HomeMy WebLinkAboutStaff Report 6488
City of Palo Alto (ID # 6488)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 3/15/2016
City of Palo Alto Page 1
Summary Title: Comp Plan Update Fiscal Analysis
Title: Introduction and Discussion of the Draft Fiscal Analysis of the City of
Palo Alto 2030 Comprehensive Plan Update (Continued From March 1, 2016)
From: City Manager
Lead Department: Planning and Community Environment
Recommendation
Staff recommends that the Finance Committee receive a presentation regarding the methodology and
scope of the Draft Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan Update and provide
questions and comments to inform later discussion by the full City Council. City Council comments and
direction will inform preparation of a revised (final) analysis concurrent with the final Comprehensive
Plan Update.
Executive Summary
During its December 8th, 2014 meeting, the City Council recommended that the Comprehensive Plan
Update include a fiscal analysis of the impacts of the potential growth in population and jobs planned
for in a Comprehensive Plan Update. This recommendation was formalized in March of 2015 with a
contract amendment to the existing consultant’s contract (PlaceWorks) to accommodate the inclusion
of the fiscal analysis. Economic & Planning Systems, Inc. (EPS), a sub consultant for PlaceWorks, along
with City staff solicited General Fund cost and revenue data from key City departments through
interviews and correspondence with department Directors and Budget Coordinators to document the
existing fiscal and economic conditions and support an analysis of the potential fiscal impacts
attributable to alternative land use scenarios considered in the Comprehensive Plan Update process.
The draft Fiscal Impact Analysis Report details the methodology employed for the analysis, study
caveats, analytical approach and key assumptions, and key findings and conclusions.
Background
Throughout 2014, the City Council discussed the format and content of the ongoing Comprehensive Plan
Update. These conversations included significant public outreach efforts with the community to identify
critical issues and define potential alternatives.
By the end of 2014, Council requested two additional deliverables to support the best decision-making
possible: a Draft Environmental Impact Report (DEIR) that would study a set of high level planning
scenarios to show the potential range of impacts resulting from those decisions, and a fiscal analysis that
City of Palo Alto Page 2
would forecast the fiscal impacts attributable to development that may occur during the life of the
updated Comprehensive Plan based on the same suite of scenarios explored in the DEIR.
EPS conducted a fiscal impact study of the General Fund that included several intensive interviews with
department Directors and Budget Coordinators from mid-2015 through early 2016 to help understand
the revenue potential of new development and the cost burden of residents and employees on
department expenses. The intention of the analysis is to inform decision makers about the potential
fiscal impacts of the policy choices inherent in the Comprehensive Plan scenarios with the
understanding that it is unlikely that the final Comprehensive Plan Update will exactly match any one of
these scenarios and will more likely include an amalgamation of all of them. The fiscal analysis is one of
the several analyses, including a Transportation Impact Analysis and an Environmental Impact Report,
facilitating a full understanding of the potential outcomes of the land use scenarios considered in the
Comprehensive Plan Update process.
Discussion
Methodology
Consistent with the Comprehensive Plan Update study period, the fiscal analysis assesses the effect of
future residential and non-residential (employment supporting) development on the City of Palo Alto
General Fund from 2015 through 2030 based on the four land use scenarios identified in the
Comprehensive Plan Update process. Table 1 provides a brief description of each of the land use
scenarios studied in the Comprehensive Plan Update process. All of the scenarios assume that existing
Comprehensive Plan land use designations would remain unchanged.
Table 1: Comprehensive Plan Update Land Use Scenarios Description
Brief Description
Scenario 1 “Business as usual” under the existing Comprehensive Plan land use designations.
Scenario 2
Slow the pace of job growth in the City by adopting a city-wide annual limit on the
amount of office/R&D development and ensure that the modest amount of housing
growth that is expected would consist of small units and other housing types appropriate
for seniors and the Palo Alto workforce.
Scenario 3
Slow the pace of job growth in the City by perpetuating the current (interim) annual limit
on office and R&D development in selected areas of the City that are experiencing the
most rapid change, including Downtown, the California Avenue Area, and the El Camino
Corridor. This scenario would also eliminate housing sites on South El Camino Real and
San Antonio and would replace them by increasing residential densities on other
housing sites in transit-rich areas with ample neighborhood services.
City of Palo Alto Page 3
Scenario 4
Concentrate growth in transit-rich areas of the City, where there are ample
neighborhood services, and seek to address the impacts of employment growth rather
than slowing or controlling the rate of growth. This scenario would also eliminate
housing sites on South El Camino Real and San Antonio and would replace them by
increasing residential densities on other housing sites and by adding new sites along the
El Camino Real frontage of the Stanford Research Park and the Stanford Shopping
Center. As a result, this scenario includes the most job and residential growth of the
four scenarios. However, growth only would be allowed on the condition that it
(individually or collectively) incorporates stringent performance standards intended to
address the impacts of growth
Source: Comprehensive Plan Update Draft EIR, February 2016
To inform the analysis, the City and the Comprehensive Plan consultant team established estimates of
net new real estate development in the City based on the scenarios. Table 2 presents a summary of the
Comprehensive Plan scenarios, including population, households, employment, and employment
workspace growth by 2030. It’s important to note that workspace densities vary by scenario and there is
not a proportional relationship between new workspace and new employment across the scenarios. In
other words, employment growth is dependent on a variety of factors, and not just the development of
new workspace.
Table 2: Comprehensive Plan Update Scenarios: Population, Housing Units, Employment Growth, &
Employment Workspace Growth within the City of Palo Alto (2014-2030)
Socio-Economic Factor Scenario 1 Scenario 2 Scenario 3 Scenario 4
Population Growth 6,599 6,599 8,436 10,455
Percent Growth 10%10%13%16%
Housing Unit Growth 2,720 2,720 3,545 4,420
Percent Growth 10%10%12%15%
Employee Growth 15,480 9,850 12,755 15,480
Percent Growth 16%10%13%16%
Employment Workspace Growth
(Square Feet)3,300,000 3,000,000 3,500,000 4,000,000
Percent Growth 12%11%13%15%
Source: Draft Report Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Notes:
Most but not all of the estimated Employment Workspace Growth would occur in “monitored areas” of the City
shown in Existing Comprehensive Plan Map L-6.
City of Palo Alto Page 4
Housing and Population projections in Scenarios 1 & 2 are based on City’s historic growth rates. Housing and
Population growth rate for Scenario 4 is based on ABAG’s projected growth rate within the City.
Estimated job growth for Scenarios 1 & 4 are based on ABAG Projections 2013.
This fiscal analysis of 2030 Comprehensive Plan scenarios focuses specifically on the effect that
population and employment growth will have on the City’s $171.1 million 2015 Adopted General Fund
Operating Expenditure Budget.1 The Fiscal Impact Model developed for this effort assesses revenue and
cost effects attributable to growth on a revenue-line-item and department-by-department cost basis.
The model holds current operations factors constant, including tax rates, organizational structures, and
governance policies. While these and other factors will change over time, this analytical approach seeks
to isolate the fiscal impact attributable to residents, workers, and visitors, as well as fiscal impacts
attributable to specific land use categories. The analysis presents year 2030 results in constant 2015
dollars.
The fiscal analysis forecasts the net impact (i.e., revenues less costs) for each of the Comprehensive Plan
scenarios. The attribution of revenues and costs to specific types of growth provides potentially useful
information to decision makers considering alternative paths of growth for the City.
EPS developed a spreadsheet-based fiscal model that relies primarily on the City’s Fiscal Year 2015
Adopted Budget, data and qualitative information provided by key City departments, Planning and
Community Environment staff guidance, and firm experience conducting fiscal analysis in California. The
fiscal analysis also considers a 15 year historical review of General fund revenue and cost trends. The
model calculates revenues and costs attributable to growth using a range of approaches to revenue and
cost estimation.
Revenue Analysis - For revenue sources including property tax, sales tax, and transient
occupancy tax (i.e., those sources for which revenue generation can be simulated), the model
seeks to forecast the marginal contribution of these sources to revenue, based on the range of
growth described by the Comprehensive Plan scenarios. For other sources of General Fund
revenue, such as the Utility Users Tax, the model calculates revenue estimates based on the
current average revenue per household and employee.
Cost Analysis – The model relies on a marginal cost methodology to estimate future City
expenditures. These marginal costs are lower than average costs, since a portion of the City’s
general fund expenditures are fixed (i.e., do not increase with population growth). For
departments with relatively large operating budgets, the analysis relies on more detailed data
inputs from department representatives to estimate the marginal cost to provide services to
increasing numbers of residents and local employees.
The Comprehensive Plan 2030 fiscal analysis is sensitive to the local drivers of fiscal revenues and fiscal
costs, and the model takes extraordinary steps to attribute revenues and costs to local residents versus
workers, knowing this is a particular interest of some councilmembers.
Revenue Attribution - The analysis attributes revenues to residents based on their local real
estate value, their local spending, and spending on lodging by visiting friends and relatives.
1 The General Fund is a subcomponent of the City’s total Fiscal Year 2015 expenditure budget of $470.3 million.
City of Palo Alto Page 5
Similarly, the analysis attributes revenues to employees based on employment-supporting real
estate value, business and employee spending, taxable business-to-business sales, and business
travel spending in Palo Alto.
Table 3: Total Annual General Fund Revenue by Comprehensive Plan Scenario (2030)
Scenario 1 Scenario 2 Scenario 3 Scenario 4
Total Revenues
Estimate (millions) 11.73 10.11 12.72 15.41
Residential Uses 4.76 4.76 6.20 7.72
Employment Uses 6.97 5.35 6.53 7.69
Source: Draft Report Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Cost Attribution - The analysis uses a “service population” methodology to attribute costs to
local populations. For key departments, the study relies on data and qualitative information to
assess costs attributable to residents versus workers in Palo Alto. For those departments that
have relatively less influence on the cost of services, the analysis defines the service population
as the resident population plus one-half of citywide employees (i.e., using this method, the
service burden of a local worker is weighted at 50 percent of a local resident).
Table 4: Total Annual Cost to the General Fund by Comprehensive Plan Scenario (2030)
Scenario 1 Scenario 2 Scenario 3 Scenario 4
Total Cost Estimate
(millions) 6.53 5.07 6.52 8.00
Residential Uses 2.52 2.52 3.22 4.00
Employment Uses 4.01 2.55 3.30 4.01
Source: Draft Report Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Key Findings
This fiscal analysis finds that the growth envisioned in all four Comprehensive Plan scenarios likely will
generate net revenue for the City of Palo Alto General Fund. These fiscal effects reflect annual per-
capita fiscal net benefits of about $240 to $310 per net new person (including new residents and
workers), with each new resident generating about $340 to $360 and each new employee generating
about $190 to $280.
Table 5: Total Annual Net Fiscal Impact by Comprehensive Plan Scenario (2030)
City of Palo Alto Page 6
Fiscal Effect Estimate Scenario 1 Scenario 2 Scenario 3 Scenario 4
Total Net Effect by Use
Category (millions) 5.21 5.04 6.20 7.40
Residential Uses 2.24 2.24 2.97 3.72
Employment Uses 2.97 2.8 3.23 3.68
Source: Draft Report Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Accordingly, this analysis finds that the most significant growth scenario (Scenario 4) will generate the
greatest financial gain for the General Fund. It is important to recognize that despite being positive, the
net fiscal impacts calculated by this analysis are quite modest relative to the total City General Fund
budget. Also, the analysis finds that the expected fiscal benefit of a new resident in Palo Alto is greater
than the expected fiscal benefit of a new employee in the City even though the new resident generates
a higher marginal cost burden compared to local workers. The consultants will be available at the
Finance Committee to provide an overview of their study and answer questions about the analysis and
conclusions.
Timeline
City Council will have an opportunity to review the draft Fiscal Impact Analysis, along with the
Comprehensive Plan Update Draft EIR and may provide comments and questions for consideration in
the final documents. These materials may also serve as a reference for the Citizens Advisory Committee
and others during discussions on the various land-use decisions that will have to be made in the course
of preparing the Comprehensive Plan Update. In preparing a final fiscal analysis, the consultants may be
asked to asses an additional scenario, as well as infrastructure financing opportunities such as impact
fees, value capture, etc.
Policy Implications
The Fiscal Analysis key findings suggests that the City will have the the financial resources available to
provide the high quality and diverse mix of municipal services for both residents and local workers in all
growth scenarios considered in the Comprehensive Plan Update. Due to the study’s focus on General
fund fiscal impacts, costs and funding sources required to develop major infrastructure projects
contemplated by the Comprehensive Plan Update are not analyzed.
Environmental Review
The draft fiscal study is not a project requiring review pursuant to the California Environmental
Quality Act (CEQA).
Attachments:
Attachment A: Draft Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
(PDF)
Draft Report
Fiscal Analysis of the City of
Palo Alto 2030 Comprehensive Plan
Prepared for:
City of Palo Alto
Prepared by:
Economic & Planning Systems, Inc.
January 15, 2016
EPS #151010
Attachment A
Table of Contents
1.INTRODUCTION AND SCOPE...................................................................................... 1
Introduction ............................................................................................................. 1
Comprehensive Plan Scenarios Overview ..................................................................... 2
Methodology Overview .............................................................................................. 3
Study Caveats .......................................................................................................... 4
2.SUMMARY OF ANALYTICAL RESULTS ............................................................................ 5
Key Findings ............................................................................................................ 7
3.FISCAL TRENDS AND ANALYTICAL FRAMEWORK ............................................................... 8
Economic and Budgetary Environment ......................................................................... 8
Budget Trends ........................................................................................................ 11
Analytical Approach and Key Assumptions .................................................................. 12
4.GENERAL FUND REVENUES .................................................................................... 14
Summary of Revenues ............................................................................................. 14
Property Tax Revenue ............................................................................................. 15
Property Transfer Tax Revenue ................................................................................. 20
Sales and Use Tax Revenue ..................................................................................... 21
Transient Occupancy Tax ......................................................................................... 26
Utility Users Tax ..................................................................................................... 29
5.GENERAL FUND COSTS......................................................................................... 30
Summary of Costs .................................................................................................. 30
Departmental Trends and Analytical Assumptions ....................................................... 35
Other Departments ................................................................................................. 45
Appendix
List of Figures
Figure 1 2030 Comprehensive Plan Scenarios ................................................................. 3
Figure 2 Estimated Annual Net Fiscal Effect on General Fund in 2030 (2015$) .................... 6
Figure 3 Estimated Per-Capita Net Fiscal Effect on General Fund in 2030 (2015$) ............... 6
Figure 4 Estimated Per-Capita Revenue and Cost on General Fund in 2030 (2015$) ............ 6
Figure 5 2015 General Fund Revenue Sources .............................................................. 10
Figure 6 Adopted 2015 General Fund Expenditure Budget .............................................. 11
Figure 7 City of Palo Alto General Fund Expenditure Trend ............................................. 12
Figure 8 Revenue by Comprehensive Plan Scenario in 2030 (2015$) ............................... 14
Figure 9 Residential Versus Commercial Assessed Value Trend ....................................... 15
Figure 10 Added Assessed Value in Palo Alto (2013-14 vs. 2014-15) ................................. 16
Figure 11 Property Value Assumptions .......................................................................... 17
Figure 12 Land Use Program by Scenario ....................................................................... 18
Figure 13 Property Turnover and Market Appreciation Assumptions ................................... 19
Figure 14 Property Tax Revenue in 2030 ....................................................................... 20
Figure 15 Property Transfer Tax Revenue in 2030 (2015$) .............................................. 21
Figure 16 Sales Tax Revenues from Households in 2030 (2015$) ..................................... 22
Figure 17 Sales Tax Revenues from Businesses in 2030 (2015$) ...................................... 24
Figure 18 Estimated Sales Tax Generation by Spending Source 2015 ................................ 25
Figure 19 Annual Room Night Demand and Transient Occupancy Tax Revenue ................... 27
Figure 20 Estimated Transient Occupancy Tax Generation by Demand Source 2015 ............ 28
Figure 21 Utility Users Tax Revenue .............................................................................. 29
Figure 22 Summary of Costs by Comprehensive Plan Scenario in 2030 (2015$) ................. 30
Figure 23 Expense Variability by Department ................................................................. 32
Figure 24 Cost Burden Allocation by Department ............................................................ 33
Figure 25 Estimated Marginal Cost Burden on City General Fund ...................................... 34
Figure 26 Police Expenditures and Operating Indicators ................................................... 36
Figure 27 Fire Expenditures and Operating Indicators ...................................................... 38
List of Figures
Figure 28 Community Services Expenditures and Operating Indicators .............................. 40
Figure 29 Public Works Expenditures and Operating Indicators ......................................... 42
Figure 30 Library Expenditures and Operating Indicators ................................................. 44
Figure A-1 Scenario 1: Adjusted Property Values and Tax Revenue ................................... A-1
Figure A-2 Scenario 2: Appreciation-Adjusted Property Values and Tax Revenue .................A-2
Figure A-3 Scenario 3: Appreciation-Adjusted Property Values and Tax Revenue .................A-3
Figure A-4 Scenario 4: Appreciation-Adjusted Property Values and Tax Revenue .................A-4
Figure A-5 Scenario 1: Annual Property Transfer Tax Revenue ..........................................A-5
Figure A-6 Scenario 2: Annual Property Transfer Tax Revenue ..........................................A-6
Figure A-7 Scenario 3: Annual Property Transfer Tax Revenue ..........................................A-7
Figure A-8 Scenario 4: Annual Property Transfer Tax Revenue ..........................................A-8
Figure A-9 Scenario 1: Annual Sales and Use Tax Revenue .............................................. A-9
Figure A-10 Scenario 2: Annual Sales and Use Tax Revenue .............................................. A-9
Figure A-11 Scenario 3: Annual Sales and Use Tax Revenue ............................................ A-10
Figure A-12 Scenario 4: Annual Sales and Use Tax Revenue ............................................ A-10
Figure A-13 Scenario 1 - Hotel Night Demand Generated by New Development .................. A-11
Figure A-14 Scenario 2: Hotel Night Demand Generated by New Development ................... A-12
Figure A-15 Scenario 3: Hotel Night Demand Generated by New Development ................... A-13
Figure A-16 Scenario 4: Hotel Night Demand Generated by New Development ................... A-14
Figure A-17 Scenario 1 - Utility Users Tax Revenue Estimate ............................................ A-15
Figure A-18 Scenario 2: Utility Users Tax Revenue Estimate ............................................. A-15
Figure A-19 Scenario 3: Utility Users Tax Revenue Estimate ............................................. A-16
Figure A-20 Scenario 4: Utility Users Tax Revenue Estimate ............................................. A-16
Figure A-21 Cost Burdens by Department ...................................................................... A-17
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1.INTRODUCTION AND SCOPE
Introduction
This Fiscal Impact Analysis (“fiscal
analysis”) report documents a study of
the City of Palo Alto General Fund
revenues and costs that are attributable
to alternative land use scenarios being
considered through the Comprehensive
Plan Update process. The fiscal analysis
is tied to the City’s Fiscal Year 2015
adopted budget but also considers a 15-
year historical review of General Fund
revenue and cost trends. Furthermore, it
incorporates analytical inputs from key
City departments which inform 15-year
forecasts of fiscal outcomes, under the year 2030 Comprehensive Plan alternative scenarios.
The Comprehensive Plan 2030 fiscal analysis assesses the effect of future residential and
employment-supporting (non-residential) development on the City of Palo Alto General Fund.
The objective of the analysis is to estimate whether anticipated population growth, economic
expansion, and real estate development will generate adequate revenues to cover the costs of
providing City General Fund operations and maintenance services. That is, the analysis seeks to
identify what effect growth will have on the financial well-being of the City General Fund.
Consistent with the Comprehensive Plan Update, the study period for the fiscal projections
covers the period from 2015 to 2030. The fiscal analysis does not reflect the potential for the
Comprehensive Plan to have quality of life effects that may result from growth, nor does it
include costs associated with the major capital investments in infrastructure contemplated by the
Comprehensive Plan Update.
The Comprehensive Plan is the primary tool for guiding future development in the City of Palo
Alto. The Plan is the framework for making choices about growth, housing, transportation,
neighborhood improvement, and service delivery. It is intended to build on shared community
values and aspirations to guide preservation and to manage growth and change. The Plan sets
out long-term goals for the City’s future as well as policies concerning public service delivery and
land use.
The Palo Alto 2030 Comprehensive Plan Update will address changing demographic, economic,
and environmental conditions in Palo Alto.1 The Comprehensive Plan was last updated between
1998 and 2002, with the intent of being re-examined by 2010. City Staff and consultants started
work on the current Comprehensive Plan with the Planning and Transportation Commission (PTC)
during 2008. Since then, the scope of the Update has grown to include a broad reorganization of
1 The Housing Element was updated separately to meet a deadline set by the State.
Sun over Palo Alto hills Source: City of Palo Alto
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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the Comprehensive Plan. The technical process of gathering and analyzing data to support the
Plan’s goals, policies, and programs also has intensified.
This fiscal analysis assesses several scenarios that have been developed to capture the range of
possible outcomes of the Comprehensive Plan Update process. The study is intended to inform
decision makers about the potential fiscal impacts of the policy choices inherent in the
Comprehensive Plan scenarios, recognizing that it is unlikely that the final Comprehensive Plan
Update will exactly match any one of these scenarios, and more likely will include blend of all of
them. This fiscal analysis is one of several analyses, including a Transportation Impact Analysis
and an Environmental Impact Report, that are being prepared to inform a full understanding of
the potential outcomes of the four land use scenarios, before a direction is set for the future of
Palo Alto.
Comprehensive Plan Scenarios Overview
The City and the Comprehensive Plan Update
consultant team have prepared four alternative
scenarios that represent a range of land use and
growth patterns that could be pursued in the coming
years. Each of the scenarios is presented for
planning purposes, and the scenarios are not meant
to represent mutually exclusive options or final
scenarios from which to choose. The scenarios
illustrate several ways in which the City can address
important issues that Palo Alto is facing, and it is
expected that the City Council ultimately will adopt a
Comprehensive Plan that represents a combination
of the scenarios. By definition, these scenarios
explore a range of factors that represent potential
changes in direction from existing City policy or past practice. However, each of the scenarios is
considered feasible and implementable. For the purposes of the fiscal analysis, it is assumed that
the quality of services provided by the City is the same across the scenarios.
Scenario 1 represents “business as usual” under the existing Comprehensive Plan land use
designations.
Scenario 2 tests concepts designed to slow the pace of job growth in the City and to ensure
that the modest amount of housing growth that is expected would consist of small units and
other housing types appropriate for seniors and the Palo Alto workforce. Under this scenario,
existing Comprehensive Plan land use designations remain unchanged.
Scenario 3 tests strategies designed to slow the pace of job growth and would replace or
supplement the current citywide “cap” on new non-residential square footage with an annual
limit on office and R&D development. In Scenario 3, the annual growth cap focuses on the
areas of the City that are experiencing the most rapid change, including Downtown, the
California Avenue Area, and the El Camino Corridor. This scenario also discourages new
multi-family housing along South El Camino Real and San Antonio Avenue and adopts policies
and zoning regulations to shift new housing to transit-rich areas with ample neighborhood
Construction in PaloSource: City of Palo Alto
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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services. Under this scenario, Comprehensive Plan land use designations would remain
unchanged.
Scenario 4 tests strategies to concentrate growth in transit-rich areas of the City, where
there are ample neighborhood services, and seeks to address the impacts of employment
growth rather than slowing or controlling the rate of growth. As a result, this scenario
includes the most job and residential growth of the four scenarios. However, growth only
would be allowed on the condition that it (individually or collectively) incorporates stringent
performance standards intended to achieve significant sustainability improvements. One of
these standards would include “no net new car trips” as a result of any new office
development.
Based on the scenarios described above, the City and the Comprehensive Plan consultant team
established estimates of net new real estate development in the City. Figure 1 presents a
summary of the Comprehensive Plan scenarios, including population, households, employment,
and employment workspace growth by 2030. Workspace densities vary by scenario.
Figure 1 2030 Comprehensive Plan Scenarios
Methodology Overview
This fiscal analysis of 2030 Comprehensive Plan scenarios focuses specifically on the effect that
population and employment growth will have on the City’s $171.1 million 2015 Adopted General
Fund Operating Expenditure Budget.2 The Fiscal Impact Model developed for this study effort
assesses revenue and cost effects attributable to growth on a revenue-line-item and department-
by-department cost basis. The model holds current operations factors constant, including tax
2 The General Fund is a subcomponent of the City’s total Fiscal Year 2015 expenditure budget of
$470.3 million.
Socio-Economic Factor Scenario 1 Scenario 2 Scenario 3 Scenario 4
Population Growth 6,599 6,599 8,436 10,455
Percent Growth 10%10%13%16%
Housing Unit Growth 2,720 2,720 3,545 4,420
Percent Growth 10%10%12%15%
Employee Growth 15,480 9,850 12,755 15,480
Percent Growth 16%10%13%16%
Employment Workspace Growth
(Square Feet)3,300,000 3,000,000 3,500,000 4,000,000
Percent Growth 12%11%13%15%
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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rates, organizational structures, and governance policies. While these and other factors will
change over time, this analytical approach seeks to isolate the fiscal impact attributable to
residents, workers, and visitors, as well as fiscal impacts attributable to specific land use
categories. The analysis presents year 2030 results in constant 2015 dollars.
The fiscal analysis forecasts the net impact (i.e., revenues less costs) for each of the
Comprehensive Plan scenarios. The attribution of revenues and costs to specific types of growth
provides potentially useful information to decision makers considering alternative paths of
growth for the City.
Study Caveats
The fiscal analysis does not recommend changes to City budgeting.The analysis is
not intended to support departmental funding decisions. This fiscal analysis specifically seeks
to identify General Fund revenue and cost effects attributable to new resident and worker
populations in the City. The analysis does not address baseline cost trends (e.g., healthcare
or pension costs) or other external factors that may affect the General Fund in the future.
The City’s Long Range Financial Forecast, Comprehensive Annual Financial Report, and City
budget reports support City decisions regarding the allocation of revenue resources.
The fiscal analysis does not recommend changes to the levels service achieved by
City departments.The fiscal analysis is not intended to inform decisions concerning the
adequacy of City service delivery. Rather, the analysis assumes that current service levels
and standards are maintained in the future, under all growth scenarios. Similarly, this study
does not evaluate in detail the capital facilities improvements that may be needed to serve
new populations or support new development. Overall, this study finds that minimal capital
investment in new facilities will be required as a result of the growth anticipated by the
Comprehensive Plan Scenarios, and what investment is needed likely would be covered by
the general fund expenditures estimated as part of this analysis as well as through
development impact fee revenues and other available capital investment sources.
The fiscal analysis does not speculate or make projections concerning external
factors that may influence growth, City responses to growth, and cost effects in the
future.External factors that are beyond the control of the City and its departments may act
to magnify or reduce department costs over time. Examples of such external factors include
regional growth, technological advancements, State and federal policies, and environmental
factors.
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2.SUMMARY OF ANALYTICAL RESULTS
This fiscal analysis finds that the growth envisioned in all four Comprehensive Plan scenarios
likely will generate net revenue for the City of Palo Alto General Fund. The results range from an
annual net effect (i.e., additional General Fund revenues minus costs) of roughly $5.0 million to
$7.4 million by 2030 (in 2015 dollars). These fiscal effects reflect annual per-capita fiscal net
benefits of about $240 to $310 per net new person (including new residents and workers), with
each new resident generating about $340 to $360 and each new employee generating about
$190 to $280.
These findings suggest that the City’s
General Fund is likely to benefit financially
from growth, including both residential and
commercial development. That is, each new
resident and worker generates more in tax
revenue accruing to the City General Fund
than his or her cost to the General Fund, on
average. Accordingly, this analysis finds that
the most significant growth scenario
(Scenario 4) will generate the greatest
financial gain for the General Fund. Figure 2
and Figure 3 present aggregate and per-
capita fiscal analysis results, respectively.
Figure 4 presents additional detail
concerning per-capita revenues and costs
attributable to local residents and workers.
It is important to recognize that despite
being positive, the net fiscal impacts
calculated by this analysis are quite modest
relative to the total City General Fund
budget. The greatest net fiscal impact
identified, $7.4 million under Scenario 4,
represents about four percent of the Fiscal
Year 2015 General Fund expenditure budget.
It also is important to note that there are likely to be a variety of effects from growth that are
not reflected in the City fiscal impacts calculated by this analysis. For example, the analysis does
not estimate quality of life impacts that result from growth, such as changes in traffic congestion,
parking supply, or other positive or negative factors related to increased land use density. The
Environmental Impact Report (EIR) concerning the Comprehensive Plan provides a thorough
assessment of such impacts. Furthermore, it is important to note that this fiscal analysis
provides a view of operational revenues and costs accruing to the General Fund and does not
reflect the costs associated with the major infrastructure investments contemplated by the
Comprehensive Plan scenarios.
Sunflowers 2003, California Ave. Source: City of Palo Alto
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure 2 Estimated Annual Net Fiscal Effect on General Fund in 2030 (2015$)
Figure 3 Estimated Per-Capita Net Fiscal Effect on General Fund in 2030 (2015$)
Figure 4 Estimated Per-Capita Revenue and Cost on General Fund in 2030 (2015$)
Fiscal Effect Scenario 1 Scenario 2 Scenario 3 Scenario 4
Revenues $11,732,000 $10,109,000 $12,723,000 $15,405,000
Costs $6,527,000 $5,071,000 $6,525,000 $8,002,000
Total Net Effect $5,205,000 $5,038,000 $6,198,000 $7,404,000
Percentage of 2015
General Fund 3.0%2.9%3.6%4.3%
Total Net Effect by Use Category
Residential Uses $2,238,000 $2,238,000 $2,973,000 $3,722,000
Employment Uses $2,967,000 $2,799,000 $3,225,000 $3,681,000
Fiscal Effect Scenario 1 Scenario 2 Scenario 3 Scenario 4
Overall Per Capita
(Residents and Workers)$236 $306 $292 $285
Per Resident $339 $339 $352 $356
Per Household $823 $823 $838 $843
Per Job $192 $284 $253 $238
Fiscal Effect Scenario 1 Scenario 2 Scenario 3 Scenario 4
Per Resident
Revenue $721 $721 $735 $738
Cost $382 $382 $382 $382
Net Effect $339 $339 $352 $356
Per Job
Revenue $450 $543 $512 $497
Cost $259 $259 $259 $259
Net Effect $192 $284 $253 $238
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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Key Findings
The net revenue generated for the General Fund under the Comprehensive Plan
Update scenarios result from robust revenue generating potential and modest cost
implications attributable to growth.On the revenue side, property tax-related City
income is anticipated to be strong, given the high value of real estate in Palo Alto. In
addition, this analysis projects significant sales tax revenue will be generated by new
residents and workers. On the cost side, the City is well positioned to expand to meet
marginal increases in demand for City services without dramatic increases in operational
cost.
Though the Comprehensive Plan Update scenarios are likely to generate net
revenue for the General Fund, it is notable that even the most aggressive growth
forecast will have a relatively modest net effect on the General Fund.Overall, this
fiscal analysis finds that growth scenarios might net the City $5.0 million to $7.4 million
(2015$) by 2030, or about 2.9 percent to 4.3 percent of the 2015 General Fund expenditure
budget. A variety of factors external to this analysis could have more dramatic effects on the
General Fund. For example, retail sales and transient occupancy attributable to regional
growth (particularly in nearby cities), turnover of local real estate assets with deeply
suppressed assessed value and property tax potential, and regional demographic shifts could
affect the General Fund over the next 15 years.
The expected fiscal benefit of a new resident in Palo Alto is greater than the
expected fiscal benefit of a new employee in the City.This result is attributable to the
greater revenue potential of residents. In particular, property tax revenue from residential
uses is two to three times that of employment uses on a per-capita basis (reflective of value,
space efficiency, and turnover). This residential property-related revenue outweighs the
higher per-capita sales tax revenue and transient occupancy tax revenue generated by local
employment. However, new residents are expected to generate a higher marginal cost
burden for the City General Fund, as compared with local workers. Overall, though, residents’
greater revenue potential relative to workers outweighs the cost of services differential
between residents and workers, resulting in greater per-capita net benefits attributable to
new residents.
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3.FISCAL TRENDS AND ANALYTICAL FRAMEWORK
The City of Palo’s budget, as approved by the City Council,
reflects resource allocations consistent with the City policies,
goals, and priorities. It also communicates to citizens and staff
an action plan for the upcoming fiscal year, including program
goals and the standards by which the delivery of services to the
public will be measured.
For the purposes of this fiscal analysis, the General Fund
component of the Fiscal Year 2015 City Budget is the primary
basis from which fiscal effects are measured. This section
reviews the General Fund in detail, including both revenues and
expenditures.
Economic and Budgetary Environment
The General Fund at a Glance
The General Fund is the primary fund used to account for all general revenues of the City (e.g.,
property tax revenue, sales tax revenue). In general, these funds are allocated at the discretion
of the City Council. Revenue is used to support citywide services such as public safety,
community services, planning and community environment, and administrative support services.
The Fiscal Year 2015 Adopted General Fund Expenditure budget of $171.1 million is balanced
with $169.4 million in revenues and $1.7 million Fiscal Year 2014 budget surplus funds.
Primary Revenue Sources Affected by Growth
The General Fund revenue sources discussed below are anticipated to increase with new resident
and employment growth in the City.
Property Tax
The City of Palo Alto receives an approximately 9.0 percent apportionment of the base 1.0
percent statewide real property tax rate. The City of Palo Alto’s Fiscal Year 2015 revenue
projection was about $32 million.
Sales Tax
The City of Palo Alto receives a 1.0 percent tax rate on taxable retail sales within the City. The
City’s Fiscal Year 2015 revenue projection was approximately $26 million.
Transient Occupancy Tax
The Transient Occupancy Tax rate in Palo Alto is 14 percent, which is applied to the daily room
rate at local lodging establishments. The tax applies to stays of 30 days or less. The Fiscal Year
2015 revenue projection was $14.2 million.
Source: City of Palo Alto
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Utility Users Tax
A Utility Users Tax is charged to all local consumers of electricity, gas, water, and telephone
services at a rate of 4.75 to 5.0 percent.3 The Fiscal Year 2015 revenue projection was $11.3
million.
Documentary Transfer Tax
The Documentary Transfer Tax is levied when real property is sold. In Palo Alto, the real
property transfer tax is $3.30 for each $1,000 of property value. The Fiscal Year 2015 revenue
projection was $7.5 million.
Figure 5 presents a summary of all 2015 General Fund revenue sources, including a number of
sources which are not anticipated to be directly or significantly affected by population and
employment growth in the City.4 In addition, some categories of revenue shown in Figure 5 are
removed from the analysis on both the revenue and cost side of the fiscal accounting ledger, the
assumption being that the City will maintain current cost recovery performance.5
3 Measure C, passed by voters in 2014, modernizes the City's utility users tax to reflect changes in
federal law as well as the shift from landline telephones to digital communication technologies. It
reduces the telecommunications tax rate from 5 to 4.75 percent and eliminates a discount that applies
to a small number of customers who large volumes of gas, water and electricity. For purposes of
analysis, this study applies a 5 percent tax rate to all estimated utility charges.
4 Operating transfers, rental income, charges to other funds, other revenue, return on investments
and funds from other agencies are unlikely to be directly affected by growth.
5 Charges for service, permits and licenses, and other taxes and fines.
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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Figure 5 2015 General Fund Revenue Sources *
Source: City of Palo Alto Adopted Operating Budget Fiscal Year 2015
* Revenue sources not affected by growth or excluded because of cost recovery are presented in blue.
General Fund Expenditure Budget
City departments that draw heavily on the General Fund include Police (20 percent), Fire (16
percent), Community Services (13 percent), and Public Works (8 percent). Figure 6 presents
the relative size of expenditure budgets for City of Palo Alto departments. Budget trends,
including detailed analysis of the trends and cost drivers influencing the operational costs of key
departments, are discussed below and in detail in the General Fund Costs section of this report.
$0.45, 0%
$0.69, 0%
$1.06, 1%
$2.16, 1%
$7.51, 4%
$7.80, 5%
$10.65, 6%
$11.29, 7%
$14.16, 8%
$14.25, 8%
$18.43, 11%
$23.01, 14%
$25.96, 15%
$31.93, 19%
From Other Agencies
Return on Investments
Other Revenue
Other Taxes and Fines
Documentary Transfer Tax
Permits and Licenses
Charges to Other Funds
Utility Users Tax
Transient Occupancy Tax
Rental Income
Operating Transfers-In
Charges for Services
Sales Taxes
Property Taxes
$0 $10 $20 $30
Revenues (Millions)
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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Figure 6 Adopted 2015 General Fund Expenditure Budget
Source: City of Palo Alto Adopted Operating Budget Fiscal Year 2015
Budget Trends
Over the past 15 years, the City of Palo Alto’s General Fund expenditures have grown at the
modest rate of about 4.0 percent per year on average. Adjusting for inflation, General Fund
expenditures have increased by just 1.5 percent per year on average. Figure 7 presents the
budget trend, excluding transfers, since 2000. The figure presents expenditure data compiled
from the City’s Comprehensive Annual Financial Reports which reflect all General Fund
expenditures, less transfers out.
$0.3, 0%
$0.4, 0%
$0.9, 1%
$1.1, 1%
$1.3, 1%
$2.1, 1%
$2.6, 2%
$2.7, 2%
$3.3, 2%
$7.0, 4%
$7.2, 4%
$7.5, 4%
$10.5, 6%
$13.3, 8%
$13.4, 8%
$13.7, 8%
$22.8, 13%
$27.1, 16%
$34.1, 20%
$0.0 $10.0 $20.0 $30.0 $40.0
Office of Sustainability
City Council
Office of Emergency Services
City Auditor
City Clerk
Operating Transfers-Out
City Attorney
City Manager
People Strategy and Operations
Planning and Community Environment
Administrative Services
Library
Development Services
Non-Departmental
Public Works
Transfer to Infrastructure
Community Services
Fire
Police
Expenses (Millions)
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure 7 City of Palo Alto General Fund Expenditure Trend
Note: “Nominal Expenditures” reflects City’s budget as recorded in each year. “Real Expenditures” are nominal
expenditures adjusted for inflation to reflect constant 2014 dollars.
Analytical Approach and Key Assumptions
The Comprehensive Plan 2030 fiscal analysis assesses the effect of future residential and
employment-supporting (non-residential) development on the City of Palo Alto General Fund.
The objective of the analysis is to estimate whether anticipated population growth, economic
expansion, and real estate development will generate adequate revenues to cover the costs of
providing City General Fund operations and maintenance services. That is, the analysis seeks to
identify what effect growth will have on the financial well-being of the City General Fund.
Consistent with the Comprehensive Plan Update, the study period for the fiscal projections
covers the period from 2015 to 2030.
Economic & Planning Systems (EPS) has developed a spreadsheet-based fiscal model that relies
primarily on the City’s Fiscal Year 2015 Adopted Budget, data and qualitative information
provided by key City departments, Planning and Community Environment staff guidance, and
firm experience conducting fiscal analysis in California. The model calculates revenues and costs
attributable to growth using a range of approaches to revenue and cost estimation.
$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$140,000
$150,000
$160,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Expenditures
(in
thousands)
Nominal Expenditures ($)Real Expenditures (2014$)
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Revenue Analysis - For revenue sources including property tax, sales tax, and transient
occupancy tax (i.e., those sources for which revenue generation can be simulated), the
model seeks to forecast the marginal contribution of these sources to revenue, based on the
range of growth described by the Comprehensive Plan scenarios. For other sources of
General Fund revenue, such as the Utility Users Tax, the model calculates revenue estimates
based on the current average revenue per household and employee.
Cost Analysis – The model relies on a marginal cost methodology to estimate future City
expenditures. These marginal costs are lower than average costs, since a portion of the City’s
general fund expenditures are fixed (i.e., do not increase with population growth). For
departments with relatively large operating budgets, the analysis relies on more detailed
data inputs from department representatives to estimate the marginal cost to provide
services to increasing numbers of residents and local employees.
The Comprehensive Plan 2030 fiscal analysis is sensitive to the local drivers of fiscal revenues
and fiscal costs, and the model takes extraordinary steps to attribute revenues and costs to local
residents versus workers.
Revenue Attribution - The analysis attributes revenues to residents based on their local
real estate value, their local spending, and spending on lodging by visiting friends and
relatives. Similarly, the analysis attributes revenues to employees based on employment-
supporting real estate value, business and employee spending, taxable business-to-business
sales, and business travel spending in Palo Alto.
Cost Attribution - The analysis uses a “service population” methodology to attribute costs
to local populations. For key departments, the study relies on data and qualitative
information to assess costs attributable to residents versus workers in Palo Alto. For those
departments that have relatively less influence on the cost of services, the analysis defines
the service population as the resident population plus one-half of citywide employees (i.e.,
using this method, the service burden of a local worker is weighted at 50 percent of a local
resident).
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4.GENERAL FUND REVENUES
Summary of Revenues
The Comprehensive Plan 2030 fiscal analysis estimates City General Fund revenue in 2030 for
each of the planning scenarios. Overall, the scenarios generate between $10.1 million and $15.4
million in new revenue in 2030 (2015$). Property tax revenue alone accounts for between 50
percent and 56 percent of total revenue, depending on the scenario. Figure 8 presents a
summary of General Fund revenues by type for each scenario. This section of the report
describes the data, assumptions, and calculations used to generate revenue estimates.
Figure 8 Revenue by Comprehensive Plan Scenario in 2030 (2015$)
Department Scenario 1 Scenario 2 Scenario 3 Scenario 4
Property Taxes $5,899,797 $5,678,739 $7,051,115 $8,505,588
Residential Uses $3,285,672 $3,285,672 $4,283,526 $5,336,951
Employment Uses $2,614,125 $2,393,068 $2,767,589 $3,168,637
Property Transfer Tax $981,663 $956,717 $1,214,149 $1,480,881
Residential Uses $705,954 $705,954 $920,352 $1,146,689
Employment Uses $275,709 $250,763 $293,797 $334,192
Sales Taxes $1,794,346 $1,357,145 $1,714,317 $2,060,796
Residential Uses $264,187 $264,187 $344,421 $429,122
Employment Uses $1,530,159 $1,092,958 $1,369,897 $1,631,674
Transient Occupancy Tax $1,569,030 $1,058,376 $1,371,874 $1,671,725
Residential Uses $164,494 $164,494 $214,450 $267,189
Employment Uses $1,270,626 $796,189 $1,038,266 $1,270,626
Utility Users Tax $1,621,290 $1,155,486 $1,490,573 $1,820,105
Residential Uses $340,098 $340,098 $434,785 $538,876
Employment Uses $1,281,192 $815,389 $1,055,788 $1,281,230
Total Revenues $11,732,216 $10,108,770 $12,722,870 $15,405,186
Residential Uses $4,760,404 $4,760,404 $6,197,534 $7,718,827
Employment Uses $6,971,812 $5,348,366 $6,525,337 $7,686,359
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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Property Tax Revenue
Property Tax Current Conditions and Trends
At nearly $32 million,property tax revenue
comprises approximately 19 percent of Fiscal Year
2015 General Fund projected revenue, by far the
most significant source. Data from the City’s
Comprehensive Annual Financial Report (CAFR)
indicate that in 2014 the residential land uses in
Palo Alto accounted for approximately three times
the assessed value of commercial land uses and
likely a similarly greater amount of property tax
revenue. Residential uses’ share of total assessed
value has trended upward in recent years. Looking
back to 2010, residential assessed value was about
2.5 times the commercial assessed value. Figure 9
presents the trend in residential versus commercial
assessed value in the Palo Alto between 2010 and
2014.
Figure 9 Residential Versus Commercial Assessed Value Trend
Source: City of Palo Alto Comprehensive Annual Financial Report
Increases in assessed value are largely attributable to the turnover of existing real estate in Palo
Alto, as compared with new construction. Data from the Santa Clara County Assessor reveal that
during 2014-15, only 15 percent of the City’s increase in assessed value (about $200 million)
over the prior year was attributable to new construction. Over $1 billion in assessed value, which
accounted for 85 percent of total growth over the prior year, was attributable to changes in
property ownership that result in the reassessment of property to current market value. The
chart shown in Figure 10 depicts Palo Alto’s split of the recent year-over-year change in
assessed value between new construction and changes in ownership.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014
Residential Non Residential
Palo Alto Apartments Source: City of Palo
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Figure 10 Added Assessed Value in Palo Alto (2013-14 vs. 2014-15)
Source: Assessor’s Annual Report 2014-2015.
These data concerning the creation of new assessed value in Palo Alto suggest that changes in
the ownership of existing properties likely is the driving factor behind the overall shift in
assessed value toward residential uses. In California, Proposition 13 restricts the assessed value
of property to 2.0 percent annual appreciation when ownership remains unchanged. When long-
held properties are sold, the assessed value can reset to a market level that is many multiples its
prior assessed value. With residential properties being more numerous, more valuable in
aggregate, and turning over more frequently in Palo Alto, it is probable that residential turnover
in Palo Alto is adding assessed value to the City roll at a greater rate than commercial turnover.
And while new construction does contribute to increases in assessed value, the contribution of
these new developments is relatively modest and unlikely to dramatically affect aggregate
assessed value. For these reasons, it is likely that the baseline condition (i.e., the outcome in the
absence of growth envisioned by the Comprehensive Plan scenarios) is that residential uses will
continue to increase as a share of total assessed value and property tax revenue in Palo Alto.
Property Tax Revenue Forecast
Property tax will be the most significant source of General Fund revenue attributable to the
Comprehensive Plan Update 2030 growth scenarios. The fiscal analysis relies on a variety of data
and assumptions to establish the property tax revenue forecasts, including market value
assumptions and the anticipated land use mix (i.e., distribution of residential and commercial use
types). The analysis assumes that the current taxation framework (e.g., the property tax In Lieu
of Vehicle License Fee swap) and tax rates remain unchanged.
Assessed Value
To establish property value assumptions, EPS reviewed a variety of sources, including residential
sales data from Zillow, multifamily rental building sales data from RealAnswers, and commercial
$1,134,879,856
85%
$204,189,123
15%
Changes in Ownership New Construction
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real estate transaction data from CoStar Group, all well-respected suppliers of real estate data.
In addition, the analysis considers data concerning area median income and follows guidelines
from the US Department of Housing and Urban Development (HUD) to establish appropriate
market values for Below Market Rate (BMR) housing.
The real estate data considered are specific to real estate transactions in Palo Alto. While there
are likely to be transactions that occur both above and below the assumed market valuation
levels, the model assumptions are believed to be a good representation of average value
citywide over the coming years. Figure 11 presents the real estate value assumptions relied on
by the Comprehensive Plan Update fiscal analysis.
Figure 11 Property Value Assumptions*
* “Other” land uses include a range of specialty uses, including hospitality, education, and health care uses.
The mix of uses assumed by this analysis reflects the housing units and jobs described by each
Comprehensive Plan Scenario (see Figure 1). The analysis makes additional assumptions
concerning the types of residential and commercial uses that will be developed in the City.
Figure 12 presents detailed land use program assumptions for each Comprehensive Plan
scenario.
Housing - This analysis assumes that future housing development will be in multifamily
developments, including rental apartments and for-sale condominiums. The share of units
that will be offered as BMR units reflects City’s goal of 15 percent. According to data from the
City, currently about seven percent of citywide units are BMR, with about one percent of all
units characterized as for-sale BMR units and six percent characterized as rental BMR units.
The analysis assumes that the current mix of for-sale and rental BMR continues into the
future, but that BMR constitutes a greater share of new housing than existing housing.
Employment Space - To establish the mix of employment (non-residential) space
development that might occur under the Comprehensive Plan scenarios, the analysis
evaluates the detailed job growth projections associated with each of the growth scenarios,
considers potential employment densities by industry, and establishes workspace
Land Use
Residential Uses
For-Sale Residential $1,190,000 Per Unit
For-Sale BMR $380,000 Per Unit
Rental Residential $750,000 Per Unit
Rental BMR $260,000 Per Unit
Employment Uses
Retail $600 Per Square Foot
Office $700 Per Square Foot
Industrial $400 Per Square Foot
Other $700 Per Square Foot
Market Value
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distributions that reflect these factors. The space distributions are applied to net new
development targets established in collaboration with City staff and the consultant team.
Figure 12 Land Use Program by Scenario
Market Appreciation
The fiscal analysis acknowledges the potential for real property values to escalate in excess of
broader inflation in the economy. While California’s Proposition 13 limits annual increases in
value for property assessment purposes, the sale of a property resets the assessed value to the
market level. This fiscal analysis models property value escalation based on future turnover rates
and market appreciation levels. The resulting “market appreciation adjustment factors” are
applied to the real estate market values (see Figure 11), providing an estimate of assessed
value in 2030 (2015$). Figure 13 presents assumptions concerning property turnover and
market appreciation for new development. The analysis does not account for turnover in the
existing building stock in Palo Alto, since this market activity would occur in the absence of the
potential growth considered by the Comprehensive Plan Update scenarios.
Land Uses Scenario 1 Scenario 2 Scenario 3 Scenario 4
Residential Uses (Dwelling Units)
For-Sale Residential 1,281 1,281 1,670 2,080
For-Sale BMR 47 47 61 76
Rental Residential 1,031 1,031 1,344 1,675
Rental BMR 361 361 471 587
Employment Uses (Square Feet)
Retail 440,000 490,000 510,000 540,000
Office 1,160,000 930,000 1,210,000 1,400,000
Industrial 330,000 350,000 380,000 410,000
Other 1,360,000 1,280,000 1,400,000 1,650,000
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Figure 13 Property Turnover and Market Appreciation Assumptions
Property Tax In Lieu of Vehicle License Fees
In 2004, the State Legislature cut funding to cities and counties from the State Vehicle License
Fee (VLF) and in return began to provide additional property tax revenue. Under this revenue
swap, property tax in lieu of VLF increases in proportion to gross assessed value.6 Currently, the
City of Palo Alto receives an amount equivalent to approximately 25 percent of citywide property
tax as a VLF in-lieu payment from the State. The fiscal analysis assumes that these payments
grow over time to maintain the 25 percent relationship to property tax revenue.
Exemptions
Currently and in the future, a portion of the real estate in Palo Alto will be exempted from
property tax. Data from the Santa Clara County Assessor reveal that currently about nine
percent of Palo Alto’s total assessed value is exempt from property tax.7 Notable property tax
exemptions include the homeowner’s exemption and exemptions for properties owned by
charitable or nonprofit organizations, religious institutions, and private and non-profit colleges.
Property Tax Revenue Summary
The City of Palo Alto’s General Fund receives approximately 9.0 percent of the statewide 1.0
percent base property tax rate. Relying on the data and assumptions presented above, this
analysis finds that annual property tax revenue accruing to the City will total between about $5.7
6 Revenue and Taxation Code Section (c)(1)(B)(i).
7 Assessor’s Annual Report 2014-2015 (https://www.sccassessor.org/).
Land Use
Turnover
Rate
Annual Market
Appreciation
(nominal)
Market
Appreciation
Adjustment Factor
For-Sale Residential 8%7%139%
For-Sale BMR 4%2%87%
Rental Residential 4%7%132%
Rental BMR 4%2%87%
Retail 4%7%132%
Office 4%7%132%
Industrial 4%7%132%
Other 2%4%102%
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million and $8.5 million in 2030 (2015$), including property tax in lieu of VLF. Detailed
calculations for each scenario are provided in the Appendix to this report.
Figure 14 Property Tax Revenue in 2030
Property Transfer Tax Revenue
In addition to annual property tax revenues, the City of Palo Alto receives revenues from
property transfer taxes (documentary transfer tax)that are incurred when real property changes
hands. The City’s municipal code authorizes a Real Property transfer tax of $3.30 for each
$1,000 of property value (0.33 percent).8 The fiscal analysis applies this tax rate to the
anticipated value of property turnover in 2030 (2015$). Figure 13 presents turnover rates for
each land use type. Figure 15 summarizes the estimates of property transfer tax revenue.
8 Ordinance 4073.
Land Use Scenario 1 Scenario 2 Scenario 3 Scenario 4
Residential Uses
For-Sale Residential $1,901,909 $1,901,909 $2,479,516 $3,089,290
For-Sale BMR $13,935 $13,935 $18,167 $22,635
Rental Residential $921,830 $921,830 $1,201,789 $1,497,339
Rental BMR $73,742 $73,742 $96,138 $119,781
Employment Uses
Retail $317,278 $352,840 $365,651 $384,579
Office $966,523 $779,268 $1,008,622 $1,171,543
Industrial $159,498 $166,900 $179,705 $193,331
Other $873,064 $821,476 $898,368 $1,058,259
Total $5,227,780 $5,031,902 $6,247,956 $7,536,758
In-Lieu VLF Revenue $1,284,832 $1,236,691 $1,535,561 $1,852,310
Property Tax Exemptions 9%9%9%9%
Total Property Tax Revenue $5,899,797 $5,678,739 $7,051,115 $8,505,588
Residential Uses $3,285,672 $3,285,672 $4,283,526 $5,336,951
Employment Uses $2,614,125 $2,393,068 $2,767,589 $3,168,637
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Figure 15 Property Transfer Tax Revenue in 2030 (2015$)
Sales and Use Tax Revenue
Sales and Use Tax Forecast
This section estimates sales and use tax revenue accruing to the
City General Fund that is attributable to the new households and
employees in Palo Alto. Sales tax revenue attributable to new
households reflects household spending on taxable items within
the City. Sales tax revenue attributable to employment includes
workers spending locally, local business spending on retail items,
and taxable business-to-business spending.
Land Use Scenario 1 Scenario 2 Scenario 3 Scenario 4
Residential Uses
For-Sale Residential $557,893 $557,893 $727,325 $906,192
For-Sale BMR $2,044 $2,044 $2,665 $3,320
Rental Residential $135,202 $135,202 $176,262 $219,610
Rental BMR $10,816 $10,816 $14,100 $17,568
Employment Uses
Retail $46,534 $51,750 $53,629 $56,405
Office $141,757 $114,293 $147,931 $171,826
Industrial $23,393 $24,479 $26,357 $28,355
Other $64,025 $60,242 $65,880 $77,606
Total $981,663 $956,717 $1,214,149 $1,480,881
Residential Uses $705,954 $705,954 $920,352 $1,146,689
Employment Uses $275,709 $250,763 $293,797 $334,192
Source: City of Palo Alto
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Household Spending
The fiscal analysis relies on data from the US Bureau of Labor Statistics Consumer Expenditure
Survey to establish the retail spending pattern of households. The spending patterns, while not
specific to Palo Alto, reflect household consumer behavior observed nationally for households
with annual income greater than $150,000.9 To identify taxable retail expenditures made by Palo
Alto households, this analysis identifies and isolates taxable retail spending from total household
spending. The analysis estimates that approximately 16 percent of gross household income is
spent on taxable purchases. In Palo Alto, where the average annual household income is about
$207,000, this equates to about $32,400 per year.
Assuming that about 30 percent of this taxable spending occurs within the City of Palo Alto (a
fair-share capture rate based on retail offerings within five miles of the City), an average
household will generate about $9,700 in taxable spending in the City each year. The City tax rate
on retail sales is 1.0 percent. Therefore, each local household generates about $97 annually in
sales and use tax revenue for the City General Fund (2015$). Figure 16 summarizes the
aggregate annual sales tax revenue for each Comprehensive Plan scenario.
Figure 16 Sales Tax Revenues from Households in 2030 (2015$)
The sales and use tax revenue attributable to employment in Palo Alto includes three distinct
spending types. Worker spending, business spending, and business-to-business sales each
generate sales and use tax revenue for the City.
Worker Spending
This analysis estimates worker spending based on spending patterns reported in the well-
regarded study Office-Worker Retail Spending in a Digital Age, a research publication from the
9 The American Community Survey reports 2014 median household income in Palo Alto was
approximately $151,000 per year, while average household income is about $207,000 per year.
Retail Spending Scenario 1 Scenario 2 Scenario 3 Scenario 4
Taxable Household Spending $32,378 $32,378 $32,378 $32,378
Unique Households 2,720 2,720 3,546 4,418
Local Sales Capture Rate 30%30%30%30%
Total Taxable Spending $26,418,718 $26,418,718 $34,442,051 $42,912,204
Total Local Sales
Tax Revenue $264,187 $264,187 $344,421 $429,122
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International Council of Shopping Centers (ICSC).10 Similar to household spending data, these
survey data were reviewed to identify taxable spending. The analysis estimates that each worker
in Palo Alto spends about $9,300 annually on taxable sales in the vicinity of their workplace.
Because this spending is known to be near work, this analysis assumes that 80 percent of the
taxable spending by Palo Alto workers occurs within the City’s boundary. The taxable spending
captured in Palo Alto is multiplied by the number of workers who commute in to Palo Alto (about
92 percent of employees), since spending by resident workers already is captured by the
household spending estimate described above.11
Business Spending
There are two types of business spending considered by this analysis, business-to-business
spending and business spending on local retail. Business-to-business spending is a major
category of sales and use tax revenue in the City of Palo Alto. As part of this analysis, EPS
reviewed recent City sales and use tax revenue records and determined that business-to-
business sales tax revenues have fluctuated in the range of 8 percent to 21 percent of total sales
tax revenue in recent years.12 Using these data, in combination with information from CoStar
Group concerning the existing commercial building stock in the City, this analysis estimates that
office and industrial land uses generate an average of roughly $20 per square foot in business-
to-business sales, which translates to $0.20 per square foot in sales tax revenue. In addition,
businesses spend at local retail establishments on office supplies and personnel perks. This
analysis assumes $500 in local, taxable business spending per employee, which equates to sales
of about $2 per square foot of workspace and $0.02 per square foot in sales tax revenue.
Figure 17 summarizes sales and use tax revenues estimates attributable to employment.
Detailed calculations for each scenario are provided in the Appendix to this report.
10 Michael P. Niemira and John Connolly, International Council of Shopping Centers. “Office-Worker
Retail Spending in a Digital Age,” 2012. Accessed online at:
https://www.downtowndevelopment.com/pdf/icsc-report_office-worker-spending.pdf
11 According to LEHD Census data accessed through OnTheMap (www.onthemap.ces.census.gov),
92.3 percent of those employed in Palo Alto live outside of Palo Alto.
12 City of Palo Alto Sales Tax Digest Summaries from 2013 and 2014.
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Figure 17 Sales Tax Revenues from Businesses in 2030 (2015$)
Sales and Use Tax Current Conditions Estimate
Based on the data and assumptions relied upon to estimate Sales and Use Tax revenue under
each Comprehensive Plan scenario, a current snapshot of sales tax generation by source is
provided for reference in Figure 17. The purpose of the current conditions estimate is to
illustrate the outputs of the fiscal model in the context of Palo Alto today. This illustration is
intended to help with model interpretation and to provide another lens through which model
assumptions may be evaluated.
The current conditions estimate relies on current household counts, employment counts,
business-to-business sales tax revenue data, and an economic impact analysis from Stanford
University to illustrate current retail spending and tax revenues.13 In this estimate of current
conditions, “other visitors” are estimated as a residual retail sales generator. That is, after
quantifiable sources of demand have been accounted for, the remainder is attributed to other
visitors. The estimate indicates that in 2015 about 11 percent of the City’s sales tax revenue is
attributable to resident households, while about 41 percent of sales tax revenue is attributable to
local businesses. The remaining 48 percent of sales tax revenue is attributable to visitors,
including those who come to the City for shopping and leisure, students attending Stanford
University who live outside of the City, and visitors to Stanford.
13 Stanford University Economic Impact Study, 2008. Prepared by The Pacific partners Consulting
Group, Inc. Published by Stanford University Office of Public Affairs. Accessible online at:
http://web.stanford.edu/dept/govcr/documents/economic-impact-study.pdf
Retail Spending Scenario 1 Scenario 2 Scenario 3 Scenario 4
Taxable Spending Per Worker $9,270 $9,270 $9,270 $9,270
Unique Workers 14,182 9,026 11,687 14,182
Local Sales Capture Rate 80%80%80%80%
Total Taxable Retail Spending
by Workers $105,172,993 $66,935,191 $86,669,572 $105,176,053
Business-to-Business
Taxable Sales $43,493,544 $38,509,646 $45,745,554 $52,719,447
Business Spending
at Retail Establishments $4,349,354 $3,850,965 $4,574,555 $5,271,945
Total Taxable Spending $153,015,891 $109,295,802 $136,989,681 $163,167,445
Total Local Sales
Tax Revenue $1,530,159 $1,092,958 $1,369,897 $1,631,674
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Figure 18 Estimated Sales Tax Generation by Spending Source 2015
Source: Economic & Planning Systems, Inc.
Households
11%
Local Employees
25%
Stanford Vistors
1%
Business-to-Business
Sales Tax
15%Business Spending at
Retail Establishments
1%
Other Visitors
(Includes On-Campus
Students)
47%
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Transient Occupancy Tax
Transient Occupancy Tax Forecast
Hotels in Palo Alto generate significant revenue for the City’s General Fund through the local
Transient Occupancy Tax (TOT), which is a 14 percent tax on local hotel room revenue. Rather
than attribute all of the TOT revenue to employment uses, this analysis seeks to identify the
demand driver that stimulates the need for local lodging. The analysis relies on relevant
hospitality literature and recently-collected primary data from Menlo Park.
For residential demand, the analysis assumes that each residential unit in the City will generate
demand for two room nights per year. This assumption is generally consistent with literature on
visiting friends and relatives (VFR) which indicates that nationally about 12 percent of hotel
demand is attributable to VFR.14 In Palo Alto, where Stanford University is a significant driver of
hotel demand, household-generated might be a somewhat lesser share of total demand. While
12 percent of hotel demand in Palo Alto equates to approximately 70,000 room nights generated
by the City’s nearly 29,000 households, this analysis estimates that about 60,000 room nights
are attributable to Palo Alto households.
The analysis estimates commercial demand for hotel rooms using a factor of three room nights
per year per local employee. This factor is consistent with informal survey data collected from
Menlo Park hotel entities by the Stanford University Office of Land, Buildings, and Real Estate.
The analysis also assumes that 90 percent of the locally-generated hospitality demand is
supplied locally in Palo Alto.
Figure 19 presents estimates of room night demand and TOT revenue. Detailed calculations for
each scenario are provided in the Appendix to this report.
14 Braunlich, C. and N. Nadkarni, The Importance of the VFR Market to the Hotel Industry, The Journal
of Tourism Studies Vol. 6, No. 1, May 1995.
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Figure 19 Annual Room Night Demand and Transient Occupancy Tax Revenue
Transient Occupancy Tax Current Conditions Estimate
Similar to the Sales and Use Tax snapshot presented above, this analysis provides a current
conditions estimate of transient occupancy tax generation by source. The purpose of the current
conditions estimate is to illustrate the outputs of the fiscal model in the context of Palo Alto
today.
The current conditions estimate relies on current household counts, employment counts, and an
economic impact analysis from Stanford University to illustrate current retail spending and tax
revenues.15 In this estimate of current conditions, “other visitors” are estimated as the residual
TOT generator. That is, after quantifiable sources of demand have been accounted for the
remainder is attributed to other visitors.
The current conditions estimate indicates that in 2015 about nine percent of the City’s transient
occupancy tax revenue is attributable to resident households, while about 44 percent is
attributable to local businesses. The remaining 47 percent of transient occupancy tax revenue is
15 Stanford University Economic Impact Study 2008
(http://web.stanford.edu/dept/govcr/documents/economic-impact-study.pdf)
Land Use Scenario 1 Scenario 2 Scenario 3 Scenario 4
Room Night Demand
Residential Uses
Dwelling Units 2,720 2,720 3,546 4,418
Room Night Demand 5,440 5,440 7,092 8,836
Employment Uses
Employment 15,482 9,853 12,758 15,482
Room Night Demand 46,446 29,560 38,275 46,446
Total Room Night Demand 51,886 34,999 45,366 55,282
Palo Alto Capture 46,697 31,499 40,830 49,754
Room Revenue and TOT
Annual Revenue $11,207,354 $7,559,828 $9,799,101 $11,940,890
Total TOT Revenue $1,569,030 $1,058,376 $1,371,874 $1,671,725
Residential $164,494 $164,494 $214,450 $267,189
Non-Residential $1,270,626 $796,189 $1,038,266 $1,270,626
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attributable to visitors to the region, including those who come for leisure but are not visiting
friends and relatives and visitors to Stanford University.
Figure 20 Estimated Transient Occupancy Tax Generation by Demand Source 2015
Households
9%
Businesses
44%
Stanford Overnight
Visitors
21%
Other Visitors
27%
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Utility Users Tax
The fiscal analysis uses an average revenue approach to
estimate per-capita Utility Users Tax revenue. The analysis
applies average revenue generation factors to future
residents and employees to project tax revenues under
each of the Comprehensive Plan scenarios.
The Fiscal Year 2015 City General Fund revenue forecast
put the Utility Users Tax revenue at about $11.3 million.
Data from City of Palo Alto Utilities indicates that during
Fiscal Year 2015, approximately 70 percent of Utility Users
Tax revenue was attributable to commercial and industrial
uses, while the remainder was attributable to residential
uses. Based on these data, as well as current population
and employment inputs, this analysis establishes that average per-capita tax revenues are about
$52 per resident and $83 per employee.
Figure 21 presents estimates of Utility Users Tax revenue. Detailed calculations for each
scenario are provided in the Appendix to this report.
Figure 21 Utility Users Tax Revenue
Land Use Alternative 1 Alternative 2 Alternative 3 Alternative 4
Total $1,621,290 $1,155,486 $1,490,573 $1,820,105
Residential Uses $340,098 $340,098 $434,785 $538,876
Employment Uses $1,281,192 $815,389 $1,055,788 $1,281,230
Source: City of Palo Alto
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5.GENERAL FUND COSTS
Summary of Costs
This fiscal analysis estimates City General Fund costs in 2030 for each of the planning scenarios.
The scenarios generate between $5.1 and $8.0 million in new cost by 2030 (2015$). The bulk of
the increased cost is attributable to public safety services.Figure 22 summarizes General Fund
costs by departmental category for each scenario. This section of the report describes the data,
assumptions, and calculations used to generate these cost estimates.
Figure 22 Summary of Costs by Comprehensive Plan Scenario in 2030 (2015$)
City Function/ Department Scenario 1 Scenario 2 Scenario 3 Scenario 4
City Administration1 $574,722 $461,923 $593,769 $729,305
Residential $264,468 $264,468 $338,100 $419,043
Non-Residential $310,254 $197,455 $255,670 $310,263
Community Services $846,828 $804,050 $1,029,137 $1,273,010
Residential $729,167 $729,167 $932,177 $1,155,346
Non-Residential $117,660 $74,883 $96,960 $117,664
Library $120,145 $110,460 $141,491 $174,797
Residential $93,505 $93,505 $119,538 $148,156
Non-Residential $26,640 $16,955 $21,953 $26,641
Planning and Community
Environment $363,640 $292,269 $375,692 $461,448
Residential $167,335 $167,335 $213,923 $265,138
Non-Residential $196,305 $124,934 $161,768 $196,310
Public Safety2 $4,446,255 $3,269,525 $4,213,616 $5,153,364
Residential $1,209,662 $1,209,662 $1,546,447 $1,916,677
Non-Residential $3,236,593 $2,059,863 $2,667,169 $3,236,687
Public Works $175,770 $132,994 $171,250 $209,740
Residential $58,114 $58,114 $74,294 $92,080
Non-Residential $117,656 $74,880 $96,956 $117,659
Total Cost Estimate $6,527,360 $5,071,220 $6,524,955 $8,001,665
Residential $2,522,252 $2,522,252 $3,224,479 $3,996,441
Non-Residential $4,005,108 $2,548,969 $3,300,476 $4,005,224
[2] Includes Fire; Police; and Office of Emergency Services
[1] Includes Administrative Services; City Attorney; City Auditor; City Clerk; City Council; City Manager; Non-
Departmental; Office of Sustainability; and People, Strategy and Operations
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Responses to Growth
The fiscal analysis estimates the costs attributable to population and employment growth in the
City of Palo Alto by characterizing how expenses will change for each department. For some
departments, population and employment growth in the City will not dramatically alter
operations. For example, administrative functions in the City are not likely to scale up
significantly to accommodate the roughly 10 to 16 percent growth that is contemplated by the
Comprehensive Plan scenarios. Alternatively, departments that provide services directly to
residents and businesses likely will increase their operations and costs to accommodate new
populations.
It is important to note that a range of external factors may influence responses to growth and
cost effects in the future. Examples of factors that are beyond the control of the City and its
departments that may act to magnify or reduce department costs over time include:
Regional growth;
Technology;
State and federal policies; and
Environmental factors.
This study does not speculate regarding the potential effects of such exogenous influences on the
general fund expense budget. It focuses only on those factors attributable directly to the
population growth, employment growth, and land use changes inherent in the four scenarios.
The fiscal analysis model relies on characterization of the likely budgetary response to population
and employment growth for each department. For major City departments (discussed in detail
below), the analysis uses department self-assessments to establish their likely response to
growth. For other departments, EPS relies on professional experience and input from City staff to
establish analytical assumptions. The anticipated response to growth is expressed for fiscal
modeling purposes in terms of “fixed expenses” and “variable expenses” within the department
budget.
The fixed expenses are the portion of a City department’s budget which is not affected by
population and employment growth. Even a department which is anticipated to grow largely in
step with the City’s populations likely would have some fixed cost. For example, in most cases
each department has only one director position, which is a fixed expense for the department.
While the department may increase staffing to accommodate growth, the department will not
add another director.
The variable expenses of a department are those that do increase with growth. As the City
grows, increased demand for services requires some departments to scale up operations to meet
new demand. The portion of a department’s budget that scales up is identified as the variable
share of the budget. Figure 23 presents the categorization of each major City department by
expense variability. As shown, it is anticipated that for most departments costs are largely fixed,
and thus the cost effects from growth will be relatively modest.
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Figure 23 Expense Variability by Department
* Percentages refer to the portion of the General Fund expenditure budget that is anticipated to be affected by
growth in the City.
Cost Recovery
To the degree possible, using readily available data from the Fiscal Year 2015 Budget, this
analysis removes revenues for services provided and other revenues generated by each
department. Known as “cost recovery,” department revenues from charges for service, taxes and
fines, and permits and licenses are likely to grow with city population and employment. By
removing department cost recovery revenue from the analysis, this study focuses on the net
effect of each department on the General Fund. This approach reduces the potential to
overestimate the cost burden attributable to new residents and employees in Palo Alto.
Cost Burden Allocations
An essential element of this fiscal analysis is the consideration of the relative effects of
residential versus business growth on the City’s General Fund. To establish the cost burden of
residents and employees on department expenses, this study employs a two-tiered approach.
For those City departments with significant general fund expenses, including Police, Fire,
Community Services, Public Works, and Library, the study effort included department interviews
Low
Expense Variability
Medium
Expense Variability
High
Expense Variability
10% - 25% *25% - 75% *>75% *
Administrative Services Community Services Public Safety
City Attorney Development Services
City Auditor Planning & Community Environment
City Clerk
City Council
City Manager
Library
Office of Sustainability
People, Strategy and Operations
Public Works
Non-Departmental
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and department-specific data analyses to determine service population cost burden
characteristics. For departments with less significant general fund expenses, this analysis uses
an industry-standard service population analysis that weights the cost burden of a local
employee at 50 percent of one resident. Figure 24 presents the assumptions regarding cost
burdens that are applied in this fiscal analysis. A detailed discussion of the department-specific
cost factors and the service population calculation is described later in this section of the report.
Figure 24 Cost Burden Allocations by Department
Estimated Cost Burdens
Relying on the variable cost estimates and residential versus employment cost burden split, this
analysis calculates per-resident and per-employee marginal costs. These per-capita cost burdens
represent the additional cost that each new resident and each new worker in Palo Alto will
generate for each department. The analysis applies these per-capita cost estimates to the
Comprehensive Plan scenarios to estimate the aggregate cost burden in 2030. The per-resident
cost burdens range from $0.36 per person per year to pay for additional costs borne by the
Office of Sustainability to almost $112 per person per year to pay for additional costs borne by
the Police Department. The per-employee cost burdens range from $0.18 per employee per year
for the Office of Sustainability to over $180 per employee per year for Police Services. Figure 25
presents the per-resident and per-employee cost burdens relied upon by the fiscal analysis.
Detailed calculations are provided in the Appendix to this report.
Department
Residential
Uses
Employment
Uses
Community Services 87.1%12.9%
Library 85.0%15.0%
Public Safety - Fire 63.7%36.3%
Public Safety - Police 30.0%70.0%
Public Works 44.4%55.6%
All Other Departments 57.9%42.1%
Total 56.4%43.6%
Cost Burden
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Figure 25 Estimated Marginal Cost Burden on City General Fund
Item Per-Resident Per-Employee
Administrative Services $8.73 $4.36
City Attorney $2.94 $1.47
City Auditor $1.31 $0.66
City Clerk $1.50 $0.75
City Council $0.53 $0.26
City Manager $3.16 $1.58
Community Services $110.50 $7.60
Library $14.17 $1.72
Non-Departmental $17.56 $8.78
Office of Sustainability $0.36 $0.18
People Strategy and Operations $3.99 $1.99
Planning and Community Environment $25.36 $12.68
Public Safety - Fire $64.36 $25.28
Public Safety - Police $112.43 $180.51
Public Safety - Office of Emergency Services $6.54 $3.27
Public Works $8.81 $7.60
Total $382.24 $258.69
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Departmental Trends and Analytical Assumptions
For key City departments, including Police, Fire, Community Services, Public Works, and Library,
this analysis estimates department-specific cost increases associated with resident and
employment growth by evaluating historical cost budget trends, cost variability factors, the
relative cost of residents versus employees, and potential future changes in department
operations. EPS obtained quantitative and qualitative inputs from each of the key departments
during in-person interviews and through follow-up activities including data requests and
conference calls. This section describes in detail the basis for the cost assumptions relied on by
the fiscal analysis.
EPS commenced research on department costs by reviewing historical data from City of Palo Alto
Adopted Budget documents and City of Palo Alto Comprehensive Annual Financial Reports
(CAFRs) from 2000 to 2015. The City CAFRs contain information on actual Fiscal Year
expenditures, department operating indicators, and employment (in Full Time Equivalents,
“FTEs”). EPS charted these factors for the largest city departments to understand the
relationship between staffing and other operational factors and department costs.
After reviewing readily available data, EPS conducted interviews with the five key departments.16
The department interviews sought to gather information about how operating costs likely would
be affected by service population growth. Interview topic areas included:
Overview of department expenditure trends;
Key factors driving departmental costs;
Fixed versus variable department costs (i.e., which costs are likely to increase with growth);
Attribution of cost burden to residential land uses versus employment land uses; and
Potential changes to department cost structure (i.e., are current operations representative of
future operations).
Interviews resulted in both qualitative and quantitative information concerning department costs.
This analysis uses information from the departments coupled with EPS experience in fiscal
analysis to make informed assumptions concerning each department’s cost response to growth,
including both residential and employment increases in Palo Alto.
Police Department
Police Department expenditures have risen steadily since 2000,
with modest spikes in 2008 and 2012. Adjusted for inflation, 2014
expenditures were approximately 39 percent higher than 2000
expenditures, with an average annual growth rate of
16 EPS interviewed Ian Hagerman, Senior Administrator for the Police Department; Eric Nickel, Fire
Chief, Catherine Capriles, Fire Captain, and Amber Cameron, Fire Department Strategic Operations
Manager; Monique leConge Ziesenhenne, Library Director; Rob de Geus, Director of Community
Services, Daren Anderson, Open Space, Parks and Golf Division Manager, and Lam Do, Community
Services Senior Management Analyst; and Mike Sartor, Director of Public Works.
Source: City of Palo Alto
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approximately three percent. FTEs dropped from 173 FTEs in 2000 to 155 FTEs in 2014. As
shown in Figure 24, expenditure increases are not clearly tied to increases in FTEs or calls for
service.
From the interview with the Police Department, EPS understands that FTEs fluctuate for various
reasons, including due to time lag that can occur between an officer’s retirement and the hire of
a new officer. The department also indicated during the interview that while calls for service are
related to department efforts and associated service costs, calls for service may fluctuate over
time due to external factors, including police response policies.
Figure 26 Police Expenditures and Operating Indicators
Variable Costs
Police Department operating expenses are highly variable. With growth in the City’s service
population, staffing below the rank of Captain would increase to accommodate the need for
additional service. Some overhead costs, such as the dispatch services provided by the Police
Department to other departments (Fire, Public Works, Utilities, Animal Services, Parking) and for
Stanford are likely to be fixed costs. Aside from high-ranking police officers and fixed overhead
and facilities costs, the department is likely to grow to accommodate the need for police services
attributable to new populations. This analysis assumes that 80 percent of police operating costs
are variable.
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
15%
10%
5%
0%
5%
10%
15%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Expenditures
(in
thousands)
Percent
Change
FTEs (%)Calls for Service (%)Real Expenditures (2014$)Nominal Expenditures ($)
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Resident versus Employee Costs
The Police Department indicates that the majority of calls for service are related to activity
occurring within Palo Alto’s Downtown area, peaking on weekend evenings.17 According to the
Police Department, the driver of Downtown activity and the calls for service there is commercial
activity. The retail, restaurants, and office uses Downtown support a vibrant urban center, which
is attractive to criminals. For example, auto burglary is a significant issue in commercial areas
such as Downtown, owing to the presence of retail shoppers and business travelers who leave
items in their cars.
The Police Department analyzed crime data to estimate cost burdens attributable to residential
and employment land uses. For each category of crime recorded by the Department, the Police
Department identified whether the type of crime is primarily attributable to residential- or
employment-related land uses, with employment-related crime including those likely to occur in
commercial areas of the City.18 Based on the data review, the Police Department indicates that
approximately 70 percent of variable department costs are attributable to employment land
uses, while 30 percent are attributable to residential land uses.
Police Department Operating Structure
The City is moving forward with plans for a new Police Station. The new station is not anticipated
to have an impact on the operational structure of the Department. The Police Department did
note that the new station could involve a potential reorganization of the Department’s
information technology (IT) services, but this modification is unlikely to have significant cost
implications.
17 Though a commercial area, California Avenue has significantly lower levels of calls for service
than the Downtown Core. In addition, Stanford is not a driver of crime in Palo Alto.
18 Employment land use-related crime includes all crimes in employment areas, regardless of
perpetrator or victim residential/workplace status.
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Fire Department
Fire Department inflation-adjusted expenditures have risen
44 percent since 2000, an average annual growth rate of
approximately two percent. During the same period, Fire
Department FTEs decreased by about nine percent. Most of
the staffing reductions have occurred in recent years, with
the Fire Department cutting seven FTEs between 2009 and
2014. This reduction in staff is primarily attributable to the
closure of the SLAC National Accelerator Laboratory and
operational adjustments. The trend in calls for service has
been irregular, but overall call volume has increased at an
average rate of one percent per year. Figure 27 presents department operations trends.
Figure 27 Fire Expenditures and Operating Indicators
Variable Costs
In recent years, the primary services provided by the Fire Department have shifted toward
emergency medical services (EMS). With increased fire safety (e.g., mandatory building
sprinklers) and education programs, the risk of building fires has decreased dramatically. Out of
approximately 100 to 200 fire calls (150 budgeted for Fiscal Year 2015), there are only about ten
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
15%
10%
5%
0%
5%
10%
15%
20%
25%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Expenditures
(in
thousands)
Percent
Change
FTEs (%)Calls for Service (%)Fire Apparatus (%)
Real Expenditures (2014$)Nominal Expenditures ($)
Source: City of Palo Alto
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fires per year, including only one or two severe fires. Accordingly, traditional firefighting is
increasingly a small share of the department’s overall efforts. EMS, educational outreach, and
technical rescue have become the Fire Department’s main focus areas. With population growth
and an aging population, the Department expects to see increasing costs due to increasing
demand for EMS.
While Department costs will grow with population growth, there is a significant amount of cost
recovery from EMS transport fees. EMS revenue has been responsible for most of the
Department’s revenue growth in recent years. The fiscal analysis assumes that cost recovery
continues in future years.
Similar to the Police Department, Fire Department operating expenses are likely to be largely
variable. Based on input from the Fire Department, EPS estimates that 80 percent of operating
costs are variable, and will increase with growth in the service population.
Resident versus Employee Costs
The Fire Department analyzed calls for service data to establish the relative cost burdens of
residential and employment land uses. The Department’s analysis, based on data from 2014,
reveals that approximately 3,300 calls for service were attributable to local residences, while
1,900 calls for service were attributable to businesses. Based on these data, this analysis
assumes that 64 percent of Department costs are attributable to residents and 36 percent of
costs are attributable to employees in Palo Alto.
Future Considerations
The outcome of the City of Palo Alto Fire Department’s bid to continue the provision of fire
services to Stanford University is unknown at this time. Accordingly, this analysis assumes that
the Fire Department’s current operations and associated cost structure, which reflect the current
agreement with Stanford, is an appropriate basis for the projection of future operations under
the Comprehensive Plan Scenarios.
Community Services Department Costs
The Community Services Department (CSD) offers
a wide range of recreation and leisure services to
Palo Alto residents, workers, and visitors. CSD is
organized into divisions, including:
Open Space, Parks, and Golf – operating open
space preserves, parks and fields, and the City
golf course;
Recreation – operating three community centers, classes and activities, and team programs;
Arts and Sciences – operating the Children’s Theatre, Palo Alto Art Center, Junior Museum &
Zoo; and
Administration and Human Services – providing social services including homeless services.
CSD expenditures have remained relatively flat over the past fifteen years, decreasing slightly
during the 2008-09 recession but rebounding more recently. Enrollment in recreation classes and
Source: City of Palo Alto
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the usage of the golf course has declined steadily. However, the total hours of athletic field
usage increased in 2011 and 2012 after decreases during the recession. CSD cut a significant
number of FTEs in 2010, and while CAFR-reported FTEs have remained unchanged since that
time CSD increasingly has relied on temporary employees to provide services.
Figure 28 Community Services Expenditures and Operating Indicators
Variable Costs
A cost analysis conducted by CSD indicates that the Department’s costs are likely to be
moderately variable with future growth in the city. Parks and open spaces require some
increased operations and maintenance activity as usage increases.In addition, increased park
usage causes facilities to deteriorate faster, increasing department costs. CSD estimates that
roughly 40 percent of its costs are variable.
Many CSD classes and workshops are fee-based.However, fee revenue generated by these
programs does not fully recover costs, so a portion of CSD costs have the potential to be
influenced by future demand for services from new residents and workers.
Resident versus Employee Costs
CSD considered the range of facilities and programs offered by their divisions separately in their
determination of cost attribution to residents and workers. For Parks and Recreation, the
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
30%
25%
20%
15%
10%
5%
0%
5%
10%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Expenditures
(in
thousands)
Percent
Change
FTEs (%)Number of Rounds of Golf (%)
Total hours of athletic field usage (%)Enrollment in recreation classes (%)
Real Expenditures (2014$)Nominal Expenditures ($)
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allocation relies on survey data collected during the Department’s Nexus Study for Development
Impact fees.19 These assets and programs largely are used by residents, particularly so for youth
and teen programs. Open space and parks costs are assigned 45 percent to residents, 18
percent to workers, and the remainder to visitors, according to survey data. Recreation costs are
assigned 73 percent to residents, seven percent to workers, and the remainder to visitors, based
on survey data.
For other CSD functions, staff provided guidance concerning the allocation of costs to employees
and residents. Human services costs are assigned entirely to the residential population, since
these programs are specifically for Palo Alto residents. Arts and Sciences costs are assigned
largely to residents, based on data from CSD. Arts and Sciences, specifically the Palo Alto Art
Center and Junior Museum & Zoo are regional destinations that attract large numbers of non-
residents. However, nonresidents are believed to be largely visitors rather than workers, due to
the nature of the programming. Just five percent of the Arts and Sciences program cost burden
is assigned to local employees, because the programs largely are geared toward youth.
Future Considerations
Palo Alto is undertaking golf course improvements which are slated to begin in 2016. The course
currently is open but demand is down because the course has been altered in advance of
construction and there is a misconception that the course already is closed for renovation. When
the golf course is fully operational it runs like an enterprise and is expected to be fully cost
recovering. This analysis adjusts the CSD budget, including both costs and revenues, to remove
the effect of the golf course from the analysis.
Because Palo Alto is largely built-out, there are few if any opportunities to increase the open
space managed by CSD. However, CSD currently is completing a Parks and Recreation Master
Plan that will inform possible future use of reprogrammed land near the Golf Course. The need
for the reprogrammed parkland is generated by citywide demand, and is not considered to be
attributable to new growth in the City.
In an interview with CSD, Department staff expressed concern that the Fiscal Year 2015
expenditure budget is insufficient. For this reason, staff recommended that this analysis rely on
the proposed Fiscal Year 2016 budget, which it does.
19 DMG-Maximus, City of Palo Alto – Parks and Community Facilities Impact Fees, 2001.
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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Public Works Department
Public Works Department expenditures increased overall
between 2000 and 2007, and then leveled off. In real terms,
Public Works expenditures declined slightly between 2009 and
2014. Since 2000, FTEs declined from 83 to 56 in 2014, a 33
percent drop. Operating cost indicators include potholes
repaired and square feet of sidewalk replaced/repaired. In an
interview, Department staff explained that these indicators are
driven by resource availability, more so than need or service
population.
Figure 29 Public Works Expenditures and Operating Indicators
Variable Costs
Public Works maintains the City’s existing public buildings, streets, and sidewalk facilities.
Department operating costs could increase with population and employment growth if new City
buildings and/or street/sidewalk facilities (including trees) are required to accommodate that
growth. Under the Comprehensive Plan Update scenarios, it is not anticipated that the street
network or public facilities would change substantially. That is, future growth is anticipated to be
supported by existing Public Works-maintained infrastructure and facilities.
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
60%
40%
20%
0%
20%
40%
60%
80%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Expenditures
(in
thousands)
Percent
Change
FTEs (%)Potholes Repaired (%)Sq.Ft.Sidewalk Replaced/Repaired (%)Real Expenditures (2014$)Nominal Expenditures ($)
Source: City of Palo Alto
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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While new growth will not require new public infrastructure and facilities, increases in population
and employment likely will lead to more intensive use of existing infrastructure and facilities. The
effect of this intensification is accelerated depreciation, which has implications for the Public
Works Department’s streets maintenance and repair budget.
To estimate the cost of increased street usage, this analysis calculates the marginal cost of a
new roadway user to the system. It is assumed that a new user will have a marginal cost of 50
percent of the department’s current per-capita street maintenance cost. The department’s
streets budget comprises 22 percent of the total department budget. This analysis assumes that
half of that budget, or 11 percent of the total budget, is variable cost that will increase with the
addition of residents and employees.
Cost Attribution
Since the Public Works Department’s variable costs relate specifically to increased street usage,
cost attribution assumptions for the Department are based on trip generation rates provided by
the City’s Environmental Impact Review consultant (Hexagon Transportation Consultants, Inc.).
Household and employee trips per day (8 and 3, respectively) are weighted by the current
number of household and workers in Palo Alto to determine cost attribution. Based on these
data, household automobile trips account for 44 percent of total annual automobile trips, while
worker trips account for 56 percent of total trips generated. Accordingly, this analysis allocates
44 percent of Public Works variable costs to residential uses and 56 percent to employment land
uses.
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Library Department
The Palo Alto library system offers five library branches, all of
which have been constructed or renovated in the past ten
years. This boom in facility renovation puts the City libraries
in a good position to serve current and future residents,
employees, and visitors in Palo Alto. Total circulations and
library cardholders vary from year to year, but overall,
circulations have increased 15 percent since 2004. Inflation-
adjusted expenditures have increased 24 percent since 2005.
Figure 30 Library Expenditures and Operating Indicators
Variable Costs
According to Library staff, if new growth necessitated extending Library hours to meet new
demand then staffing and associated costs would increase. However, increases in circulation
and/or cardholders that occur without an increase in hours would not increase staffing needs or
costs. A substantial increase in circulations and/or cardholders may necessitate a change in
classification of workers rather than an increase in the number of workers.Library operations are
largely fixed and can scale up services with minimal staff or service cost increases. Library staff
notes that if growth in circulation occurs in e-books, then department costs would be higher as
e-books are more labor intensive to teach cardholders to use. However, e-books remain a small
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
15%
10%
5%
0%
5%
10%
15%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Expenditures
(in
thousands)
Percent
Change
FTEs (%)Total number of cardholders (%)
Total checkouts (%)Real Expenditures (2014$)
Nominal Expenditures ($)
Source: City of Palo Alto
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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percentage of total circulation. Based on discussions with Library staff,this analysis assumes
that 15 percent of Library operating costs is variable while 85 percent are fixed.
Cost Attribution
Palo Alto library services are available to any resident of California. Staff indicates that Palo Alto
libraries serve residents, workers, and visitors from throughout the Bay Area. Data from March
2015 indicate that 80 percent of active cardholders live in Palo Alto, and 86 percent of
circulations are attributable to Palo Alto residents. Based on these data, this analysis assumes
that 85 percent of Library costs are attributable to residents and 15 percent are attributable to
employees.
Future Considerations
With new facilities recently completed, the Library is unlikely to require new spaces or facilities
improvements to accommodate the new growth. The current operating budget is representative
of future operations.
Other Departments
For departments that were not interviewed as part of the fiscal analysis process, the analysis
relies on service population methodology to apportion costs to residents and employees. It is
typical in fiscal analysis to assume that the service population includes residents and workers,
and that a local worker creates 50 percent of the cost burden of a local resident. In Palo Alto,
this methodological approach results in allocation of 58 percent of costs to residents and 42
percent of costs to employees.20
20 Residents (65,686)/(Residents + Weighted Employment (95,458 * 50%)) = 58%.
APPENDIX
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-1 Scenario 1: Adjusted Property Values and Tax Revenue
Land Use
Aggregate
Assessed
Value
Local
Tax
Revenue
Residential Uses
For-Sale Residential $2,113,231,740 $1,901,909
For-Sale BMR $15,483,569 $13,935
Rental Residential $1,024,256,037 $921,830
Rental BMR $81,936,037 $73,742
Employment Uses
Retail $352,531,140 $317,278
Office $1,073,914,589 $966,523
Industrial $177,220,399 $159,498
Other $970,070,619 $873,064
Total $5,808,644,130 $5,227,780
In-Lieu VLF Revenue $1,011,798 $1,284,832
Property Tax Exemptions 9%9%
Total Property Tax Revenue $4,646,058 $5,899,797
Residential Uses $2,446,813 $3,285,672
Employment Uses $2,199,246 $2,614,125
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-2 Scenario 2: Appreciation-Adjusted Property Values and Tax Revenue
Land Use
Aggregate
Assessed
Value
Local
Tax
Revenue
Residential Uses
For-Sale Residential $2,113,231,740 $1,901,909
For-Sale BMR $15,483,569 $13,935
Rental Residential $1,024,256,037 $921,830
Rental BMR $81,936,037 $73,742
Employment Uses
Retail $392,044,976 $352,840
Office $865,853,817 $779,268
Industrial $185,444,169 $166,900
Other $912,751,579 $821,476
Total $5,591,001,923 $5,031,902
In-Lieu VLF Revenue $972,547 $1,236,691
Property Tax Exemptions 9%9%
Total Property Tax Revenue $4,465,823 $5,678,739
Residential Uses $2,446,813 $3,285,672
Employment Uses $2,019,010 $2,393,068
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-3 Scenario 3: Appreciation-Adjusted Property Values and Tax Revenue
Land Use
Aggregate
Assessed
Value
Local
Tax
Revenue
Residential Uses
For-Sale Residential $2,755,017,686 $2,479,516
For-Sale BMR $20,185,911 $18,167
Rental Residential $1,335,321,368 $1,201,789
Rental BMR $106,819,913 $96,138
Employment Uses
Retail $406,278,804 $365,651
Office $1,120,691,310 $1,008,622
Industrial $199,672,125 $179,705
Other $998,186,738 $898,368
Total $6,942,173,855 $6,247,956
In-Lieu VLF Revenue $1,200,284 $1,535,561
Property Tax Exemptions 9%9%
Total Property Tax Revenue $5,511,564 $7,051,115
Residential Uses $3,189,907 $4,283,526
Employment Uses $2,321,657 $2,767,589
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-4 Scenario 4: Appreciation-Adjusted Property Values and Tax Revenue
Land Use
Aggregate
Assessed
Value
Local
Tax
Revenue
Residential Uses
For-Sale Residential $3,432,544,738 $3,089,290
For-Sale BMR $25,150,126 $22,635
Rental Residential $1,663,709,949 $1,497,339
Rental BMR $133,089,574 $119,781
Employment Uses
Retail $427,310,472 $384,579
Office $1,301,714,654 $1,171,543
Industrial $214,812,605 $193,331
Other $1,175,843,174 $1,058,259
Total $8,374,175,293 $7,536,758
In-Lieu VLF Revenue $1,446,060 $1,852,310
Property Tax Exemptions 9%9%
Total Property Tax Revenue $6,640,136 $8,505,588
Residential Uses $3,974,384 $5,336,951
Employment Uses $2,665,752 $3,168,637
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-5 Scenario 1: Annual Property Transfer Tax Revenue
Documentary
Transfer Tax
Adjusted
Aggregate
Market Value
Annual
Transaction
Value
Documentary
Transfer
Tax Revenue
Residential Uses
For-Sale Residential $2,113,231,740 $169,058,539 $557,893
For-Sale BMR $15,483,569 $619,343 $2,044
Rental Residential $1,024,256,037 $40,970,241 $135,202
Rental BMR $81,936,037 $3,277,441 $10,816
Employment Uses
Retail $352,531,140 $14,101,246 $46,534
Office $1,073,914,589 $42,956,584 $141,757
Industrial $177,220,399 $7,088,816 $23,393
Other $970,070,619 $19,401,412 $64,025
Total $5,808,644,130 $297,473,622 $981,663
Residential Uses $3,234,907,383 $213,925,565 $705,954
Employment Uses $2,573,736,747 $83,548,057 $275,709
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-6 Scenario 2: Annual Property Transfer Tax Revenue
Documentary
Transfer Tax
Adjusted
Aggregate
Market Value
Annual
Transaction
Value
Documentary
Transfer
Tax Revenue
Residential Uses
For-Sale Residential $2,113,231,740 $169,058,539 $557,893
For-Sale BMR $15,483,569 $619,343 $2,044
Rental Residential $1,024,256,037 $40,970,241 $135,202
Rental BMR $81,936,037 $3,277,441 $10,816
Employment Uses
Retail $392,044,976 $15,681,799 $51,750
Office $865,853,817 $34,634,153 $114,293
Industrial $185,444,169 $7,417,767 $24,479
Other $912,751,579 $18,255,032 $60,242
Total $5,591,001,923 $289,914,315 $956,717
Residential Uses $3,234,907,383 $213,925,565 $705,954
Employment Uses $2,356,094,540 $75,988,750 $250,763
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-7 Scenario 3: Annual Property Transfer Tax Revenue
Documentary
Transfer Tax
Adjusted
Aggregate
Market Value
Annual
Transaction
Value
Documentary
Transfer
Tax Revenue
Residential Uses
For-Sale Residential $2,755,017,686 $220,401,415 $727,325
For-Sale BMR $20,185,911 $807,436 $2,665
Rental Residential $1,335,321,368 $53,412,855 $176,262
Rental BMR $106,819,913 $4,272,797 $14,100
Employment Uses
Retail $406,278,804 $16,251,152 $53,629
Office $1,120,691,310 $44,827,652 $147,931
Industrial $199,672,125 $7,986,885 $26,357
Other $998,186,738 $19,963,735 $65,880
Total $6,942,173,855 $367,923,927 $1,214,149
Residential Uses $4,217,344,878 $278,894,503 $920,352
Employment Uses $2,724,828,977 $89,029,424 $293,797
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-8 Scenario 4: Annual Property Transfer Tax Revenue
Documentary
Transfer Tax
Adjusted
Aggregate
Market Value
Annual
Transaction
Value
Documentary
Transfer
Tax Revenue
Residential Uses
For-Sale Residential $3,432,544,738 $274,603,579 $906,192
For-Sale BMR $25,150,126 $1,006,005 $3,320
Rental Residential $1,663,709,949 $66,548,398 $219,610
Rental BMR $133,089,574 $5,323,583 $17,568
Employment Uses
Retail $427,310,472 $17,092,419 $56,405
Office $1,301,714,654 $52,068,586 $171,826
Industrial $214,812,605 $8,592,504 $28,355
Other $1,175,843,174 $23,516,863 $77,606
Total $8,374,175,293 $448,751,938 $1,480,881
Residential Uses $5,254,494,388 $347,481,565 $1,146,689
Employment Uses $3,119,680,905 $101,270,373 $334,192
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-9 Scenario 1: Annual Sales and Use Tax Revenue
Figure A-10 Scenario 2: Annual Sales and Use Tax Revenue
Retail Spending
Residential
Uses
Employment
Uses
Taxable Spending $32,378 $9,270
Unique Households & Workers 2,720 14,182
Local Sales Capture Rate 30%80%
Total Taxable Retail Spending $26,418,718 $105,172,993
Business-to-Business Taxable Sales N/A $43,493,544
Business Spending at Retail Establishments N/A $4,349,354
Total Taxable Spending $26,418,718 $153,015,891
Total Local Sales Tax Revenue $264,187 $1,530,159
Retail Spending
Residential
Uses
Employment
Uses
Taxable Spending $32,378 $9,270
Unique Households & Workers 2,720 9,026
Local Sales Capture Rate 30%80%
Total Taxable Retail Spending $26,418,718 $66,935,191
Business-to-Business Taxable Sales N/A $38,509,646
Business Spending at Retail Establishments N/A $3,850,965
Total Taxable Spending $26,418,718 $109,295,802
Total Local Sales Tax Revenue $264,187 $1,092,958
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Draft Report January 15, 2016
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Figure A-11 Scenario 3: Annual Sales and Use Tax Revenue
Figure A-12 Scenario 4: Annual Sales and Use Tax Revenue
Retail Spending
Residential
Uses
Employment
Uses
Taxable Spending $32,378 $9,270
Unique Households & Workers 3,546 11,687
Local Sales Capture Rate 30%80%
Total Taxable Retail Spending $34,442,051 $86,669,572
Business-to-Business Taxable Sales N/A $45,745,554
Business Spending at Retail Establishments N/A $4,574,555
Total Taxable Spending $34,442,051 $136,989,681
Total Local Sales Tax Revenue $344,421 $1,369,897
Retail Spending
Residential
Uses
Employment
Uses
Taxable Spending $32,378 $9,270
Unique Households & Workers 4,418 14,182
Local Sales Capture Rate 30%80%
Total Taxable Retail Spending $42,912,204 $105,176,053
Business-to-Business Taxable Sales N/A $52,719,447
Business Spending at Retail Establishments N/A $5,271,945
Total Taxable Spending $42,912,204 $163,167,445
Total Local Sales Tax Revenue $429,122 $1,631,674
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-13 Scenario 1 - Hotel Night Demand Generated by New Development
Item
New
Development
Room Night
Demand
Room Night Demand
Residential Uses
Dwelling Units 2,720 2room nights / DU 5,440
Employment Uses
Agriculture and Natural Resource 63room nights / employee 17
Manufacturing, Wholesale, Transportation 1,471 3room nights / employee 4,412
Retail 1,017 3room nights / employee 3,051
Finance and Professional Services 5,001 3room nights / employee 15,002
Health/Edu and Recreation 6,744 3room nights / employee 20,231
Other 1,245 3room nights / employee 3,734
Total 51,886
Palo Alto Capture Rate 90%46,697
Room Revenue and TOT
Annual Revenue $240 Average Daily Rate $11,207,354
Total TOT Revenue 14%Tax Rate $1,569,030
Residential $164,494
Non-Residential $1,270,626
Hotel Demand Factors
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
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Figure A-14 Scenario 2: Hotel Night Demand Generated by New Development
Item
New
Development
Room Night
Demand
Room Night Demand
Residential Uses
Dwelling Units 2,720 2room nights / DU 5,440
Employment Uses
Agriculture and Natural Resource 63room nights / employee 17
Manufacturing, Wholesale, Transportation 1,071 3room nights / employee 3,214
Retail 1,017 3room nights / employee 3,051
Finance and Professional Services 2,048 3room nights / employee 6,145
Health/Edu and Recreation 4,466 3room nights / employee 13,399
Other 1,245 3room nights / employee 3,734
Total 34,999
Palo Alto Capture Rate 90%31,499
Room Revenue and TOT
Annual Revenue $240 Average Daily Rate $7,559,828
Total TOT Revenue 14%Tax Rate $1,058,376
Residential $164,494
Non-Residential $796,189
Hotel Demand Factors
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-15 Scenario 3: Hotel Night Demand Generated by New Development
Item
New
Development
Room Night
Demand
Room Night Demand
Residential Uses
Dwelling Units 3,546 2room nights / DU 7,092
Employment Uses
Agriculture and Natural Resource 63room nights / employee 17
Manufacturing, Wholesale, Transportation 1,308 3room nights / employee 3,924
Retail 1,017 3room nights / employee 3,051
Finance and Professional Services 3,889 3room nights / employee 11,666
Health/Edu and Recreation 5,295 3room nights / employee 15,884
Other 1,245 3room nights / employee 3,734
Total 45,366
Palo Alto Capture Rate 90%40,830
Room Revenue and TOT
Annual Revenue $240 Average Daily Rate $9,799,101
Total TOT Revenue 14%Tax Rate $1,371,874
Residential $214,450
Non-Residential $1,038,266
Hotel Demand Factors
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-16 Scenario 4: Hotel Night Demand Generated by New Development
Item
New
Development
Room Night
Demand
Room Night Demand
Residential Uses
Dwelling Units 4,418 2room nights / DU 8,836
Employment Uses
Agriculture and Natural Resource 63room nights / employee 17
Manufacturing, Wholesale, Transportation 1,471 3room nights / employee 4,412
Retail 1,017 3room nights / employee 3,051
Finance and Professional Services 5,001 3room nights / employee 15,002
Health/Edu and Recreation 6,744 3room nights / employee 20,231
Other 1,245 3room nights / employee 3,734
Total 55,282
Palo Alto Capture Rate 90%49,754
Room Revenue and TOT
Annual Revenue $240 Average Daily Rate $11,940,890
Total TOT Revenue 14%Tax Rate $1,671,725
Residential $267,189
Non-Residential $1,270,626
Hotel Demand Factors
Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan
Draft Report January 15, 2016
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Figure A-17 Scenario 1 - Utility Users Tax Revenue Estimate
Figure A-18 Scenario 2: Utility Users Tax Revenue Estimate
Item
Revenue
Allocation1
2014-15
Revenue
Per Capita
Revenue
Utility
Users Tax
Revenue2
Total 100%$11,285,000 $1,621,290
Residential Uses 30%$3,385,500 $51.54 $340,098
Employment Uses 70%$7,899,500 $82.75 $1,281,192
(1) Allocation data provided by City of Palo Alto Utilities.
(2) Based on the City's 5% tax rate for electricity, gas, water, and telephone services
Item
Revenue
Allocation1
2014-15
Revenue
Per Capita
Revenue
Utility
Users Tax
Revenue2
Total 100%$11,285,000 $1,155,486
Residential Uses 30%$3,385,500 $51.54 $340,098
Employment Uses 70%$7,899,500 $82.75 $815,389
(1) Allocation data provided by City of Palo Alto Utilities.
(2) Based on the City's 5% tax rate for electricity, gas, water, and telephone services
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Figure A-19 Scenario 3: Utility Users Tax Revenue Estimate
Figure A-20 Scenario 4: Utility Users Tax Revenue Estimate
Item
Revenue
Allocation1
2014-15
Revenue
Per Capita
Revenue
Utility
Users Tax
Revenue2
Total 100%$11,285,000 $1,490,573
Residential Uses 30%$3,385,500 $51.54 $434,785
Employment Uses 70%$7,899,500 $82.75 $1,055,788
(1) Allocation data provided by City of Palo Alto Utilities.
(2) Based on the City's 5% tax rate for electricity, gas, water, and telephone services
Item
Revenue
Allocation1
2014-15
Revenue
Per Capita
Revenue
Utility
Users Tax
Revenue2
Total 100%$11,285,000 $1,820,105
Residential Uses 30%$3,385,500 $51.54 $538,876
Employment Uses 70%$7,899,500 $82.75 $1,281,230
(1) Allocation data provided by City of Palo Alto Utilities.
(2) Based on the City's 5% tax rate for electricity, gas, water, and telephone services
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Figure A-21 Cost Burdens by Department
Item
Cost
Allocation
Adopted
General Fund
(FY2015)
Net Effect on
General Fund1 Percent
Variable
Annual
Variable
Expenses
Per Capita
General Fund
Expense
Administrative Services $7,175,000 $6,599,441 $989,916
Residential Uses 58%$4,155,508.97 $3,822,165 15%$573,325 65,686 Residents $8.73
Employment Uses 42%$3,019,491.03 $2,777,275 15%$416,591 95,458 Workers $4.36
City Attorney $2,578,000 $2,225,190 $333,779
Residential Uses 58%$1,493,087.40 $1,288,752 15%$193,313 65,686 Residents $2.94Employment Uses 42%$1,084,912.60 $936,438 15%$140,466 95,458 Workers $1.47
City Auditor $1,065,000 $991,480 $148,722
Residential Uses 58%$616,811 $574,230 15%$86,135 65,686 Residents $1.31
Employment Uses 42%$448,189 $417,249 15%$62,587 95,458 Workers $0.66
City Clerk $1,276,000 $1,134,309 $170,146
Residential Uses 58%$739,015 $656,952 15%$98,543 65,686 Residents $1.50
Employment Uses 42%$536,985 $477,357 15%$71,604 95,458 Workers $0.75
City Council $432,000 $399,781 $59,967
Residential Uses 58%$250,199 $231,539 15%$34,731 65,686 Residents $0.53
Employment Uses 42%$181,801 $168,242 15%$25,236 95,458 Workers $0.26
City Manager $2,728,000 $2,389,993 $358,499
Residential Uses 58%$1,579,962 $1,384,200 15%$207,630 65,686 Residents $3.16
Employment Uses 42%$1,148,038 $1,005,793 15%$150,869 95,458 Workers $1.58
Community Services $17,902,937 $14,302,228 $7,983,951
Residential Uses 87%$15,600,094 $12,531,105 58%$7,258,487 65,686 Residents $110.50
Employment Uses 13%$2,302,842 $2,302,842 32%$725,464 95,458 Workers $7.60
Development Services $10,535,000 $0 $0
Residential Uses 58%$6,101,503 $0 50%$0 65,686 Residents $0.00
Employment Uses 42%$4,433,497 $0 50%$0 95,458 Workers $0.00
Library $7,521,000 $7,300,350 $1,095,053
Residential Uses 85%$6,392,850 $6,205,298 15%$930,795 65,686 Residents $14.17
Employment Uses 15%$1,128,150 $1,095,053 15%$164,258 95,458 Workers $1.72
Non-Departmental $13,274,000 $13,274,000 $1,991,100Residential Uses 58%$7,687,836 $7,687,836 15%$1,153,175 65,686 Residents $17.56
Employment Uses 42%$5,586,164 $5,586,164 15%$837,925 95,458 Workers $8.78
Office of Sustainability $273,000 $273,000 $40,950
Residential Uses 58%$158,112 $158,112 15%$23,717 65,686 Residents $0.36
Employment Uses 42%$114,888 $114,888 15%$17,233 95,458 Workers $0.18
People Strategy and Operations $3,264,000 $3,016,738 $452,511
Residential Uses 58%$1,890,395 $1,747,189 15%$262,078 65,686 Residents $3.99
Employment Uses 42%$1,373,605 $1,269,549 15%$190,432 95,458 Workers $1.99
Planning and Community
Environment $7,016,000 $5,752,200 $2,876,100
Residential Uses 58%$4,063,422 $3,331,473 50%$1,665,737 65,686 Residents $25.36
Employment Uses 42%$2,952,578 $2,420,727 50%$1,210,364 95,458 Workers $12.68
Public Safety - Fire $27,050,633 $15,900,049 $6,640,243
Residential Uses 64%$17,221,548 $10,122,627 42%$4,227,452 65,686 Residents $64.36
Employment Uses 36%$9,829,085 $5,777,422 42%$2,412,791 95,458 Workers $25.28
Public Safety - Police $34,076,421 $30,770,127 $24,616,102
Residential Uses 30%$10,222,926 $9,231,038 80%$7,384,830 65,686 Residents $112.43
Employment Uses 70%$23,853,495 $21,539,089 80%$17,231,271 95,458 Workers $180.51
Public Safety - Office of
Emergency Services $926,521 $926,521 $741,217
Residential Uses 58%$536,609 $536,609 80%$429,287 65,686 Residents $6.54
Employment Uses 42%$389,912 $389,912 80%$311,930 95,458 Workers $3.27
Public Works $13,397,000 $12,252,916 $1,303,934
Residential Uses 44%$5,943,650 $5,436,071 11%$578,497 65,686 Residents $8.81
Employment Uses 56%$7,453,350 $6,816,845 11%$725,437 95,458 Workers $7.60
Operating Transfers Out $2,076,000 $2,076,000 $0
Residential Uses 58%$1,202,347 $1,202,347 0%$0 65,686 Residents $0.00
Employment Uses 42%$873,653 $873,653 0%$0 95,458 Workers $0.00
Transfers to Infrastructure $13,659,000 $13,659,000 $0
Residential Uses 58%$7,910,815 $7,910,815 0%$0 65,686 Residents $0.00
Employment Uses 42%$5,748,185 $5,748,185 0%$0 95,458 Workers $0.00
Total Expenditures $166,225,512 $133,243,323 $49,802,188
Residential 56.4%$93,766,690 $74,058,358 $25,107,731 65,686 Residents $382.24
Non-Residential 43.6%$72,458,822 $59,716,684 $24,694,457 95,458 Workers $258.69
Service Population