Loading...
HomeMy WebLinkAbout1998-04-27 City Council (22)BUDGET ’98- ’99 City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT:ADMINISTRATIVE SERVICES DATE:APRIL 27, 1998 CMR: 199:98 SUBJECT:1998-99 BUDGET ISSUES This is an informational report and no Council action is required. ’DISCUSSION The 1998-99 Budget Issues report provides a discussion of programs, projects and issues that require resource commitments from the General Fund or the Utility Funds, or which represent significant policy issues. Several of the items discussed in this report were identified in the 1998-99 Budget Guidelines approved by the Council this Fall. The discussion includes the Council Priorities for 1998- 99, which are traffic management and safety, implementation of the Comprehensive Plan and infrastructure. The following budget issues are discussed in this report: ,General Fund Issues ¯Seasonal Employment Opportunity Program for the Homeless ¯Community Services Fee Reduction Program (Council Assignment) ¯Contract Manager Position Cost Savings (Council Assignment) °Local Cable Programming ¯Noise Consultant ¯. Downtown Maintenance ¯Emergency Management Plan Infrastructure Issues ¯Infrastructure Management Plan (Council Priority) ¯Space Needs ¯Facilities Maintenance ¯Public Safety Building o Library Master Plan CMR:199:98 Page 1 of 17 Planning Issues ¯Local Shuttle Bus SYStem Study ¯Planning Organizational Evaluation and Work Program ¯Downtown Urban Design Improvements ¯Comprehensive Plan ¯Zoning Ordinance Update ¯Residential Arterial Traffic Calming Project ¯Historic Preservation Utility_ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ ¯ Fund Issues Proposition 218 Storm Drainage Fund Fiscal Status Electric Deregulation Utilities Reserves Policy Gas Rate Decrease Public Benefit Programs Telecommunications Universal Service Refuse Yard Relocation Mixed Paper Recycling Palo Alto Sanitation Company Negotiations General Fund Seasonal Ernployment Opportuni .ty Program For the Homeless The 1998-99 Proposed Budget requests $52,830 to continue the Seasonal Employment Opportunity Program for the Homeless. This program, begun during the 1996-97 fiscal year, has proved valuable in helping individuals experience vocational success, increased self-esteem, and an improved prospect for an employable future. Thus far, 18 people have participated in the two sessions that have been completed and the third session that is now in progress. Next year, the program is proposed to consist of 12-week sessions,. Fall 1998 and Spring 1999, where employment experiences will be supplied for low-income homeless individuals. A total of five participants will be hired for each session. Each participant will work a 32- hour work week and be paid at a rate of $8.00 per hour. All participants will be given support through food vouchers, clothing, safety equipment and bicycle transportation. The program has been enhanced in the current fiscal year by providing participants job training through an agreement with the Opportunities Industrialization Center West. Additionally, at the end of the program, graduates will be given the opportunity for job placement through the City’s contracted temporary employment agency, Interim Personnel. CMR:199:98 Page 2 of 17 Community. Services Fee Reduction Program The Community Services Fee Reduction Program has served approximately 30 Palo Alto residents to date this fiscal year. Participants who are eligible, through either the low- income guidelines or the disability income guidelines, receive a 50 percent discount on fees for a variety of Community Services Department classes and programs. A majority of the participants registered for Recreation, Open Space and Sciences (ROSS) classes, while the balance registered for Arts and Culture classes. Seventy-six percent of the participants who signed up for ROSS classes were youth. During the first year of the program’s implementation, the revenue loss to the General Fund was approximately $3,380. In addition, the Office of Human Services allocated approxi- mately $1,370 for administrative costs, including advertising, printing, and supplies. Staff will be making a recommendation to go to a 75 percent discount on the impacted fees during the 1998-99 budget process to increase use of the program. Contract Manager Position Cost Savings (Council Assignment) During the 1996-97 budget process, Council approved the addition of two new Contract Manager positions, bringing the number of Contract Managers in the Purchasing Section to three. These employees were assigned to specific City departments, providing each department with a single point of contact in Purchasing. The intent of these positions was to provide central ownership and accountability for the contracting process, to reduce the cost of purchased materials and services, and to simplify and speed up the contracting process for all departments. More specifically, they were to be responsible for the following: [] [] [] [] [] helpingto develop specifications and scopes of work overseeing the contract evaluation and selection process lending their expertise to contract negotiations assisting project managers with procurement administration providing contracts and procurement training Through aggressive sourcing, contract negotiations, and the elimination of poorly drafted specifications that limit competition, staff projected that these positions would reduce the City’s purchasing costs. Staff estimated savings of 1 to 2 percent of total contract dollars a.~ually (or approximately $150,000 to $300,000), which would more than offset the costs of the new positions. Council directed staff to report back to the Finance Committee on the savings achieved by these two new positions. The recruitment for the positions began in July 1996. Unfortunately, the first Contract Manager was not hired until January 1997, and shortly after his hire date, the City’s other Contract Manager retired. Although staff continued to actively recruit for the two Contract Managers, the positions were not filled until September and October 1997, respectively. C .MR:199:98 Page 3 of 17 One important indicator of their success comes from the most experienced Contract Manager. He has averaged a 1.1 percent savings on his procurements of more than $14.5 million, or about $160,000 for the first seven months of fiscal year 1997-98. This is the level of performance that is anticipated from the other two Contract Managers after they become more seasoned and identify likely targets for savings in the departments they serve. Savings are not the only criteria measured to determine the success of these new positions. Accessibility to customer departments, accuracy of information, responsiveness, speed of the procurement process, reliability, and dependability are all important measures of success. The Purchasing Section has received praise from City departments for improvements in each of these areas. Purchasing will continue to monitor the cost savings generated by these positions through an impact measure which was established with the 1997-98 Budget, "Save 5 percent of the Section’s annual purchasing volume through effective purchasing techniques." Local Cable Programming The 1998-99 Proposed Budget includes funding to provide additional support to the community access organization, Mid-Peninsula Access Corporation (MPAC). MPAC, in turn, will use this funding to support cable programming by public, educational, and government access agencies (PEGs). Many cities in the San Francisco Bay area use a significant portion of franchise fee revenue to support such programming; the percentage ranges from 50 percent in Berkeley to 70 percent in Mountain View. Historically, the City of Palo Alto has provided a smaller percentage of franchise fee revenue to PEGs in order to recoup legal costs associated with the Century Federal lawsuit (the City currently provides 19 percent of franchise fee revenues to MPAC). Costs from the lawsuit have now been recovered, and it is proposed to increase the City’s contribution by $100,000, or to 54 percent of revenues. The additional funding will enhance MPAC’s opportunity to provide new programming, professional videos, Public Service Announce-ment (PSA) assistance, and online services for the Internet. The Amended Franchise Agreement with Cable Communications Cooperative of Palo Alto, Inc: (Cable Co-op) expires on March 24, 2001. Commencement of the refranchising process involves public notice, identifying the future cable-related community needs and interests, and reviewingthe performance of the cable operator. Cable Co-op or the City of Palo Alto may initiate the formal, process anytime between the 36th and 30th month prior to the franchise expiration. Staff has begun to evaluate the administrative support necessary to support the refranchising process. The Proposed Budget includes funding of $100,000 in the contingent account to be used as needed for contractual support. Noise Consultant Historically, members of the Police Department have been responsible for taking sound meter readings and assisting in determining where certain noise sources are in violation of CMR:199:98 Page 4 of 17 the City’s noise ordinance. However, there has been an increase in the number of complex noise issues and complaints that the Police Department staff has neither the expertise nor sophisticated equipment to effectively deal with. Examples of such noise issues range from the 3009 Middlefield Road (Chuck Thompson) tennis court issue, complaints in the San Antonio Road neighborhood, or the noise issues raised at Q Billiards. As a result, staff believes it would be beneficial to have a noise consultant available who has the experience, detailed knowledge and the proper equipment to assist in taking noise measurements, analyzing the information, and assisting in the formation of conclusions. As the City moves towards .increased mixed-use zoning, the need for noise expertise becomes even greater. The intent would be for the Police and Planning Departments to use the consultant on those problems that: are normally associated with commercial origins, are a matter of longer-term disputes, involve the issuance of use permits, and/or are of a complex nature that go beyond the capabilities of the Police Department. It is anticipated that the same consultant will be able to assist the City in understanding the extent, level and impact of noise from aircraft en route to San Francisco International Airport (SFO). The consultant will conduct noise measurements at locations in Palo Alto at various times of the day and night. This information will be presented, as needed, to the Airport Roundtable, SFO officials, and Federal oversight agencies. The Proposed Budget includes $28,750 for this assistance. Downtown Maintenance Over the years, as downtown Palo Alto has grown more vital and populated, concerns about downtown maintenance and cleanliness have increased, reaching a critical point, during the development and review of the Downtown Urban Desi.gn Improvements Master Plan, approved by Council in August 1997. The prospect of future improvements would add to the challenge of meeting acceptable levels of maintenance. In response to these concerns, staff has been working for a number of months with the Palo Alto Chamber of Commerce and several key downtown property owners to define and implement an increased level of downtown maintenance. The_ scope of work being discussed would both increasethe frequency and expand the area for many maintenance services, such as street and sidewalk sweeping and pressure washing, refuse pick-up, landscaping, and parking lot cleaning, to include the entire Downtown District, not just University Avenue. It also includes proposed public toilet facilities, which are expected to be installed during calendar year 1998. Recognizing that keeping the downtown clean must be a collaborative effort between the City, merchants, property owners and other business district interests, staff and representatives of the Chamber of Commerce are looking at joint funding and evaluating the formation of a special assessment or tax district to fund the downtown property owner’s share of the aogmented maintenance program. CMR:199:98 Page 5 of 17 Matching funds of $50,000 are included in the Proposed Budget, should the Downtown property owners wish to initiate elements of the Plan in 1998-99, as funding of the Plan is contemplated as a joint responsibility with the City and the property owners. Emergency Management Plan The Emergency Management Plan will be brought to the City Council for review in Spring 1998. The Plan will include the basic organizational and operational elements that are necessary for preparing and responding to the various types of disasters the City may encounter. The Plan will include recommendations for the following: Employee Training Community Education Disaster Supplies Program Staffing Hazard Analysis Emergency Operations Center Functional Operation Community Review and Involvement Initial and Ongoing Costs The Plan will be reviewed by the Policy and Services and Finance Committees, with final recommendations being forwarded to Council for approval. The 1998-99 Proposed Budget includes a $200,000 placeholder for implementation of the Emergency Management Plan, .once it is approved by Council. Infrastructure Issues Infrastructure Management Plan Staff has completed a detailed study of infrastructure replacement and repair needs and presented the first three modules (Buildings and Facilities, Traffic and Transportation, and Parks and Open Space) of the City’s Infrastructure Management Plan (IMP) to the Planning Commission and Finance Committee. Staff is now preparing a methodology for prioritizing work across these three modules, along with a financing proposal that will be presented to the Planning Commission and Finance Committee in the Spring of 1998. The fourth module, Bridges, Parking Lots and Public Art, will be presented in Summer 1998. After obtaining feedback from the Planning Commission and Finance Committee regarding prioritization and financing for the first three modules, staff will prepare a detailed implementation and financing plan. This plan will include staffing and other resources needed to undertake the additional capital work. Staff may seek-consulting assistance to develop the implementation plan and to determine resource needs. In addition, in order to ensure that the resources are in place to begin the additional IMP capital work in fiscal year CMR:199:98 Page 6 of 17 1999-2000, it is likely that a request to augment staffing will come to Council, through a Budget Amendment Ordinance (BAO), in mid to late 1998-99. The intent is to incorporate the first phases of the IMP into the next two-year budget, the 1999-01 Budget. However, critical projects which could not wait, or ongoing infrastructure projects, are included in the 1998-99 Proposed Capital Improvement Program. .Space Needs Over the past few months, the City Manager has been meeting with department work groups to discuss what constraints keep employees from being able to do their jobs effectively. In the course of those conversations, it became clear that a major issue for virtually all City departments was the lack of space in City facilities, due to the growth in the employee work force. Consequently, the City Manager has created a task force charged with pursuing various options for the creation, of additional work space. The plan to be developed is intended to cover the next five years, until thedirection of the public safety space is known. All City-owned property will be considered, as well as the potential for leasing additional space. The goal is to develop space that can be occupied in the next six to 12 months. The City Manager’s Office will take responsibility for overseeing the work of developing the plan, using a steering committee composed of several key department heads and managers. A communications plan that will keep all employees updated on the work of the steering committee and the various subcommittees that will be formed to develop the plan is a key element of the work to be undertaken. The tasks to be completed include: Develop criteria for prioritizing work group space needs (square foot per employee,. convenience to the public, etc.) 2.Develop prioritized list of work group relocation needs 3.Prepare preliminary feasibility analysis of space options 4.Prepare scenarios for matching prioritized relocation needs to feasible space options Cost analysis of scenarios (capital, operating costs - including technology, revenue loss) 6.Prepare operating budget submittal and draft capital improvement projects 7.Prepare staff report to the City Council CMR:199:98 Page 7 of 17 Communicating with staff in order to identify concerns and to ensure clarity as the process Progresses The 1998-99 Proposed Budget includes a placeholder of $300,000 that will be used to begin implementation of short-term needs as the tasks above are completed. Facilities Maintenance The 1998-99 Proposed Budget recommends increased funding for custodial and maintenance services. The increase will provide for expanded services and frequencies in custodial and maintenance service contracts, due to expansion of square footage maintained, additional equipment installed in existing facilities, and increases in contract services costs due to inflation. Costs have steadily increased for major maintenance contracts for all City facilities for services such as elevator maintenance, fire sprinkler, alarm and extinguisher maintenance, heating, ventilating and air conditioning maintenance and repair, and roofing repairs. The increase in custodial services funding will be used for annual cleaning of upholstery and window coverings (currently on a three-year cycle). In addition, a dedicated resource will be managed by the library staff to meet the unique needs of the various libraries and provide general maintenance. This will include cleaning of book stack exteriors, light fixtures and exterior alcoves at some facilities, and increased carpet cleaning frequencies for selected facilities with high public use. Public Safety_ Building A consultant has recently been selected to assist in Phase I Of the Public Safety Building Project. Staff is currently negotiating the final agreement, together with a BAO that will be presented to the Council for approval in May. Phase I is the project development phase,_ and the consultant selected will assist staff in performing a cost benefit analysis of alternative sites, site survey and selection, architectural program development, design concept studies, preliminary environmental analysis, and project cost estimates. In addition, the consultant will assist in the public input process, which will include holding meetings with the Public Safety Building Citizen Advisory Group (discussed below) and with the general public. These meetings will be used to gather public input regarding the possible siting of the building and design. Phase I is projected to be completed and ready for Council review 18 months aider award of the contract. A Public Safety Building Citizen Advisory Group has been appointed by the City Manager, composed of City staff and City of Palo Alto residents and interest groups. There are representatives from the Chamber of Commerce, Barron Park Association, University South Neighborhood Association, Califomia Avenue Area Development Association, the Planning Commission, and the Architectural Review Board. The Advisory Group assisted in the consultant selection process, and will further assist in the site selection process and the development of conceptual drawings. CMR:199:98 Page 8 of 17 Library. Master Plan A draft Library Master Plan was forwarded to the City Council on March 16, 1998. At staff’s recommendation, the Council referred the draft to the Policy and Services Committee, which has deferred discussion and action until staff has had an opportunity to complete a public process to gather community feedback regarding the report. The public process is scheduled for the Spring and Summer of 1998, with the Policy and Services Committee discussing the report and reviewing public input in the late Summer or early Fall 1998. The Library Master Plan has both operating and capital budget impacts; estimates of costs and alternative funding sources have not yet been developed. The development of detailed funding analysis and funding plan will begin after approval of the Plan’s philosophy of public library service. Budget implications will be addressed in the 1999-00 Budget. Planning Issues Local Shuttle Bus System Study The 1997-98 Budget included $75,000 for a planning and design study for a community- based local bus system serving Palo Alto’s residential neighborhoods and local area destinations (commercial areas, transit stations, schools, cultural and social centers, etc.). This is envisioned as an attractive, convenient, user-fi’iendly bus service that is an alternative to the automobile, thereby reducing traffic congestion and parking dem ~and, as well as providing mobility to persons who do not or choose not to drive. This project has been delayed to 1998-99, due to staffing issues and other priority projects. In 1998-99, a consultant who specializes in local bus systems will be retained to complete the necessary design and planning work, including: a community/user survey; market identification; bus routing, frequency and service area alternatives; cost estimates; funding scenarios, and the development of a comprehensive long-range service plan, as well as an initial short-range demonstration plan. The consultant will work with City staff and an advisory committee of representative community members to ensure that the results have broad community understanding and support. The relatively high cost of implementation of a bus system on a community-wide basis will necessitate incremental implementation of services, beginning with a pilot project and building to a citywide system, subject to the availability of funding. Plannin~ Organizational Review The 1997-98 Budget included funding for a consultant to review the operations and functions of the Planning Division and to evaluate the organization, staffing and workflow within the Division. The review also included an evaluation of operational oversight and the appropriate mix and type of staffing for the planning function. CMR:199:98 Page 9 of 17 In October 1997, Council approved a contract with Zucker Systems to undertake this evaluation. Work began in November 1997, and the completed report was received in March 1998. The report includes 130 recommendations which address a wide variety of issues. Planning for implementation of the recommendations is already under way. Staff will return to Council in mid May with an informational report that outlines the implementation plan. It is anticipated that many of these changes will be recommended for implementation during 1998-99. A placeholder of $300,000 has been established in the 1998-99 Proposed Budget for this purpose. As part of the implementation of the recommendations from the organizational review, the Planning Division Work Program will be reevaluated. This is necessary in order to balance the priorities and assignments resulting from the review against current Planning Division projects. The new Council assignment to examine residential structures or neighborhoods from an architectural evaluation standpoint will also be incorporated into the Work Program. The Planning Division Work Program will be presented to the Finance Committee in Summer 1998. Downtown Urban Design Irnprovements The Master Plan for the Downtown Urban Design Improvement Program has been completed. The contract for the design development services, which include the preparation of the working drawings, has been approved by the City Council, and the design of Phase I has been started and should be completed by the end of Summer 1998. Enhancements for Phase I include landscape improvements, placement of newsracks, parking lot directional signs, tree pruning, street lighting, lighting improvements, installation of benches and other street furniture, and the addition of artistic elements in the four major intersections in the downtown area. At the present time, the placement of the newsracks is being worked on by the City Attorney’s Office with the assistance of the Public Works and Planning Departments and City Manager’s Office. The Public Works Department is responsible for implementation; construction is expected to begin by Fall 1998, with the majority of work scheduled to be completed by the end of 1998-99. The next step in the project will be the design of Phase II. This phase will focus on renovation of Lytton Plaza with further landscape and lighting improvements. It is anticipated that the design of Phase II will begin in late 1998-99. The Downtown Urban Design Improvements Steering Committee will participate in the development of Phase II. The Downtown Urban Design Improvements CIP is intended to be funded by $250,000 per year from the General Fund, to be augmented by any funding available from the Public Benefits Fund. After the design of Phase II, it will take several years to acquire sufficient funds to undertake construction. CMR:199:98 Page 10 of 17 Comprehensive Plan The City Council completed its review of the Draft 1998-2010 Comprehensive Plan in late 1997. Changes that the Council identified have been reviewed by the Planning Commission, and the published version of the Plan is being prepared. Final City Council action on the new Plan is anticipated in June 1998. An impl,ementation plan is being prepared which will identify general cost estimates, timing priorities, and departments responsible for implementing each of the new programs. Review of the implementation issues by the standing City Boards and Commissions is anticipated during the Summer of 1998. City Council review of the proposed implementation plan will occur in Fall 1998, with Council decisions incorporated into the development of the 1999-2000 Budget. Zoning Ordinance Update Planning for the update of the Zoning Ordinance will begin in fiscal year 1998-99. The Proposed Budget includes funding of $40,000 for the creation of a work plan for the update. This will help define the steps that will need to be undertaken to revise the Zoning Ordinance, and will provide an estimate of the workload impacts for the Planning Department and the City Attorney’s Office, and the amount of external assistance that will be needed. Upon completion of this work program, the date for the startup of the ordinance will be provided, based upon an assessment of all the tasks assigned to the Planning Division. It is anticipated that this will occur in early 1999 and will be accompanied by a Budget Amendment Ordinance to fund the update. Residential Arterial Traffic Calming Project The 1997-98 Budget included $125,000 for planning, feasibility, and schematic design work for developing traffic calming measures for Embarcadero Road. This multi-year project began the process for developing, designing, and constructing physical changes to five arterial roads (Embarcadero Road, Middlefield Road, University Avenue, Charleston Road, and Arastradero Road). This project will implement physical changes and street improvements to reduce the impact of traffic and improve -the quality of life along the residential arterial streets. In addition, the project will reduce traffic Speed, calm traffic, improve bicycle and pedestrian safety, and enhance the aesthetic character of the streets, without appreciably affecting current traffic patterns and volumes, Improvements could include landscaped medians, gateways, intersection treatments, traffic signal changes and visual variations. In 1998-99, as part of the already approved capital project, staff will retain a consultant to complete the necessary schematic design work for Embarcadero Road. The consultant will work with City staff, an advisory committee representing certain boards and commissions, and residents of Embarcadero Road to understand the issues and participate in the CMR:199:98 Page 11 of 17 development of alternatives, and to give the City Council a basis for assessing community support. Upon completion of the study, the next phase would be to design and construct physical changes to Embarcadero Road. Design and construction costs for Embarcadero Road alone would probably reach $2 to $3 million, which will be subject to the availability of funds and staff resources. Historic Preservation The Planning Division, in association with the City Attorney’s Office, is completing the final draft of the new Historic Preservation Ordinance. The implementation of the Ordinance will include training of planning staff and other City staff, and public information/education workshops. In addition, as discussed in the Resource Impact Section of the Historic Preservation staff report, there may be a need for additional staff to implement the Ordinance. The Historic Inventory update will be completed in Summer 1998 and public hearings shall begin thereafter, with the intent of finalizing the public hearing process on the Inventory by Fall 1998. Any funding requirement needed to publish and provide training regarding the new Ordinance will .be brought to Council outside of the budget process. Utility Fund Issues Proposition 218 Proposition 218, the "Right to Vote on Taxes" initiative passed by California voters in November, 1996, contains restrictions on taxes, assessments and "property-related" fees. While there is yet little in the way of judicial guidance on the subject, the following is staffs evaluation as to the effect of Proposition 218 on the City’s various charges. ¯Taxes: The City’s existing locally-initiated taxes (transient occupancy tax, real property transfer tax, utility.users tax) are not affected by Proposition 218 at their current rates. Any proposed increases or extensions in these taxes would be subject to voter approval. A majority vote would be required if the tax increase were to be used for general City purposes, and a two-thirds vote would be required if the increase were to be used for specific purposes.- Assessments: New assessments established by the City to pay for public improve- ments (e.g., to finance the proposed downtown parking structures) would be impacted by Proposition 218 in the following ways: A more rigorous analysis of benefits is required,-and only the "special benefits" of the public improvement may be assessed to property owners. Thus, if a public improvement provides benefits to the general public in CMR:199:98 Page 12 of 17 essentially the same manner as to a specific property owner, the costs attributed to that "general benefit" may not be fmanced through an assessment. Public agencies, including the City itself, are no longer exempt from assessments. The City is, therefore, subject to the same assessment formula and charges as any other assessed property owner. New assessments must be submitted for approval to the property owners being assessed. Fees: Fees and charges for electric and gas services are specifically exempt from Proposition 218. Staff believes that the City’s water, wastewater, and refuse collection services fall outside of the restrictions of Proposition 218 because they do not have the characteristics of "property related fees," as defined in the Proposition. All of these services are supplied in response to customer requests, t-he fees for these services are based on usage; and fees are not charged for undeveloped properties. No rate increases are proposed for these funds in the 1998-99 Budget. Staff believes that street sweeping services are likely "property related fees" within the definition of Proposition 218. Therefore, staff plans to separate the street sweeping fee from the refuse fee, identifying it as separate line on customers’ utility bills. In addition, further evaluation of the methodology used to calculate street sweeping fees will be undertaken to determine the benefit to property owners, prior to any increases in this fee. Voter approval would be required the next time a street sweeping rate increase is needed; no voter approvals are needed as long as street sweeping rates are not raised. Staff believes the storm drainage fee is als0 likely a "property related" fee, subject to Proposition 218. An increase in the fee will require voter approval. Storm Drainage Fund Revenue bonds were issued in 1995 to fund storm drain capital improvements. To date, 80 percent of the planned improvements that were funded by these bonds have been completed, including storm drain pump station improvements, storm drain system replacement/rehabili- tation, curb and gutter replacement, and Barron Park storm drain improvements. Current Storm Drainage Fund revenues will only support ongoing maintenance, storm water quality protection costs, and debt service on existing bonds. A new bond issuance would be required to finance capital improvements beyond 1998-99, which would in turn require a rate increase in the storm drainage fee. The City’s ability to increase the storm drainage fee has been CMR:199:98 Page 13 of 17 impacted by the passage of Proposition 218, as discussed above. Any future rate increases would be subject to voter approval. No rate increase is proposed for 1998-99. During the coming year, staff will develop a plan for the next phases of Storm Drainage Master Plan work. The next phase of capital work will include continued replacement/re- habilitation of(he system and the addition of new systems in certain areas of the City. Each of these two categories of work (Category A and B work) has been approved in concept by Council with the Storm Drainage Master Plan. In light of the recent storm damage to the City, staff plans to also request Council to consider a third category of work (Category C work), which includes upgrading the existing system to increase capacity. Following Council approval of the next phase of Storm Drainage Master Plan work, staff would obtain outside consulting assistance to assist staff in developing a public education program regarding the need for a rate increase, and administering compliance with ProPosition 218 and the vote process. No funding for this consultant is included in the proposed budget, pending Council approval of the next phase. Staff will-return with a Budget Amendment Ordinance to fund the consulting assistance. Electric Deregulation In 1998-99, staff will dedicate a large effort to electric deregulation and the implementation of the Council policy to provide utilities customers with open access to the supplier of their choice. With choice comes competition and the need for fundamental change regarding energy purchasing practices, management of the utility energy supply portfolio, and marketing of utility services. To address these key issues, this year staff will develop a program to address energy supply price volatility, which will include the implementation of enhanced energy procurement practices, policies and procedures. The Proposed Budget also includes funding for programs to improve reliability and power quality to enhance customer satisfaction. Staff will embark on a three year marketing program ($200,000 in 1998-99), which will include hiring consultants to work with several very large customers to focus on service reliability and power quality. Staff will focus significant efforts on retaining these key customers. Utilities Reserves Policy As deregulation of the energy industry continues to evolve, the traditional accounting treatment of the distribution and supply activities as a single enterprise with commingled revenue and reserves has been called into question. Since some customers will be buying energy from competing service providers, it would be inappropriate to subsidize supply activities andprice through revenues collected fi’om the distribution business which remains a monopoly. Accordingly, the need arises to establish separate Rate Stabilization Reserves (RSR) for distribution and supply activities.. To accomplish this separation, staff will propose a new reserve policy and reserve levels for the distribution and supply businesses. The new reserves will replace the current RSRs for the Electric and Gas Funds. The new CMR:199:98 Page 14 of 17 reserves will be proposed as part of the discussion of the 1998-99 Budget. In addition, with the Proposed Budget, staff plans to recommend that any funds above the maximum reserve level in the Electric Fund be transferred to the Calaveras reserve. This will facilitate the buildup of this reserve to reduce the Fund’s exposure to stranded costs in the future. Gas Rate Decrease The Gas Fund RSR balance is projected to exceed the maximum guideline level by approximately $3.8 million in 1997-98. In accordance with the Utilities Reserve Policy adopted by the City Council, staff recommends a gas rate decrease of seven percent on a system wide basis to help dispose of the revenue surplus. While all customer classes would receive a bill decrease, the size of the decrease will vary by rate schedule, to three objectives: Align Palo Alto gas rate levels at or below corresponding rate levels charged in nearby communities; 2.Continue to move rates closer to cost of service; and o Design rates structures consistent with continuing deregulation under the Pacific Gas and Electric (PG&E) Gas Accord. This seven percent rate decrease, in addition to the five percent rate decrease adopted with the 1995-96 Budget and the 12 percent rate decrease adopted with the 1996-97 Budget, has begun the process of bringing the Gas RSR within the Gas reserve guidelines in a few years. ~ In order to keep rates smooth, an abrupt lowering of the Gas RSR is not recommended. Public Benefit Pro_m’ams The legislation that mandated the restructuring of the California electric utility industry, AB 1890, also mandated certain charges to promote public benefit programs, such as investing in research and development and promoting renewable resources. In the 1998-99 Proposed Budget, $1,77 million is allocated to the development and implementation of these programs. The $1.77 million target is based on 2.85 Percent of 1997-98 estimated electric revenues, as mandated by AB 1890. The 1998-99 public benefit programs funding will be targeted at programs that include: demand side management programs with residential, education, commercial, industrial and institutional incentives; new investment in renewable energy resources, such as solar energy and improvements to small hydroelectric projects; research, development, and demonstration programs in the areas of electric vehicle research, fuel cells, local demonstrations of demand side management programs; and, low income services such as an expanded rate assistance program. If, at the end of the fiscal year, the total funds collected in accordance with AB 1890 are not spent, the funds will be captured in a new reserve (Public Benefit Reserve) and used in future years for the~e or similar, types of programs. CMR:199:98 Page 15 of 17 Universal Telecommunication Service During 1998-99, staff will solicit proposals from private companies interested in working with the City to develop a network that will make advanced telecommunications services available at affordable rates to every address in Palo Alto. The goal of the proposal process is to extend the benefits of advanced telecommunications throughout the community by attracting one or more private companies to utilize the City’s fiber backbone as a part of a network designed to provide universal service. Universal service will result in the availability of affordable high speed data transport and Interact access for every address in Palo Alto. Ideally, this high speed Intemet access would also be provided in conjunction with other voice~ data, and/or video services. This will involve a substantial staff effort for proposal preparation, evaluation, engineering support, and contract negotiation. Coordinating the proposal process will require $25,000 for consultant and legal support on a one-time basis. Funding is included in the proposed Electric Fund Budget, which will hopefully be repaid through future revenues that result from this effort. Refuse Collection Yard During fiscal year 1997-98, the draft Environmental Impact Report (EIR) for transforming the former Los Altos Treatment Plant Site (LATP) into a refuse collection yard was developed and distributed for public review and comment. The Planning Commission met to discuss the draft EIR and to take comments from the public. Staff plans to take the EIR to Council for approval in Summer 1998. In fiscal year 1998-99, staffwill also continue to pursue the purchase of the one-half interest in the former LATP site from the City of Los Altos. Assuming negotiations are successful and the purchase of the former LATP site is approved by Council, staff will obtain a Council- certified EIR and begin to pursue the State and Federal permits necessary for project implementation. Mixed PaperRecycling in fiscal year 1997-98, an interim, drop-offmixed paper recycling program began. Bins were placed at various locations throughout the City, and after six months, approximately 290 tons of mixed paper has been collected. In ~conjunction with the Public Works Department budgethearing, a progress report regarding the interim program will be presented to Council, providing a recommendationon whether to continue with the drop-off program or to expand it as a curbside collection program. No funds have been requested in the 1998-99 Budget to modify the program, and would be needed, if Council decides to offer mixed paper recycling curbside. Palo Alto Sanitation Company Negotiations The current Palo Alto Sanitation Company (PASCO) contract was signed in 1987 and provides for refuse collection, residential and commercial recycling, public receptacle collection, and Recycling Center operation. In an effort to update, improve and clarify the CMR:199:98 Page 16 of 17 existing contract, staff began negotiations for a new contract in February 1997. Results of the 1996 Refuse Fund Cost of Service Study confirm the belief that PASCO is below industry-standard compensation, when compared to profit levels.of other Santa Clara County cities. Based on the Cost of Service Study, the industry standard average profit level is more than two percent higher than PASCO currently receives. Staff spent several months negotiating fair compensation with PASCO, and considered the option of putting the contract out to bid as a measure to ensure the City was getting the best contract at the most reasonable price. However, staff believes it is likely that the lowest responsible bidder would be higher than the current level of compensation PASCO receives. In addition, staff concluded that the City would incur a substantial cost to put the contract out to bid, while the differences in contract terms between PASCO and the City were not significant. Staff will continue negotiating in earnest with the goal of securing a signed contract in 1998-99. POLICY IMPLICATIONS This report provides information on programs and issues thatmerit Council consideration during the 1998-99 budget process and in the near future. By reviewing these issues before budget hearings, Council will have additional insight as it makes policy decisions on how to allocate City resources. PREPARED BY: Gigi Harrington, Acting Assistant Director, Administrative Services DEPARTMENT HEAD: CITY MANAGER APPROVAL: CC: n/a Meliss~ Cavallo Acting Director i! inistrative S~i~s Flem~g ; / Manager (,..,~J CMR:199:98 Page 17 of 17