HomeMy WebLinkAbout1998-05-12 City Council (7)BUDGET
’98 - ’99 City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
ATTN:FINANCE COMMITTEE
FROM:CITY MANAGER.DEPARTMENT: COMMUNITY SERVICES
DATE:MAY 12, 1998 CMR: 233:98
SUBJECT:PROPOSED TEMPORARY RENTAL ASSISTANCE FOR THE
CHILDREN’S PRESCHOOL CENTER LOCATED AT THE
CUBBERLEY COMMUNITY CENTER AND APPROVAL OF AN
AMENDMENT TO THE SUBLEASE REDUCING THE RENT FOR SIX
MONTHS
REPORT IN BRIEF
During the past year, City staff has held discussions with the Children’s Preschool Center
(CPSC), a private nonprofit child care center located at the Cubbedey Community Center.
The discussions have focused on ways to reduce CPSC’s operating expenses to enable CPSC
to continue to provide high quality child care services in Palo Alto. This report details the
content of those discussions and recommends temporarily reducing CPSC’s rental rates by
$62,280 during Fiscal Year 1998-99, with the expectation that, by July 1999, CPSC will
form a parmership with Palo Alto Community Child Care (PACCC). ’
CMR:233:98 Page 1 of 4
RECOMMENDATION
Staffrecommends that Council authorize the Mayor to approve an amendment to the City’s
sublease agreement.with CPSC to provide a temporary rent reduction in the amount of
$311140 (Attachment A). The proposed rental assistance, totaling $62,280 during Fiscal
Year 1998-99, would be dependent upon CPSC and Palo Alto Community Child Care
(PACCC) achieving certain milestones toward the development of a partnership between the
two organizations.. In order for CPSC to receive the first half ($31,140) of the proposed
rental assistance, it would have to demonstrate by December 1998 that it had agreed to move
forward with a plan to develop a partnership with PACCC. If by July 1999 CPSC develops
a parmership with PACCC, then CPSC would receive the second half ($31,140) of the
proposed rental assistance.
BACKGROUND
The CPSC, located at Cubberley Community Center, provides child care to 150 children with
60 slots licensed for infants (children aged two months through two years), and 90 slots
licensed for preschoolers (children aged two years through five). CPSC, licensed by the
State of California and accredited through the National Association for the Education of
Young Children (NAEYC), provides 16.5 percent of the total full-time infant care available
in Palo Alto. This is an extremely valuable resource for the Palo Alto community, given the
City’s significant shortage of infant slots. Since infant care is the most costly care to
provide, many child care centers choose not to serve this population, focusing on the more
profitable preschool population. Out of a total of 51 licensed child care centers in Palo Alto,
only 13 centers (25 percent) provide full-time infant care. Of those centers that do provide
infant care, often few infant slots are offered to minimize losses. Currently, there are 375
full-time licensed infant slots in Palo Alto as compared with 1,391 full-time licensed
preschool slots.
DISCUSSION
On May 5, 1997, representatives from the CPSC met with the City’s Child Care Advisory
Committee (CCAC) to discuss its financial situation in light of a decreasing corporate
subsidy provided by its parent company, Roche Bioscience (Roche). The discussion focused
on the high cost of rent that CPSC pays to the City for the use of its space at theCubberley
Community Center ($47/child/month), as compared with the average rent for nonprofit child
care centers in Palo Alto ($1 l/child/month) (Attachment B).
During the next several months, CPSC continued to meet with the CCAC and City staff to
strategize ways for CPSC to reduce its costs while continuing to provide high quality infant
and preschool care in Palo Alto. Although CPSC worked to identify ways to decrease its
operating costs, it became clear that the amount of rent it paid to the City under the City’s
rent structure at Cubberley (nonprofit $.79!sq.ft) was quickly becoming unaffordable, given
decreasing subsidy from Roche. As City staff worked with CPSC to identify potential
solutions to CPSC’S financial challenges, the goal of keeping CPSC within Palo Alto’s city
limits remained an important one. The high cost of providing quality child care to infants
and preschoolers is reflected in CPSC’s 1997 budget (Attachment C), which indicates that
CMR:233:98 Page 2 of 4
almost 80 percent of CPSC’s total operating budget funds employees’ salaries and expenses.
Services and supplies account for another 12 percent of CPSC’s operating budget; the
remaining 8 percent covers rent and leases.
When Syntex was acquired by Roche in 1994, it greatly reduced the subsidy of the center’s
operations. Where Syntex contributed $300,000 or 20% of the center’s operating expenses,
plus approximately $50,000 in in-kind services, Roche has decreased the operating subsidy
to $165,000 in 1998 with much fewer in-kind services. In addition to adjusting to Roche’s
decreasing operating subsidy, CPSC has also had to absorb the cost of these in-kind services
which include: computer support, facility repairs, grounds maintenance, accounting,
auditing, budgeting support, payroll, banking, telephone, and printing.
As CPSC adjusts to the reduction in Roche’s subsidy in 1998, without a reduction in its
rental rates CPSC will be faced with the choice of either reducing its staffing levels or
moving out of Palo Alto. Reducing staffing levels would have a dramatic effect on the
quality of care currently provided by CPSC, as this measure would result in a higher staff
to child ratio, despite research that indicates that Staff to child ratio is one of the most
important quality indicators in child care. Given CPSC’s demonstrated commitment to
providing high quality child care, CPSC has already indicated that faced with such a choice,
CPSC would choose to relocate rather than reduce its quality of service.
The discussion between CPSC, CCAC, and stafflead to a recommendation by staff regarding
the formation of a partnership between CPSC and PACCC. Staff felt this would provide the
two organizations opportunities to combine certain resources and possibly reduce CPSC’s
expenses for fmancial and administrative services performed in the two organizations.
CPSC and staffhave developed a number of milestones that would lead to the formation of
a partnership (Attachment D).
The Board of Directors for CPSC and PACCC have been discussing the possibilities of a
CPSC/PACCC partnership, in an effort to reduce costs for CPSC and to improve the
provision of child care services in the community. While these discussions are under way,
staff is proposing a temporary reduction in rent to allow CPSC to continue to provide high
quality child care in Palo Alto. As indicated in Attachment D, CPSC has agreed to reach
a decision regarding the formation of a partnership with PACCC by December 31, 1998;
accordingly, staff recommends a rent reduction through December 1998 of $31,140.
Provided CPSC and PACCC agree to form a partnership, staff will return to Council in
December 1998 and would propose the continuation of the reduction through June 1999.
This will allow time for CPSC and PACCC to complete the implementation of the
partnership.
RESOURCE IMPACT
The impact of the rent reduction to the City’s General Fund for Fiscal Year 1998-99 would
be $31,140. If CPSC and PACCC agree to form a partnership by December 1998, staff
would return with a Budget Amendment Ordinance for $31,140 for the continuation of the
CMR:233i98 Page 3 of 4
reduced rent through the end of Fiscal Year 1998-99. As a result of the partnership
discussion, should CPSC and PACCC agree that CPSC would become a PACCC center, staff
would propose that CPSC would pay no rent to the City for the use of its space at the
Cubberley Community Center. This would be consistent with the City’s practice of not
charging rent as part of the City subsidy to PACCC for its child care centers that are located
on City property.
POLICY IMPLICATIONS
The Council-approved nonprofit rental rate of $.79/sq.ft for leased space at Cubberley
Community Center is reflected in the Municipal Fee Schedule for Fiscal Year 1997-98. The
proposed temporary reduction in the rental rate for CPSC would represent an exception to
City policy for nonprofit rental rates at Cubberley. Moreover, it may result in other requests
from tenants for reductions in rental rates. However, the proposed temporary reduction in
CPSC’s rental rate at Cubberley is consistent with the City’s Child Care Advisory
Committee’s (CCAC) mission to "maintain an adequate supply of quality child care services
in Palo Alto." Staff and the CCAC believe that a temporary reduction in CPSC’s rental rate
will achieve the desired outcome of retaining quality child care services, particularly infant
care, in Palo Alto.
ENVIRONMENTAL REVIEW
This program is not a project as defmed by the California Environmental Quality Act and is
not subject to CEQA requirements.
ATTACHMENTS
Attachment A:
Attachment B:
Attachment C:
Attachment D:
Amendment No. 2 to The Children’s Preschool Center Sublease
Non-Profit Child Care Rents in Palo Alto, April 1997
CPSC Financial Information
CPSC Milestones for Formation of Partnership with PACCC
PREPARED BY: Ilene Hertz, Manager of Child Care & Family Services
DEPARTMENT HEAD
PAUL THILTGEN
Director of Community Services
CITY MANAGER APPROVAL:
:98 Page 4 of 4
Attachment A
AMENDMENT NO. 2
TO THE CHILDREN’S PRE-SCHOOL CENTER, INC., SUBLEASE
THIS AMENDMENT NO. 2 ("Amendment 2") is made and entered into this day of
1998, by and between the City of Palo Alto, a municipal corporation, (CITY)
and The Children’s Pre-School Center, Inc., a California corporation (SUBTENANT).
RECITALS
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On September 1, 1989, the City of Palo Alto and Palo Alto Unified School District
(PAUSD) entered into a Lease and Covenant Not to Develop (Lease) of the former
Cubberley High School site at 4000 Middlefield Road (Cubberley Site) for the purpose
of developing the site into a community facility and subleasing a portion of it for
educational services and child day care services.
On May 1, 1997, CITY AND SUBTENANT entered into a (5) five year sublease (the
Sublease) for a portion of the former Cubberley High School site at 4000 Middlefield
Road, Palo Alto, California, to provide for their continued use of approximately 8,772
square feet of building and adjoining ground space for providing child care services.
On July 11, 1997, CITY AND SUBTENANT amended the Sublease to provide for a
reduction in rent to the nonprofit rental rate based upon Subtenant’s obtaining
nonprofit status.
Due to reductions in its corporate subsidy, Subtenant desires to reduce its expenses
to enable it to continue providing quality child care.
CITY AND SUBTENANT now desire to amend the Sublease to provide for a
temporary six month reduction in rent while Subtenant implements development of a
partnership with Palo Alto Community Child Care.
NOW THEREFORE, in consideration of the following covenants, terms, and
conditions, the parties hereto agree.
Section 1.Paragraph V (CONSIDERATION/RENT) of the Sublease is hereby amended
to include the following:
Effective July 1, 1998 through December 31, 1998, SUBTENANT shall pay to
CITY one thousand nine hundred and thirty seven dollars ($1,937.00) per
month due and payable in accordance with Clause VIII (RENT PAYMENT
Section 2.
PROCEDURE). Beginning January 1, 1999, the rent shall revert to the
previously established rent of Six Thousand Nine Hundred Thirty Dollars
($6,930.00) per month.
All provisions of the Sublease and Amendment 1 not amended herein, shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this AMENDMENT the day and year
first above written.
CITY:
CITY OF PALO ALTO (CITY)
SUBTENANT:
BY: BY:
Mayor
ATTEST:
BY:
City Clerk
APPROVED AS TO FORM:
By:
Sr. Assistant City Attorney
RECOMMENDED FOR APPROVAL:
By:
Manager, Real Property
By:
Director, Community Services
2
Non-Profit Child Care Rents in Palo
April, 1997
Alto
Attachment
PACCC Centers*
Ventura
Neighborhood Infantfi"oddler
Infant/Toddler Center
Sojourner Truth
College Terrace
Downtown Children’s Center
Stanford Centers*
Children’s Center of Stanford
Stanford Arboretum
S/month children S/child/month
$0 73 $0
$600 12 $50
$450 24 $19
$0 73 $0
$0 35 $0
$735 24 $31
$0 150
$0 150
Other
Whistle Stop (Veteran’s Hospital)* .$1 96
Mini Infant Center* (PACCC Affiliate)$825 12
The Learning Center*$1,100 35
YVVCA on Alma*$0 **
Covenant*$0 132
Ta ’Enlna "$0 135
Palo Alto Fdends $0 38
Parent’s Nursery School $0 80
Heffalump $350 24
Country Day $1,000 48
Ellen Thacher $500 27
Grace Lutheran $300 24
--~ Buttons ’N Bows $2,442 42
First Congregational Church $750 43
$0
$o
$69
$31
$0
$0
¯ $0$0
.$0
$15
$21
$19
$13
$58
.$17
CPSC with Non.Profit rate*
Average $16
$7,105 150 $47
* Provides infant care.
**This is a drop-in program for YWCA class participants. The number of children varies.
Attachment C
CPSC Financials
1997 Budget
Item
Income
Tuition
Corporate Subsidies
Total Income
Expenses
Employee Expenses
Facilities, leases
Services
Supplies & Other
Total Expenses
Profit/Loss
Palo Alto
$1,370,000
$185,000
$1,555,000
$1,232,000
$125,000
$119,000
$79,000
$1,555,000
$0
Evergreen
$254,000
$141,00.0
$395,000
$362,00Q ......
$0
$17,000
$16,000$395,000.’
$0
1998 Budget
Item
Income
Tuition
Corporate Subsidies
Interest
Registrations
Total Income
Expenses
Employee Expense~
Facilities, leases
Services
Supplies & Other
Total Expenses
Profit/Loss
Palo Alto
$1,417,000
$165,000
$ o,0oo
$4,000
$1,596,000
$1,283,000
$84,000
$177,000
$82,000
$1,626,000
(s~oo~
Evergreen
$283,000
$129,000
$0
$0
$412,00,,0 .....
$371,000
$0
$22,000
$19,ooo
$412,000
$0
The finances of the Palo Alto and Evergreen centers are separate.
September 24, 1997
Attachment D
CPSC Milestones for Formation of Partnership with PACCC
Date
December 1997
July 1998 -
December 1998
January 1999 -
December 1999
July, 1999-
December 1999
December, 1999-
June 2000
Milestones
CPSC and PACCC Board Committees formed to explore
partnership and monthly meetings schedule
Partnership plan agreed upon by Partnership Committee and
transition plan developed
CPSC and PACCC will have completed communicating with
their own memberships to develop consensus on the benefits of
the partnership.
Begin phased implementation of partnership
Complete implementation of partnership