tax activity due to the two -month delay between sales tax collection by the State and remittance to the City. The FY 2023 actual sales tax revenue was $36.9 million, $4.2 million or 12.9% higher than FY 2022, due to a combination of continued pandemic recovery, robust consumer spending and inflation. The FY2024 budget amount is $36.3 million, 1.8% lower than the prior year's actual revenue, and is based on conservative estimate that considered a combination of recovery and higher price of goods and services resulting from inflation. Since then, the inflation is still elevated but declining and consumer spending has remained resilient. As of December 2023, the cash receipts for three months in FY2024 is $9.6 million, or 10.4% higher from the same period of last year. However, this recovery growth has slowed compared to 12.3% and 12.9% in FY2022 and FY2023, respectively. Staff and the City's sales tax consultant are forecasting a modest increase over the prior year's actual receipts. Transient occupancy tax (TOT) revenue of $2.7 million represents about one and half month of collections which about equal the same period for last fiscal year. As of writing of this report, 1st quarter revenue is $6.8 million, similar to the prior year trend. Data for October 2023 (as of the writing of this report) indicates an upward trend of approximately 15% compared to the same period of last fiscal year. The FY 2024 adopted budget of $26.8 million is a higher than the FY 2019 pre -pandemic actuals of $25.6 million. With TOT revenue remaining stagnant in the 1st quarter, then experiencing 15% growth in October 2023, staff is continuing to monitor 2nd quarter results to determine whether or not this growth trend will continue or flatten. During the 15t quarter of FY2024, hotels average daily room and occupancy rates are $234.50 per day and 68.9%, respectively. A 11.2% increase in average daily room and 9% increase in occupancy rates over the same period of the prior fiscal year. As of October 2023, the average daily room and occupancy rates percentage of individual hotels are averaging approximately $244.59 and 70.3%, respectively. Documentary transfer tax cash receipts for two and half months total $1.4 million, or 23.1% of the FY 2024 adjusted budget and is $0.2 million, or 13.3%, increase than prior year receipts for the same period due to the higher total property sales value. The number of transactions is 11.6% lower compared to prior first quarter. This revenue source is volatile, it is highly dependent on sales volume and the mix of commercial and residential sales. Staff continues to monitor these receipts closely due to significant fluctuations that can occur anytime depending on the real estate sales activity. The budgeted amount of $5.9 million, which is 2.9% higher than the actual receipts of the prior year, is still expected to be realized. Permits and Licenses revenue increased by $0.8 million, or 45.8%, from the same quarter last year primarily due to an in increase in new construction permit revenue. Item 15: Staff Report Pg. 4 Packet Pg. 329 of 341 Item 15 Item 15 Staff Report All other revenue sources cash receipts for the 1st quarter have decreased $3.9 million or 30.9%, from the same period of last year primarily due to the American Rescue Plan Act (ARPA) allocation which was received in full in FY2023. Beginning in FY2024, all other revenue sources, includes a new business tax (Measure K) to fund public safety, affordable housing and homeless services, and transportation and grade separation. The tax is expected to be phased -in over several years, generating initial receipts of $2.4 million in FY 2024. There are no actual receipts for the 1st quarter. Expense Highlights for 1st Quarter FY 2024 The following highlights the City's expenses by function for the 1st quarter, compared to the same quarter in prior year. Each quarter's expense is expressed as a percentage of the Adjusted Budget for each year. Table 2 General Fund Expenditures FY 2024 1st Quarter YTD (000's) 1st Quarter Actuals Expenditures FY 2024 FY 2023 Inc/(Dec) % change Adjusted Budget FY 2024 % FY 2023 % Police $ 13,309 $ 12,333 $ 976 7.9% $ 52,241 25.5% $ 47,723 25.8% Fire 12,513 10,502 2,011 19.1% 47,464 26.4% 41,379 25.4% Community Services 8,145 6,713 1,432 21.3% 40,356 20.2% 34,429 19.5% Public Works 4,834 4,504 330 7.3% 25,763 18.8% 22,667 19.9% Planning and Development Services 5,054 4,223 831 19.7% 30,049 16.8% 26,131 16.2% Library 2,602 2,133 469 22.0% 12,599 20.7% 10,524 20.3% Administrative Services 2,423 2,301 122 5.3% 11,250 21.5% 10,107 22.8% All Other Departments 5,658 4,743 915 19.3% 61,530 9.2% 39,827 11.9% Total Expenditures $ 54,538 $ 47,452 $ 7,086 14.9% $281,252 19.4% $232,787 20.4% For the 15t quarter of the fiscal year, total expenses increased $7.1 million, or 14.9%, compared to the same quarter prior year and are trending in line with total budget at 19.4%. The increase is driven by salaries and benefits increases that include pension and medical expenses; the 4.0% cost of living adjustment wage increase for all labor groups (effective July 1, 2023); management market adjustments aligned with benchmark studies (effective December 31, 2022), flexible compensation to allow employee choice in health and other benefit options, and addition of new positions. Staff continues to work on filling vacant positions while the City maintains a high vacancy level which is expected to generate savings in FY 2024. Attachment A shows total expenses, including encumbrances for the 1st quarter are 25.8% of the adjusted budget. Some of the departments are higher than 25% due to some purchase orders that cover the entire year (i.e., landscape maintenance, contract services, consultant fees and Item 15: Staff Report Pg. 5 Packet Pg. 330 of 341 Item 15 Item 15 Staff Report others). It is the City's practice in many instances to encumber budget funds for the fiscal year so that invoices are drawdown, or paid against, the encumbrances. Police and Fire comprise 47.3% of the total General Fund expenditures for the 1St quarter, which is 13.1% higher compared to the prior year. The following highlights Police and Fire salaries and overtime for the 1St quarter. Table 3 Police and Fire Salaries and Overtime Expense FY 2024 1st Quarter YTD (000's) 1st Quarter Actuals Department FY 2024 FY 2023 Inc (Dec) % change Police -Salaries $ 4,787 $ 4,476 $ 311 6.9% Police - Overtime 754 740 14 1.9% Total Police 5,541 5,216 325 6.2% Adjusted Budget FY 2024 % FY 2023 % $ 22,512 21.3% $ 20,026 22.4% 1,029 73.3% 973 76.1% 23,541 23.5% 20,999 24.8% Fire -Salaries 4,210 3,553 657 18.5% 18,417 22.9% 15,997 22.2% Fire -Overtime 1,276 1,070 206 19.3% 2,146 59.5% 2,124 50.4% Total Fire 5,486 4,623 863 18.7% 20,563 26.7% 18,121 25.5% Total Police and Fire Salaries and Overtime $11,027 $ 9,839 $ 1,188 12.1% $ 44,104 25.0% $ 39,120 25.2% Police overtime is 1.9% higher than the prior year and 73.3% of adjusted budget due to the following: • Backfilling 13% vacancies: 12 police officers, 1 community service officer, 4 dispatchers and 1 administrative associate. • 6% of staff are unavailable to work due to benefited leaves or industrial injuries. • 13% of filled recruits are in training, in-house or at the police academy. Although salaries and overtime are tracking higher, overall, the Department is trending 23.5% within the budget for the total salary and benefits and anticipates doing so through the remainder of the FY2024. The Department's net overtime cost is $0.4 million after deducting the reimbursements and salary savings due to vacancies. Analysis is included in Attachment B. Fire salaries is 18.5% higher than the same period in prior year due to management market rate adjustment, 4.0% cost of living adjustment wage increase effective July 1, 2023, and training a significant number of entry level firefighters to fill vacancies on shift. Item 15: Staff Report Pg. 6 Packet Pg. 331 of 341 Item 15 Item 15 Staff Report Fire overtime is 19.3% higher than the same period in prior year and 59.5% of adjusted budget due to backfilling entry level firefighters while completing Joint Fire Academy and vacancies. In the spring of 2023, the Department hired total of 13 entry level firefighters which accounts for 16% of all on -shift personnel positions. Although the positions are filled, those 13 recruits must complete a 6 -month academy before being able to work on shift. In August 2023, the 13 -entry level firefighters graduated from the academy and are now working on shift. The Department continuous to struggle to fill vacancies, as of writing of this report, the Department is still carrying 12 vacancies among the International Association of Fire Fighters (IAFF)ranks. The overtime hours will remain high as backfill is required to maintain daily operations with a high vacancy rate. On a combined basis, salaries and overtime are 26.7 % of the budget through the 1St quarter of the fiscal year. The Department's net overtime cost is $1.0 million after deducting the reimbursements and salary savings due to vacancies. Analysis is included in Attachment B. General Fund Budget Stabilization Reserve (BSR) Balance Based on information reported in the FY 2023 Annual Comprehensive Financial Report (ACFR)?, the City's current General Fund Budget BSR ended FY 2023 at $61.5 million; after adjusting the BSR for FY 2024 uses approved by Council through September 2023, the net BSR balance was $57.9 million. When accounting for uses through December 2023, the net BSR balance is $57.3 million, $3.4 million above Council's 20% BSR target level. By policy, the City maintains a BSR balance of 15-20% of the annual operating expense, with a target level of 18.5%. However, in development of the FY 2024 budget, the Council adopted the BSR at the 20% level ($53.9 million) to mitigate risk due to economic uncertainty. In alignment with Council policy, staff recommends that the $3.4 million excess is split between the Capital Fund Infrastructure Reserve (IR) and the Section 114 Pension Trust fund ($1.7 million each). Staff anticipates returning to Council in February 2024 with the FY 2024 Mid -Year Review and recommendations in alignment with the allocation below for the appropriation of BSR funds above the 20.0% level. Enterprise Funds Following is a summary of changes in net position for each of the Enterprise Funds for the three months ending September 30, 2023, including a comparison of results from the same period last year. 2 11/28/2023 CM R# 2308-1857 Finance Committee Staff Report, Approval of the FY 2023 ACFR YE Budget Amendments, and Resolution to Extend and Amend the Development and Services Reserve Fund Policy https://recordsportal.paIoaIto.gov/WebIink/DocView.aspx?id=64203 Item 15: Staff Report Pg. 7 Packet Pg. 332 of 341 Item 15 Item 15 Staff Report Table 4 Enterprise Funds Change in Net Position FY 2024 1st Quarter YTD (000's) 1st Quarter Actuals Increase Funds FY 2024 FY 2023 (Decrease) % Change Water 3,572 3,701 (129) -3.5% Electric 8,105 2,245 5,860 261.0% Fiber Optic 684 202 482 238.6% Gas (431) 364 (795) -218.4% Wastewater Collection 55 116 (61) -52.6% Wastewater Treatment 5,458 7,054 (1,596) -22.6% Refuse 3,496 3,419 77 2.3% Storm Drainage 472 502 (30) -6.0% Airport 766 (11) 777 -7063.6% Total Change in Net Position 22,177 17,592 4,585 26.1% Electric Fund increased $5.9 million, or 261.0%, from prior year, due to overall increase in operating revenues mainly from customer sales and surplus energy sales partially offset by increase in operating expenses. The 20% increase in base rate effective July 1, 2023 and surplus energy sales from favorable hydroelectric generation , resulted in a $7.0 million increase in revenues despite the deactivation of the Electric Hydro Adjuster (E-HRA).The deactivation of E- HRA is made possible due to receipt of a $23.9 million refund from the Bureau of Reclamation of overcharges associated with the Central Valley Project, where the City gets most of its hydroelectric power. The refund is a result of a successful litigation the City participated in against the Bureau. The increase in operating expenses is driven by higher transmission costs as well as salaries and benefits. Fiber Optics Fund increased by $0.5 million, or 238.6% from prior year due to the timing of Stanford University's projects billing. Gas Fund decreased by $0.8 million, or 218.4% from the same period due to decrease in revenue from customer sales and loss on disposal of fixed assets partially offset by lower commodity purchases. The customer sales decreased by $0.7 million primarily due to decrease of natural gas price. The gas distribution rate increased 8% effective July 1, 2023 but the system average rate decreased by 10.4% due to decrease in natural gas market prices which are pass - through in nature. Gas commodity prices decreased due to milder temperatures that diminished demand for heating and an above -average level of gas storage. During the current fiscal year there are disposals or early retirement of gas meters resulting in a $0.4 million Item 15: Staff Report Pg. 8 Packet Pg. 333 of 341 Item 15 Item 15 Staff Report loss. Majority of the retired gas meters were due to incompatibility with the new advanced metering infrastructure or smart meter endpoints. Wastewater Treatment Fund decreased by $1.6 million, or 22.6 % from the same period mainly due to the timing of the CA State Water Resources Control Board reimbursements for the Primary Sedimentation Tanks (PST) and Secondary Treatment Upgrades (STU) projects. These reimbursements will be subsequently adjusted to a liability as the City is expected to repay the loans following the completion of each project. Airport Fund increased by $0.8 million mainly due to a $0.7 million increase in federal grants for Federal Aviation Administration for projects Apron Reconstruction (AP -16000) and Airport Layout Plan (AP -21000). FISCAL/RESOURCE IMPACT At this time, this report does not recommend an action amending the City's financials, however, depending on trends and further input from Council, actions may be necessary later in the year to better align revenues with expected collections. Staff continues to monitor activities closely. STAKEHOLDER ENGAGEMENT This effort to manage and monitor the financial status of City funds continues to be a citywide effort coordinated among all departments. Outside consultants for expertise on major revenues categories including Sales Tax and Property Tax are consulted regularly to provide updates to the forecasted revenue collections. ENVIRONMENTAL REVIEW Finance Committee action on this item is not a project as defined by CEQA because financial reports does not involve any commitments to any specific project which may result in a potentially impact on the environment, CEQA Guidelines section 15378(b)(4). ATTACHMENTS Attachment A: FY2024 First Quarter Financial Report Attachment B: Public Safety Overtime Analysis Q1 2024 APPROVED BY: Kiely Nose, Assistant City Manager Item 15: Staff Report Pg. 9 Packet Pg. 334 of 341 1/8/20249:20 AM Attachment A CITY OF PALO ALTO GENERAL FUND FIRST QUARTER FINANCIAL REPORT FISCAL YEAR ENDING JUNE 30, 2024 (in thousands) Item 15 Attachment A - FY2024 First Quarter Financial Report BUDGET ACTUALS (as of 9/30/2023) Adopted Adjusted Pre % of Adj Categories Budget Budget Encumbr Encumbr Actual Budget* Revenues & Other Sources Sales Tax 36,272 36,272 - - 2,548 7.0% Property Tax 63,785 63,785 - - 85 0.1% Transient Occupancy Tax 26,834 26,834 - - 2,723 10.1% Documentary Transfer Tax 5,920 5,920 - - 1,368 23.1% Utility Users Tax 18,457 18,457 - - 3,876 21.0% Other Taxes and Fines 3,417 3,417 - - 240 7.0% Charges for Services 35,131 35,131 - - 6,462 18.4% Permits & Licenses 10,151 10,256 - - 2,597 25.3% Return on Investment 1,846 1,846 - - 204 11.1% Rental Income 15,858 15,858 - - 3,910 24.7% From Other Agencies 3,333 8,133 - - 312 3.8% Charges To Other Funds 15,496 15,496 - - 3,901 25.2% Other Revenues 636 1,713 - - 174 10.1% Total Revenues 237,136 243,117 - - 28,400 11.7% Operating Transfers -In 23,932 23,932 - - 5,983 25.0% Encumbrances and Reappropriation 15,000 43,471 - - - 0.0% Contribution from Development Services Reserves 1,084 1,084 - - - 0.0% Total Sources of Funds 277,152 311,604 - - 34,383 12.9% Expenditures & Other Uses City Attorney 4,668 5,287 20 763 1,031 34.3% City Auditor 986 1,692 0 843 19 51.0% City Clerk 1,491 1,641 50 170 276 30.2% City Council 439 541 3 81 126 38.8% City Manager 4,715 4,823 254 144 1,088 30.8% Administrative Services 11,099 11,250 44 371 2,423 25.2% Community Services 38,224 39,853 1,006 3,737 8,145 32.3% Fire 46,761 47,464 96 589 12,513 27.8% Human Resources 4,747 5,280 25 275 1,036 25.3% Library 12,138 12,599 105 598 2,602 26.2% Office of Emergency Services 1,576 1,981 55 247 275 29.1% Office of Transporation 2,704 5,207 - 1,787 638 46.6% Planning and Development Services 26,055 30,049 13 2,263 5,054 24.4% Police 51,764 52,241 403 727 13,309 27.6% Public Works 23,668 25,563 118 1,793 4,834 26.4% Non -Departmental 14,893 35,079 45 1,166 1,170 6.8% Total Expenditures 245,928 280,549 2,238 15,555 54,538 25.8% Operating Transfers -Out 5,042 5,042 - - 1,261 25.0% Transfer to Infrastructure 28,538 28,538 - - 7,134 25.0% Total Use of Funds 279,508 314,129 2,238 15,555 62,933 25.7% Net Change to BSR (2,356) (2,525) (28,550) Budget Amendments in the General Fund Authorized by Council thru 9/30/2023 Crossing Guard Services Contract (8/7/2023) CMR#2307-1797 (169) Total Budget Amendments Authorized by Council - (169) BSR Balance 57,649 57,480 BSR % of Adopted Total Use of Funds 20.6% 20.6% Item 15: Staff Report Pg. 10 Packet Pg. 335 of 341 Attachment B Public Safety Departments Item 15 Overtime Analysis for Fiscal Years 2022 through 2024 Attachment B - Public Safety Overtime Analysis Q1 2024 2022 2023 2024 Q 1 POLICE DEPARTMENT Overtime Expense Adopted Budget (A) $944,186 $972,512 $1,028,988 Modified Budget (B) 1,244,186 972,512 1,028,988 Net Overtime Cost - see below 781,344 1,108,396 420,253 Variance to Budget 462,842 (135,884) 608,735 Overtime Net Cost Actual Expense $2,319,043 $2,940,019 $754,265 Less Reimbursements Other Program Reimbursements - 878 - California OES/FEMA (Strike Teams) - - - Stanford Communications 107,684 124,868 26,426 Utilities Communications Reimbursement 56,004 64,599 14,162 Local Agencies (C) 5,456 4,949 2,104 Police Service Fees 120,411 100,413 19,223 Total Reimbursements 289,556 294,829 61,915 Less Department Vacancies (A) 1,248,143 1,536,794 272,096 Net Overtime Cost $781,344 $1,108,396 $420,253 Department Vacancies (number of days) 3,903 4,876 828 Workers' Compensation Cases (F) Department Disabilities (number of days) FIRE DEPARTMENT Overtime Expense Adopted Budget (D) Modified Budget (E) Net Overtime Cost - see below Variance to Budget Overtime Net Cost Actual Expense Less Reimbursements California OES/FEMA (Strike Teams) Total Reimbursements Less Department Vacancies (D) Net Overtime Cost Department Vacancies (number of days) 11 1,221 750 267 $1,931,121 $2,124,054 $2,146,234 2,703,621 3,801,054 2,146,234 4,073,011 1,740,750 953,074 (1,369,390) 2,060,304 1,193,160 $4,684,796 611,784 $4,073,011 1,717 $3,589,198 $1,276,385 341,629 - 341,629 - 1,506,819 323,311 $1,740,750 $953,074 4,105 617 Workers' Compensation Cases (F) 35 Department Disabilities (number of days) 947 536 NOTES: (A) The FY 2024 Police Department budget was increased by 1.0 Court Liaison Officer, 1.0 Administrative Associate, 2.0 Public Safety Dispatchers, and 2.0 Police Officers. (B) Police Department adopted budget has not been adjusted in FY 2024. (C) Includes Animal Control Services contract with Los Altos and Los Altos Hills. (D) The FY 2024 Fire Department budget was increased by 2.0 Fire Inspectors. (E) The Fire Department adopted budget has not been adjusted in FY 2024. (F) Not available and will be provided in next quarterly report 126 Item 15: Staff Report Pg. 11 Packet Pg. 336 of 341 Item 13 Item 13 Supplemental Report City Council Supplemental Report CITY O F From: Ed Shikada, City Manager PALO Meeting Date: January 22, 2024 ALTO Item Number: 13 Report #:2401-2525 TITLE Item 13 Supplemental Report: Update, Discussion, and Potential Direction regarding State and Federal Legislation RECOMMENDATION Townsend Public Affairs compiled the Attachment A memo including an overview of the new Legislative Session to date as well as what is to come. This memo is included as a supplemental memo in order to include an overview of the Governor's Budget which was released January 10th. ATTACHMENTS Attachment A: Townsend Public Affairs (TPA) State and Federal Updates January Memo APPROVED BY: Ed Shikada, City Manager Item 13: Staff Report Pg. 1 Packet Pg. 337 of 341 T OWNSEND 199_1 MEMORANDUM Item 13 Item 13 Supplemental Report Attachment A - TPA State and Federal Updates January Memo To: The Honorable Greer Stone and Members of the Palo Alto City Council CC: Ed Shikada, City Manager Chantal Cotton Gaines, Deputy City Manager From: Townsend Public Affairs Christopher Townsend, President Niccolo De Luca, Vice President Ben Goldeen, Federal Advocacy Manager Alex Gibbs, Grants Manager Carlin Shelby, Associate Date: January 18, 2024 Subject: January State and Federal Legislative Updates Townsend Public Affairs, Inc. (TPA) has prepared this report for the City of Palo Alto to provide a summary of State and Federal efforts, highlight the current status of the legislative process, and identify various pieces of legislation that may be of interest to the City. State Legislative Update As of January 3, the State Legislature has reconvened for the second year of the 2023-24 legislative session following the interim recess. This period is particularly crucial for bills marked as "2 -Year Bills" from the previous session, as authors have until the end of the month to push for their progression. Top -of -mind issues for members encompass housing affordability, climate change initiatives, disaster preparedness, and education reforms. During the initial weeks, over 100 new measures have been introduced, showcasing comprehensive policy proposals through press releases, spot bills, and intent bills acting as placeholders for future amendments. Prominent legislative trends include the governance of artificial intelligence deployment, Proposition 47 reform and theft prevention, and firearm safety. The influx of new bills will persist until the February 18 deadline for bill introduction, marking the final opportunity for new bill vehicles. Throughout the session, members retain the flexibility to amend or perform a "gut and amend" strategy, transforming existing bills into entirely new policies, provided they adhere to the 72 -hour in -print rule. Anticipations suggest that the Legislature will align with recent trends, introducing close to 2,000 new proposals in the ongoing session. Priority Legislation for the City of Palo Alto The following measures provide a snapshot of newly introduced bills that align with City priorities. Please note this list is not comprehensive nor does it provide an overview of the universe of new bills for the 2024 legislative session, because the majority of new bill introductions will happen Item 13: Staff Report Pg. 2 Packet Pg. 338 of 341 Item 13 Item 13 Supplemental Report Attachment A - TPA State and Federal closer to the February 18 deadline. Additionally, some of the measures in Updates January Memo °° or "intent" form, meaning they lack substantive language indicating specific provisions for their implementation. TPA will continue to update the Council on new and amended measures as they are introduced. BILL SUMMARY/STATUS CITY IMPACT POSITION/ RECOMMENDATION This bill would no longer limit the The City's legislative guidelines jurisdictional rules for theft crimes to support additional tools for law criminal actions brought by the Attorney enforcement to prevent and AB 1779 General, which would allow for the cross- prosecute theft crimes. This bill Recommendation: Irwin jurisdictional prosecution of theft crimes would allow for additional Monitor that occur in more than one location, enforcement tools to hold people Status: Pending Policy Committee Referral accountable for prolonged, multi -jurisdictional theft crimes. The City's legislative guidelines Authorizes a developer that submits a advocate for the preservation of preliminary application for a housing local discretion in the Adevelopment 1820chiavo) project to request a assessment, collection, and Recommendation: (S preliminary fee and exaction estimate, to which a local government has up to 10 usage of development fees. This measure could lead to onerous Monitor business days to comply. reporting requirements that Status: Pending Policy Committee Referral could burden staff and interfere with local planning activities. States the intent of the Legislature to enact The City and residents are subsequent legislation to authorize the serviced by the MTC public Metropolitan Transportation Commission transit network. Anew revenue (MTC) to propose a revenue measure to measure to fund this SB 925 the voters in its jurisdiction to fund the transportation network could Recommendation: Wiener operation, expansion, and transformation of impact City residents and the Monitor the San Francisco Bay area's public quality of public transit options; it transportation system, as well as other could also have financial transportation improvements, implications for all Bay Area Status: Pending Substantive Language and residents. Policy Committee Referral . Requires the State Transportation Agency The City and residents are serviced by the MTC public to develop a plan to consolidate all transit transit network; the SB 926 agencies that are located within the geographic jurisdiction of the Metropolitan consolidation of all transit Recommendation: (Wahab) Transportation Commission. agencies would impact City Monitor Status: Pending Substantive Language and residents and could potentially Policy Committee Referral chadee the quality of public transit options. State Budget Update On Wednesday, January 10, Governor Newsom adhered to constitutional deadlines by unveiling his preliminary 2024-25 State Budget proposal, revealing a projected budget shortfall of approximately $37.9 billion. Governor Newsom attributed this deficit to two primary factors: a substantial stock market decline in 2022 impacting revenues and an unprecedented delay in critical income tax collections. Item 13: Staff Report Pg. 3 Packet Pg. 339 of 341 Item 13 Item 13 Supplemental Report Attachment A - TPA State and Federal Updates January Memo Notably, the Governor's shortfall estimate contrasts significantly with the Legislative Analyst's Office (LAO) projection of a $68 billion deficit in December. The LAO, responsible for an independent assessment of California's budget, often diverges from the Department of Finance in projections, with the $30 billion difference hinging on assumptions about revenues and expenditures. To address the anticipated deficit, Governor Newsom's budget proposal employs several strategies. These include drawing $13.1 billion from state reserve accounts and employing deferrals, borrowing, clawbacks, and fund shifts to cover the remaining $24.8 billion gap. Across various accounts, the proposed budget maintains stability in funding allocations or implements incremental reductions without introducing new funding. At this time, there have been no proposed reductions to programs Palo Alto is participating in. While the budget proposal outlines spending reductions and deferrals, it is crucial to recognize that the budget situation will evolve over the next few months before enactment. The Governor's proposal will undergo updates in May, reflecting changes in tax returns, inflationary pressures, and federal monetary policy, potentially leading to additional spending cuts or the restoration of spending programs. Looking ahead, late January sees the initiation of the Legislature's budget subcommittees hearings, tasked with reviewing and recommending changes to the proposed budget. Following these hearings and negotiations between the Governor and the Legislature, a revised budget must be presented by May 14, aligned with updated revenue estimates. The Legislature's deadline to pass a balanced budget is June 15, and the Governor must approve the final 2024- 25 spending plan before the new budget year commences on July 1. Despite the predicted deficit, TPA advocates are working with City staff to identify priority projects to present the City's legislative delegation, should district request funding opportunities arise. Congressionally Directed Spending Submittal The City/TPA team worked in partnership to draft, fine tune, and submit a congressionally directed spending request for infrastructure funding to help redevelop the Buena Vista Mobile Home Park. The Park, a locally significant affordable housing resource, is in desperate need of sustainable redevelopment, including 100% electrification. An award would assist the predominantly Latinx and very low-income residents who call it home. This application was in partnership with the Santa Clara County Housing Authority. Congresswoman Eshoo put forward the project in the amount of $850,000. The request was included in the Transportation, Housing and Urban Development (THUD) appropriations bill, which is pending approval via the passage of the comprehensive federal appropriations package. TPA advocates are in the process of meeting with City staff to identify funding priorities for the upcoming FY 2025 congressional spending requests process. Federal Appropriations Updates During the week of January 8, congressional leaders announced they reached an agreement on top -line funding levels for Fiscal Year 2024 appropriations, which projected optimism that Item 13: Staff Report Pg. 4 Packet Pg. 340 of 341 Item 13 Item 13 Supplemental Report Attachment A - TPA State and Federal Congress could fully fund the government for an entire fiscal year. Howeve Updates January Memo ces have indicated that Congress is likely to consider and vote on another continuing resolution (CR), which will extend current funding levels until March 1 and March 8. This will allow negotiators more time to finish and vote on appropriations bills, which in turn will impact the final date for the passage of fiscal year 2024 congressional spending requests into law. The agreement set overall spending at $1.6 trillion, with $886 billion for defense, and the remaining $776 billion for all other discretionary government agencies and programs. To achieve the agreement, Senate Majority Leader Chuck Schumer compromised by amending previous agreements made through the Fiscal Responsibility Act negotiations to raise the debt ceiling in May 2023. Speaker Johnson published a letter on January 7 applauding that he secured "hard- fought concessions" to secure votes for passage. The concessions cut $16 billion in IRS and COVID relief funds. These cuts were scheduled to be made in next year's spending package but were expedited into FY24 under the agreement. This still is not enough for House Freedom Caucus members to release pressure on Speaker Johnson. The focus of Congress has now shifted to passing a short-term clean resolution into early March to ensure the government does not shutdown. Majority Leader Schumer filed for a cloture vote on Thursday to begin the process of extension. Four of the bills are set to expire on January 19, with the remaining eight expiring on February 2. If the Schumer -Johnson agreement holds, leadership will need to finalize the twelve annual appropriations bills utilizing the top line spending amount. 4 Item 13: Staff Report Pg. 5 Packet Pg. 341 of 341