HomeMy WebLinkAboutStaff Report 10727
City of Palo Alto (ID # 10727)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/3/2019
City of Palo Alto Page 1
Council Priority: Fiscal Sustainability
Summary Title: FY 2021 - FY 2030 Long Range Financial Forecast
Title: Review and recommend that Council Accept FY 2021 - FY 2030 Long
Range Financial Forecast and FY 2021 Budget Development Guidelines
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff recommends that the Finance Committee review and recommend that the City Council
accept the Fiscal Year 2021 to 2030 General Fund Long Range Financial Forecast (Base Case),
and the annual Budget Development Guiding Principles (Attachment C).
EXECUTIVE SUMMARY
The Fiscal Year (FY) 2021 to 2030 General Fund Long Range Financial Forecast (LRFF), marks the
beginning of the FY 2021 annual budget process. It includes projected General Fund financ ials
over the next ten years based on current City Council approved service levels as well as three
alternative financial models. The current Base Case financial forecast projects a surplus in the
General Fund of $1.1 million in FY 2021, followed by annual gaps where expenses outpace
forecasted revenue growth ranging from a deficit of $2.4 million in FY 2023, that tapers to $1.1
million in FY 2025, before reaching significant surpluses in the final years of the forecast. The
Base Case provides a preliminary forecast that can assist in gauging effects of major policy
interventions against a likely “status quo” version of the future. It assumes that the world
continues to change and unfold in line with current expectations.
City staff will continue to review and refine these projections to establish the FY 2021 Base
Budget and provide direction to Departments on the FY 2021 budget process. Based on this
Forecast, it is anticipated that guidance to prioritize spending will again be necessary to ensure
continued financial stability. More detailed guidelines to inform the development of the FY
2021 Budget are discussed at the end of this document (Attachment C).
Looking forward, the City continues to face several pressures from the 2014 Council approved
Infrastructure Plan (including a new public safety building) to the growing costs of pension
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benefits and labor costs due to the current labor market and cost of living around Palo Alto . The
policy direction from the City Council in November 2018 regarding proactively addressing the
pension obligations, including the direction to assume a lower discount rate in calculating
pension costs, is contained in the Base Case forecast model. If this direction were excluded
from the model, the General Fund would maintain surpluses throughout the forecast, as seen in
alternative scenario A. This scenario reflects the tough choices and the hard work of the City
over the past few years to structurally balance the budget. The City will continue to face critical
choices in order to balance future financial challenges and any unforeseen program needs or an
economic downturn, plus any addition proactive funding contributions to pension liabilities.
The review of this Long Range Financial Forecast and the planning that follows it will be critical
since the City is facing many requests and has identified several key programs that the
community would like to fund and complete.
Included in this report and subsequent documents are the following:
- Discussion of the current financial climate of the United States to the local economy of
the City of Palo Alto
- Base Case for the Long Range Financial Forecast including Revenue and Expense
modeling assumptions beginning in FY 2021
o Current financial status of the General Fund as of the FY 2020 Adopt ed Budget,
and a brief discussion of revised FY 2020 revenue estimates by category
- Three Alternative Scenarios including a) CalPERS’ Pension Rates, b) an economic
downturn (modeled beginning partway through FY 2021 of the forecast), and c) the
impact of an additional 1% in salary increases for salary (only beginning once bargaining
units past the term of current agreements)
- FY 2021 Budget Development Guidelines to inform the Budget process (Attachment C)
BACKGROUND
Annually the Office of Management and Budget produces a ten-year General Fund Long Range
Financial Forecast (LRFF). The LRFF reflects staff’s best estimates on the projected revenues and
expenditures over the next ten years based on the information that is currently available. It is
important to note that the LRFF is a planning document and is separate and distinct from the
development of the City’s annual Operating and Capital Budgets. There are assumptions and
parameters modeled in the LRFF, but these assumptions are revised and refined as more
information becomes available through the budget development process.
The LRFF contains a comprehensive review of the costs to provide current City Council
approved service levels, including current contracts, updates to salaries and benefits based on
the current population of employees, and the current labor contracts in effect. Important to
note in this LRFF is the ongoing budget adjustments that were approved in the FY 2020
Adopted Budget. Many approved budget adjustments assumed either a phase in per iod or the
identification of the ongoing reduction later; this LRFF assumes that those adjustments
materialized as planned in the FY 2020 Adopted Budget. The LRFF also reviews the status of the
current economy and various economically sensitive revenues such as Sales Tax, Documentary
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Transfer Tax, Property Tax, and Transient Occupancy Tax to explain key trends in those areas.
This Forecast allows staff and City Council to look at both the short -term and long-term
financial status of current service levels in the General Fund to inform daily policy decisions and
evaluate long-term goals and ongoing challenges.
Since the great recession, the City has approved many strategies to mitigate rising costs,
especially the rising increase in salaries and benefits. Strategies that have been used include: a
second pension tier, employees sharing in health plan cost increases, and shifting from
employer-paid member contributions to employee pick-up of a portion of the employer share
for pensions. Since 2016, rounds of negotiations with bargaining units have included employees
not only paying their full portion of CalPERS contributions but also beginning a cost -sharing
program wherein employees contribute a certain percentage of the City’s required employer
pension contribution. These strategies have helped to create the financial capacity to invest
proactively in the City’s Pension Trust, supporting the City’s commitments to employees while
ensuring fiscal sustainability.
The City Council continues to invest in the community and approved significant improvements
in June 2014 with the Infrastructure Plan (IP) in the original amount of $125.8 million. However,
the nine projects identified in the plan are estimated to cost substantially more due to updated
designs, rising construction costs, and minimum and prevailing wage requirements. In addition,
a tenth project was approved by the Council to be added to the IP in the FY 2020 Adopted
Budget. These changes have led to an updated cost of approximately $280.6 million for the IP
projects. Capital projects are one example of known items that are not fully included in this
Forecast. Both the capital cost to build and the operating and maintenance costs once projects
are completed and the new facilities are actively used, are estimated with the most current
information available. These estimates will be refined during the budget process as more
information becomes available and the projects are closer to award and completion.
Palo Alto serves a diverse community with a broad range of unique services that adds to the
significant complexity of managing a balanced budget and healthy long-range financial outlook.
The demands and conflicts emerging from our vibrant economy have heightened the inten sity
of the “Palo Alto Process”. New analyses and data generation demands require deep dives into
complex problem-solving within an engaged public process across a wide range of issues. These
forecast figures present staff with the challenge of prioritizing the growing needs of the City
with the long-term fiscal sustainability of these needs.
The Economy
National, state, regional and local economic indicators are mixed. Unemployment remains low,
job growth is slowing down, and the trade war is negatively showing up in the economic data.
U.S. economy’s national gross domestic product (GDP) grew by an annualized 1.9 percent in the
third (calendar) quarter of 2019, with the next 12-month GDP growth outlook projected to be
less than 2 percent. The national consumer price index (CPI), as of September 2019, has grown
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1.7 percent. Consumer consumption, government spending and exports contributed to the GDP
increase, offset by declines in business investments and imports. Consumer spending is
expected to slow as real income and job growth further slowdown in 2020. The following
graphs depict the GDP and unemployment trends over the past few years.
Table 1: U.S. Gross Domestic Product (GDP) Growth Rate
The nation continues to operate at what is considered “full employment” levels of 3.6 percent
unemployment as of October 2019, compared to 3.5 percent the previous month. As of the end
of September, California maintained 4.0 percent unemployment but the unemployment rate
for the Bay Area region was lower at 2.2 percent . These levels have not occurred in almost 20
years, last appearing at the height of the dot.com boom. Bay Area job growth has been led by
the Peninsula and for the past several years, the local economy continues to outpace the
unemployment rate at the state and national level. Compared to other regions in California, the
Bay Area experienced the second strongest job growth at 2.1 percent in 2018 and is forecasted
to have the strongest growth of 2.2 percent in 2019.
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Table 2: U.S. Unemployment Rate
It is anticipated that the national job market may slow and the make-up of the market may
change as immigration decelerates and labor participation from the Baby-Boomer generation
declines. According to the Center for Continuing Study of the California Economy (CCSCE),
trends indicate stable job growth in the Bay Area. However, cities are faced with serious
challenges that can impact job growth and population, specifically housing supply and
affordability and transportation. Immigration and housing policies are important factors to
supporting future job growth at the national, state, and local level.
Economically sensitive revenue sources such as transient occupancy tax and documentary
transfer tax are showing a decline. In spite of this decline, the strong foundations of the local
economy – stable housing market, diverse and favorable mix of business segments lead by
professional and technology industries, and academic and medical properties – somewhat
dampen the financial impact of a severe economic downturn.
DISCUSSION
Included in this section are both the Base Case and alternative scenarios. As with all forecasts,
there is uncertainty regarding the revenue and expenditure estimates contained in this
document. For example, General Fund revenues may exceed or fall below expectations base d
on changes in economic or non-economic conditions. Various cost elements can also vary from
year to year.
Base Case
The following table displays the projected General Fund revenues and expenditures over the
next decade and the total cumulative surplus. In addition to the cumulative surplus, the
incremental surplus or shortfall (assuming each preceding surplus or shortfall is addressed
completely with ongoing solutions in the year it appears) for each year of the forecast is
included. Because it is the City’s goal to remain in balance on an ongoing basis, the incremental
figure is useful in that it shows the additional surplus and/or shortfall attributed to a particular
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fiscal year. To the extent that a shortfall is not resolved, or a surplus is not expe nded on an
ongoing basis, it is important to understand that the remaining budget gap or surplus will carry
over to the following year. The hard work of the City in FY 2019 and FY 2020 to proactively
balance the budget is seen in the surplus reflected in FY 2021, and in the decreased deficit seen
in the middle of the forecast when compared to prior years’ forecasts.
Although a small surplus is contemplated in FY 2021, this is not sustained throughout the
forecast. The Forecast anticipates gaps ranging from $2.4 million to $1.1 million in the middle of
the forecast with surpluses beginning in FY 2026 at $2.3 million and increasing through the final
years of the forecast. The need to proactively plan for a structurally balanced budget on an
ongoing basis will inform the development of the FY 2021 Budget.
TABLE 3: FY 2021 – 2030 Long Range Financial Forecast
Base Case
Adopted
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Total Revenue $232,101 $241,527 $248,358 $255,808 $263,083 $271,318 $280,028 $289,307 $299,625 $310,488 $321,728
4.1%2.8%3.0%2.8%3.1%3.2%3.3%3.6%3.6%3.6%
Total Expenditures $230,809 $240,447 $250,168 $258,194 $265,396 $272,465 $277,743 $283,366 $291,169 $298,276 $304,382
4.2%4.0%3.2%2.8%2.7%1.9%2.0%2.8%2.4%2.0%
Net One-Time Surplus/(Gap)$1,292 $1,080 ($1,810)($2,386)($2,313)($1,147)$2,284 $5,941 $8,457 $12,212 $17,347
Cumulative Net Operating Margin (One-Time)$39,664
Net Operating Margin $1,080 ($2,890)($576)$73 $1,166 $3,431 $3,657 $2,516 $3,755 $5,135
Cumulative Net Operating Margin $17,347
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
TABLE 4: FY 2021 – 2030 Long Range Financial Forecast Net Operating Margin
Base Case
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Revenue Assumptions
Overall, economic indicators are providing mixed signals. While the overall U.S. economy
continues to be strong, the growth rate has been weaker. The Bay Area economy continues to
outperform the state and the nation with strong foreign trade, but this is being negatively
impacted by the continuing trade disputes. These disputes and the global economic malaise
pose significant challenges to conducting a long-term revenue forecast. Other challenges
include an expected slowdown in Bay Area job growth and potential impacts to the local
housing market. Despite these challenges, healthy and robust tax revenues for the City are
anticipated throughout the term of the forecast in a cautiously optimistic modeling. Tax
revenues constitute slightly more than 60 percent of General Fund resources. In FY 2021, the
forecast projects a $9.8 million, or 7.0 percent, tax revenue increase compared to the levels in
the Adopted FY 2020 Budget. These tax increases are partially offset by reductions in other
revenue categories. In total, revenues are anticipated to increase by $9.4 million, from $232.1
included in the FY 2020 Adopted Budget to $241.5 million in FY 2021. The changes by revenue
category, as well as the current expected FY 2020 status of many of the categories, are
discussed in greater detail below.
TABLE 5: FY 2021 – 2030 General Fund Revenue Forecast
Base Case
Revenue & Other Sources Adopted 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
CAGR 10
Years
Sales Taxes $34,346 $37,595 $39,149 $40,670 $42,169 $43,682 $45,162 $46,701 $48,326 $50,075 $51,842 4.2%
Property Taxes 48,634 52,863 55,034 57,061 59,303 62,393 66,193 70,344 74,952 80,102 85,668 5.8%
Transient Occupancy Tax- General Purpose 17,534 16,896 17,344 17,838 18,356 18,906 19,494 20,089 20,716 21,422 22,251 2.4%
Transient Occupancy Tax- Infrastructure 11,774 14,576 14,963 15,389 15,835 16,310 16,818 17,331 17,871 18,481 19,196 5.0%
Documentary Transfer Tax 8,369 7,952 8,189 8,428 8,666 8,957 9,264 9,590 9,936 10,297 10,694 2.5%
Utility Users Tax 17,581 18,199 18,962 19,804 20,354 20,859 21,465 22,156 22,815 23,222 23,626 3.0%
Other Taxes and Fines 2,032 1,989 1,989 1,989 1,989 1,989 1,989 1,989 1,989 1,989 1,989 -0.2%
Subtotal: Taxes 140,270 150,071 155,630 161,180 166,673 173,097 180,386 188,200 196,605 205,589 215,266 4.4%
Charges for Services 21,834 21,180 21,637 21,988 22,290 22,578 22,723 22,861 23,151 23,423 23,633 0.8%
Stanford Fire & Dispatch Services 7,885 8,127 8,466 8,758 9,005 9,233 9,396 9,587 9,819 10,038 10,176 2.6%
Permits and Licenses 9,076 8,990 8,997 9,003 9,008 9,012 9,015 9,017 9,021 9,026 9,029 -0.1%
Return on Investments 1,388 1,850 1,822 1,844 1,869 1,896 1,950 2,006 2,065 2,127 2,196 4.7%
Rental Income 16,399 15,590 15,088 15,480 15,884 16,300 16,728 17,169 17,623 18,091 18,573 1.3%
From Other Agencies 980 520 520 520 520 520 520 520 520 520 520 -6.1%
Charges to Other Funds 10,908 11,577 11,948 12,290 12,586 12,865 12,962 13,031 13,320 13,586 13,628 2.3%
Other Revenue 2,362 2,259 2,260 2,260 2,261 2,262 2,263 2,264 2,264 2,265 2,266 -0.4%
Total Non-Tax Revenue 70,832 70,093 70,737 72,143 73,423 74,666 75,555 76,454 77,784 79,076 80,022 1.2%
Operating Transfers-In 20,999 21,363 21,990 22,485 22,988 23,555 24,087 24,652 25,236 25,823 26,440 2.3%
BSR Contribution (One-Time)
Golf Operating Loss Reserve Liquidation
Total Source of Funds $232,101 $241,527 $248,358 $255,808 $263,083 $271,318 $280,028 $289,307 $299,625 $310,488 $321,728 3.3%
This table is available in a larger format in Attachment A.
Sales Tax
The sales tax revenue forecast is driven by strong personal income and spending growth and a
larger share of consumer spending online. New and innovative retail formats have helped
revive physical retail presence. Stores that were once strictly online are now finding physical
presence within communities. As the nation transitions from a shopping center country to
online sales, a surge in online retail sales will partially displace tax revenue from traditional
industry segments to state and county pools. Based on activity and receipts for the recent
quarter close, it is estimated that sales tax revenue will exceed the FY 2020 Adopted Budget by
$1.6 million, or 4.6 percent, and will generate a total of $35.9 million by year-end of FY 2020. In
FY 2021, sales tax is expected increase to $37.4 million, or 4.2 percent, above the revised FY
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2020 forecast. This revenue category is currently tracking above budgeted levels in FY 2020 and
it is anticipated that appropriate adjustments will be brought forward for the FY 2020 Budget
through the mid-year budget process. Segments contributing to this growth include
restaurants, office equipment, and auto sales and leases. Department and furniture/appliance
sales experienced declines. The FY 2021 – FY 2030 LRFF anticipates a compounded annual
growth rate (CAGR) of 4.2 percent through the term of the forecast, with FY 2021’s significant
growth over FY 2020’s Adopted Budget level tapering down through the out-years.
Property Tax
Property tax revenue is the General Fund’s largest revenue source and represents 21.9 percent
of total revenues. Over the last three-year period, property tax revenue has grown 20.2
percent, from $39.4 million in FY 2017 to $47.3 million in FY 2019 due to higher assessed
values. These higher assessed values reflect continued robust commercial and residential real
estate markets. In addition, fiscal years 2017, 2018, and 2019 included receipts of $0.7 million,
$1.4 million, and $2.7 million, respectively, for excess Educational Revenue Augmentation Fund
(ERAF) distributions from the County of Santa Clara. ERAF is the fund used to collect and
disburse property taxes that are shifted to/from cities, the County, and special districts prior to
their reallocation to K-14 school agencies. When the state shifts more local property tax than
required to support schools these funds are returned and known as excess ERAF. As a result of
the volatility of ERAF, it is not considered a permanent local revenue source.
The FY 2020 Adopted Budget assumes $48.6 million in total property tax and is expected to
grow to $50.5 million, a $1.9 million increase, by year-end which includes $3.8 million in Excess
ERAF. This trend, with the exception of Excess ERAF, continues in FY 2021, where property tax
revenue is expected to increase by an additional $2.3 million, or 4.5 percent, to total $52.8
million. Due to the uncertainties around the continued receipt of Excess ERAF at the current
levels, this revenue sources is being eliminated from the forecast over the next four years and is
completed eliminated in FY 2024. This results in lower forecasted growth rates between FY
2022 and FY 2025.
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TABLE 6: City of Palo Alto Property Tax Actuals and Forecast through FY 20 30
City staff meets with the County quarterly to obtain the latest assessed valuation and
assessment roll data used to forecast of property tax revenues. The above graph disp lays ten
years of actual revenue and 11 years of forecast, including the year-end projection for FY 2020.
The forecast assumes the anticipated cooling of the housing market and an economic downturn
that is spread over the length of the 10-year forecast. Over the 21-year period displayed, there
has been some unpredictability in the revenue growth rate, from a negative 1.1 percent in FY
2011 to a high of 11.5 percent in FY 2015.
Meeting the property tax revenue forecast is contingent on maintaining property turn over and
the median sales price. Data for the first four months of FY 2020 show property sales volume is
14.3 percent lower than the same period for FY 2019 while the price is 7.4 percent higher.
According to Zillow, as of September 2019, residential median sales price in Palo Alto is $2.8
million, a decrease of 11.9 percent over the prior year, and lower than the peak seen in June
2018 when the median price was $3.3 million.
Transient Occupancy Tax (TOT)
In FY 2020, TOT revenue is expected to reach $27.2 million. This is $1.5 million, or 6.0 percent,
above the FY 2019 audited revenue amount which includes the April 1, 2019 rate increase of
1.5 percent to TOT. That rate increase resulted in a new total TOT rate of 15.5 percent.
Compared to the FY 2020 Adopted Budget, the FY 2020 estimate represents a decrease of 7.2
percent, or $2.1 million. Starting with FY 2019, 4th quarter, the base TOT decreased by 5.4
percent with average occupancy declining by 1.8 percent but average room rates increasing by
2.6 percent. This tread continued in the first quarter of FY 2020 with the base TOT decline of
4.8 percent. If these trends continue, a downward mid-year budget adjustment is expected.
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For the first quarter of FY 2020, daily average room rates increase by 1.9 percent from $275.83
per day to $282.79 per day while occupancy rate declined by 4.8 percent from 83.8 percent to
79.8 percent. In the Northern California regions, for September 2019, a similar trend occurred
for occupancy and, for daily room rates, half the region had increases and half had declines. The
below table compares average room rates and occupancy percentage in September 2019 for
northern California regions and the City of Palo Alto.
TABLE 7: Northern California Hotel – Motel Business Trends as of September 2019
Month of September 2019
Avg. Daily Room Rate ($) Occupancy Percentage (%)
2019 ($) 2018 ($) Chg. 2019 2018 Chg.
San Francisco $326.79 $332.33 -1.7% 88.8% 88.9% -0.2%
San Francisco Airport 219.28 229.72 -4.5% 87.9% 88.9% -1.1%
San Jose/Peninsula 237.81 231.84 2.6% 79.8% 83.7% -4.6%
Oakland/East Bay 182.23 184.22 -1.1% 82.0% 83.7% -2.0%
Monterey/Carmel 363.44 332.69 9.2% 82.8% 83.4% -0.8%
Central Valley 106.26 104.62 1.6% 77.2% 77.0% 0.3%
Sacramento 142.72 141.08 1.2% 80.3% 80.7% -0.6%
Marin County 207.73 215.13 -3.4% 79.3% 87.9% -9.8%
Napa County 326.59 320.93 1.8% 82.6% 80.2% 3.0%
Sonoma County 230.80 233.73 -1.3% 85.3% 85.9% -0.6%
Other Northern California 123.68 120.54 2.6% 79.0% 78.4% 0.8%
Overall Average 227.21 226.67 0.2% 82.7% 83.9% -1.4%
City of Palo Alto (September only) 298.77 287.54 3.9% 80.23% 84.2% -4.7%
Table source: TRENDS® in the Hotel Industry Northern California, compiled and produced by CBRE Hotels,
Consulting
TOT realized double digit growth in FYs 2015 and 2016 due the 2 percent rate increase (from 12
percent to 14 percent tax rate), the recovering economy, and the addition of the three large
hotels. Since then, TOT revenue has moderated , however, with 1.5 percent rate increase (from
14 percent to 15.5 percent tax rate) partially offset by declining occupancy percentage there is
a healthy growth that is anticipated for FY 2020 and beyond. In addition, in FY 2021, two new
Marriot hotels with approximately 300 rooms are expected to open. Primarily as a result of
these two new hotels, FY 2021 is forecasted to be $4.3 million, or 15.8 percent, above the
current FY 2020 estimate, totaling $31.5 million.
Utility User’s Tax (UUT)
The UUT is levied on electric, gas, and water consumption, as well as on telephone usage. In
total, FY 2020 revenues were budgeted at $17.6 million and are currently on target to be
realized before rising to $18.2 million in FY 2021.
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UUT telephone revenues rose from $6.0 million in FY 2018 to $6.6 million in FY 2019. This
revenue has realized high single digit growth and is forecasted to reach $7.1 million in FY 2020.
UUT revenue from Utility sales came in at $9.8 million in FY 2019 and is anticipated to reach
nearly $10.4 million in FY 2020. Rate increases of 8.0 percent for electric, 5.0 percent for gas,
and 1.0 percent for water, consistent with the financial plans discussed in Spring 2019 with
Finance Committee and City Council, are the primary drivers of this revenue growth. This
revenue is expected to rise to $10.9 million in FY 2021.
Documentary Transfer Tax (DTT)
In FY 2015, DTT peaked at $10.1 million. This milestone was a consequence of several large
commercial transactions on Page Mill Road and in the Stanford Research Park. Since that time,
DTT has significantly moderated, with $6.9 million earned in FY 2019. Though this revenue from
July through October in FY 2019 is running nearly 7.4 percent above the same period in FY
2018, staff anticipates modifying the FY 2020 Adopted Budget at midyear from $8.4 million
down to $7.7 million. For FY 2021, revenues are expected be slightly above the FY 2020
projected levels at $7.9 million.
As in past years, this revenue source is challenging to forecast since it is highly dependent on
sales volume and the mix of commercial and residential sales. The number of transactions
through October 2019 (186) are running lower than those through October 2018 (217);
however, the total value of these transactions has increased by 7.4 percent. Though the Palo
Alto housing market remains strong, as discussed in the Property Taxes section, residential
median sales price in Palo Alto has declined. Although pressure on the housing market and local
economy has driven down property turnover, there is enough of a baseline trend in the Palo
Alto housing market to signal a stable 3.0 to 3.9 percent growth in revenue over the length of
this forecast.
Rental Income
Rental Income of $15.6 million primarily reflects rent paid to the General Fund from the City’s
Enterprise Funds and the Cubberley Community Center. There is a slight decrease in rental
income from FY 2020 to FY 2021 that continues in FY 2022; this decrease represents the phase -
out of payments from the Refuse Fund to the General Fund associated with the Landfill. Stead y
growth after that reflects a 2.6 percent increase for this area partially offset by minor
adjustments throughout the forecast. The annual increase for rental revenue is based on a
review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay
Area from the August to August period. It is expected that revenues will be reviewed and
revised subsequent to this forecast based on updated information, typically the December to
December change in the CCPI. The City is also examining the rent it is currently charging to the
various enterprise and special revenue funds and will incorporate adjustments through the
budget process as appropriate.
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Charges for Services and Permits and Licenses
Revenues in the ‘Charges for Services’ and th e ‘Permits and Licenses’ categories are anticipated
to be $21.2 million and $8.9 million, respectively, in Fiscal Year 2021. These amounts are
slightly lower than the Fiscal Year 2020 Adopted Budget levels for each category primarily due
to the reduction of revenue related to Animal Shelter services that were previously provided by
the Police Department but are now provided by the City’s non-profit partner Pets-in-Need.
These budget categories also include revenues associated with the Golf Course and after
analyzing prior year actuals, some of the Golf Course revenue estimates have been reduced.
Associated expenses for the Golf Course have also been reduced and are accounted for in the
Contracts Services section of this document. The revenue estimates in the se categories are
primarily driven by the cost of staff to provide services to the community; therefore, revenues
are impacted by personal service costs. Staff analyzed prior year revenue collections in these
categories and determined that actual collections were somewhat below budgeted revenue.
Revenue estimates in these categories have therefore been kept generally consistent over the
forecast period. One exception to this was for Development Services activities and related
revenue. Development Services has been modeled as cost neutral through the forecast, which
accounts for the fluctuations in the growth rate over the forecast period, because the average
increase in general salaries and benefits for Development Services staff is changing over the
ten-year forecast. Staff will analyze municipal fee revenue activity as part of the FY 2021 Budget
development process and bring forward adjustments as appropriate.
Stanford Fire and Dispatch Services
The City has two separate agreements with Stanford University to provide its response and
emergency dispatch services. The City and Stanford entered into a new agreement effective
July 1, 2018 outlining both terms for service levels and a new cost allocation methodology as
the baseline for the contract costs. This contract extends through June 30, 2023 with a renewal
through 2028 unless otherwise terminated.
The contract included a new staffing deployment model for suppression and medical services,
which was approved by the City Council in October 2017 and deployed in January 2018. This
forecast assumes this new staffing model and, in accordance with the contract, increases to this
revenue from Stanford have been aligned with the year-over-year growth of the operating
expenses in the Fire Department over the forecast period. Similarly, increases to the revenue
received for dispatching services have been aligned with the year-over-year growth of the
operating expenses in the Technical Services Division of the Police Department through which
these services are provided.
Charges to Other Funds
The main source of revenues in this category is General Fund administrative cost allocation plan
charges to the Enterprise and Internal Service Funds. Internal support departments such as
Administrative Services, Human Resources, and Council Appointed Offices provide services to
Enterprise and Internal Service Funds. The costs for these services are recovered through the
administrative cost allocation plan charges. The FY 2021 estimate for Charges to Other Funds of
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$11.6 million reflects growth of 6.1 percent from the FY 2020 Adopted Budget of $10.9 million;
this is primarily attributable to year over year increases in costs for salary and benefits and
allocated charges in the Internal Support Departments. After the first year of FY 2021, growth is
more moderate ranging from 0.5 percent up to 3.2 percent annual increases throughout the
forecast period.
Return on Investment
The return on investment category reflects the interest earnings on the City’s investment
portfolio. This category is a combination of past investments, new investments at current
market rates, and available investable cash which fluctuates seasonally and annually. Staff had
anticipated the decline in interest rate would occur sooner and at a faster rate than it has
occurred, so the City experienced a higher than anticipated return on investment s. In addition,
prudent investments further resulted in higher investment yields and earnings.
The average portfolio rate of return for FY 2019 was 2.30 percent, in FY 2020 first quarter it was
2.35 percent and as of mid-November it’s 2.32 percent. The revised FY 2020 interest earning
forecast of $1.90 million is $0.52 million higher than the adopted budgeted of $1.39 million. In
FY 2021, the forecast is $1.85 million which reflects the declining interest rate environment.
Since the City’s portfolio is laddered over a ten-year period, in a given year, around 10 percent
to 16 percent of investments mature that is typically reinvested at the current market rates . As
a result, the City’s portfolio yield and earnings decline more gradually than the market rate
declines.
Operating Transfers-in
Operating Transfers-in materialize as expenses in other funds throughout the City and as a
revenue in the General Fund. This budget category includes the equity transfer from the Electric
and Gas funds. In accordance with a methodology approved by the City Council in June 2009,
the equity transfer is calculated by applying a rate of return on the capital asset base of the
Electric and Gas funds. This rate of return is based on PG&E's rate of return on equity as
approved by the California Public Utilities Commission (CPUC). Using the Utility Department’s
projections from the Electric and Gas Five Year Financial Forecasts, as approved by the City
Council in spring 2019, the equity transfer from the Electric and Gas funds are projected to
increase over the course of this forecast from $21.4 million in FY 2021 to $26.4 million in FY
2030. Overall, the Operating Transfers-in are estimated to increase slightly to $21.4 million in
FY 2021, a 1.7 percent increase from the FY 2020 Adopted Budget level of $21.0 million.
City of Palo Alto Page 14
Expense Assumptions
As part of developing the FY 2021 Forecast expenditure budget, the General Fund expense
categories have been adjusted by removing FY 2020 Adopted Budget one-time expenses and
updating major cost elements such as salary and benefits costs. The tables below display the
expense forecast and when compared to the FY 2020 Adopted Budget, growth of 4.1 percent is
expected in FY 2021, with growth ranging from 1.9 percent to 4.0 percent throughout the ten -
year forecast.
TABLE 8: FY 2021 – 2030 General Fund Expense Forecast
Base Case
Expenditures & Other Uses
Adopted
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
CAGR
10
Years
Salary 75,506$ 78,289$ 81,100$ 83,509$ 85,774$ 88,007$ 90,051$ 91,973$ 93,882$ 95,790$ 97,702$ 2.6%
Benefits 59,042 62,695 65,921 69,089 71,631 73,917 74,743 75,642 78,340 80,726 82,123 3.4%
Subtotal: Salary & Benefits 134,548 140,985 147,022 152,598 157,405 161,924 164,794 167,615 172,222 176,515 179,825 2.9%
Contract Services 23,429 23,832 24,355 24,998 25,607 26,224 26,862 27,520 28,188 28,878 29,589 2.4%
Supplies & Material 3,365 3,343 3,432 3,524 3,619 3,715 3,815 3,917 4,022 4,130 4,240 2.3%
General Expense 12,089 11,267 12,509 12,676 12,818 13,071 13,090 13,413 14,079 14,356 14,535 1.9%
Rents & Leases 1,734 1,762 1,777 1,793 1,809 1,825 1,843 1,860 1,878 1,897 1,916 1.0%
Facilities & Equipment 771 516 530 544 559 574 589 605 621 638 655 -1.6%
Allocated Charges 20,889 22,065 22,551 23,120 23,670 24,197 24,755 25,348 25,947 26,425 26,861 2.5%
Committed Additions 223 674 708 728 764 787 825 849 890 916
Total Non Sal/Ben Before Transfers 62,277 63,009 65,828 67,363 68,811 70,372 71,740 73,489 75,584 77,215 78,712 2.4%
Operating Transfers-Out 5,023 4,317 4,411 4,508 4,607 4,708 4,817 4,923 5,037 5,154 5,268 0.5%
Transfer to Infrastructure - Base/Cubb 17,187 17,561 17,945 18,337 18,739 19,152 19,575 20,009 20,455 20,912 21,381 2.2%
Transfer to Infrastructure - TOT 11,774 14,576 14,963 15,389 15,835 16,310 16,818 17,331 17,871 18,481 19,196 5.0%
Total Use of Funds $230,809 $240,447 $250,168 $258,194 $265,396 $272,465 $277,743 $283,366 $291,169 $298,276 $304,382 2.8%
This table is available in a larger format in Attachment B.
Salary and Benefits
Table 8 above (also included in Attachment B) depicts the estimated General Fund salaries and
benefits costs for the next decade. Over the forecast period, the salaries and benefits costs
remain relatively consistent in comparison to the total expenditure budget. In FY 2021, salaries
and benefits costs represent approximately 60 percent of the General Fund budget
expenditures and remain near that level of General Fund budget expenditures through FY 2030.
Salary
Consistent with the City’s salary budget methodology for recent budgets, positions are
budgeted at the actual rate of pay of employees including benefits as of Fall 2019. Then, by
position, salary costs are updated in accordance with applicable Memorandum of Agreements
(MOA) between the City and its labor groups and the Management and Professional Personnel
and Council Appointees Compensation Plan(s). In 2018, the City completed the bargaining
process and reached agreements with all seven represented units1; MOA’s for Police and Fire
1 Represented units include the International Association of Fire Fighters (IAFF), Palo Alto Fire Chiefs’ Association
(PAFCA), Palo Alto Peace Officers’ Association (PAPOA), Palo Alto Police Management Association (PAPMA),
Service Employees International Union (SEIU), Utilities Management Professional Association of Palo Alto
(UMPAPA), and Management and Professional Personnel (MGMT). The most recent agreements can be found
here: www.cityofpaloalto.org/gov/depts/human_resources/labor_relations/default.asp
City of Palo Alto Page 15
personnel continue through June 30, 2021, SEIU through December 31, 2021, and UMPAPA and
MGMT for a one-year period through June 30, 2020.
The Forecast assumes step increases for employees in applicable positions, including SEIU, IAFF,
and PAPOA and assumes merit increases for Management and Professional employees.
Additional general wage adjustments of 2.0 percent are included in each year of the Forecast
for all employees in years when there is not a MOA in effect. This is consistent with prior
Council direction to use the 2.0 percent increase as a forecasting model, not as a commitment
to future negotiations. If agreements are negotiated with salary increases greater than
presumed in the forecast, then expenses will increase accordingly.
Benefits
Pension: The Forecast includes pension rates from CalPERS as of the June 30, 2018 valuation
(CMR 10641) for the City’s Miscellaneous and Safety plans for the first six years of the Forecast
and projections from the City’s actuarial consultant (Bartel Associates) consistent with the
CalPERS methodology for the final years of the Forecast. CalPERS has lowered the discount rate
from 7.5 percent to 7.0 percent over three years which has resulted in significant impa cts to the
City’s pension liability. For Fiscal Year 2021, the final year of this three-year phase in, CalPERS
used a 7.0 percent discount rate.
CalPERS determines the City’s total contributions for a given Fiscal Year as the sum of two
factors: Normal Cost (NC) and Unfunded Accrued Liability (UAL). Together the NC and the UAL
expressed as a percentage of payroll is the ‘blended rate’ and is used to represent total costs in
the discussion below
The Normal Cost (NC) is expressed as a percentage of payroll and is paid as part of the payroll
reporting process of active employees. Commonly referred to as the ‘pay-go’ cost, the NC is
variable and increases or decreases directly with the salary levels of the City. It represents the
necessary funding for the City to pay for employees presuming that CalPERS makes its stated
investment returns.
In a year that CalPERS does not make its stated investment return, a loss in assets is realized.
The accumulation of these losses represents the City’s Unfunded Accrued Liability (UAL), which
is calculated by CalPERS and is commonly referred to as the ‘catch -up’ cost. The UAL is
expressed as a dollar amount and is calculated over an amortized period with defined annual
payments, similar to a mortgage. The contributions for UAL are billed as a flat dollar amount as
opposed to a percentage of payroll due to potential funding issues that could arise from a
declining payroll or number of active members in the plan. However, CalPERS provides an
estimated percentage of payroll for UAL to allow a consistent comparison of total costs.
For the miscellaneous plan, the projected blended pension contribution rate will increase from
the current 35.6 percent in FY 2020 to 38.4 percent in FY 2021. This includes the continued
phase-in of the lower discount rate, which will be completed in FY 2021. The rate steadily
City of Palo Alto Page 16
increases to a peak of 42.8 percent in FY 2025 before tapering down over a two -year period to
37.0 percent in FY 2027. This projection is consistent with actuarial assessments do ne by Bartel
Associates which anticipated a slight temporary decline in pension costs associated with various
amortization factors including the pay-down of previously sustained losses and benefit
improvements offered to employees. This decline in pension costs in FY 2026 is a significant
factor of the surplus projected in the Base Case beginning in FY 2026. It also accounts for
dampened impacts in other areas that are impacted by salary and benefits, such as charges to
other funds.
The Safety plan follows a more consistent trend line with steady increases throughout the years
of the forecast. In the first year, the safety plan is projected to grow to 65.33 percent of payroll
from the current 59.4 percent of payroll and increases steadily to reach a level o f 79.5 percent
in FY 2030. As with the miscellaneous plan, this initial growth is primarily driven by the phase-in
of the 7.0 percent discount rate instead of the previous 7.5 percent discount rate.
The table below shows CalPERS’ projected FY 2020 – FY 2030 blended retirement rates. As
discussed above, it should be noted that the numbers in FY 2027 are not provided by CalPERS
(they only provide a forecast through FY 2026) but have been calculated using a methodology
consistent with CalPERS actuarial analysis. These rates are before the employee pick-ups of the
employer share are factored in; that pick-up materializes as savings in the City’s pension costs.
The forecast does presume that, consistent with applicable MOAs, employees in the
miscellaneous plan will pick up 1% of the employer pension cost and that safety plan members
will pick up percentages between 3% to 4% depending on the year and the unit.
TABLE 9: CalPERS’ Projected FY 2020-2030 Blended Retirement Rates
(percentage of payroll)
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
Miscellaneous 35.6 38.4 40.3 41.7 42.3 42.8 40.2 37.0 37.7 38.0 38.5
Safety 59.4 65.3 69.4 72.7 74.4 75.6 75.6 76.6 77.6 78.5 79.5
In addition to the required contribution to CalPERS, the forecast includes supplemental
contributions to the City’s irrevocable Section 115 Pension Trust (“Pension Trust Fund”). In
January 2017 the City council authorized the establishment of a Pension Trust Fund with the
Public Agency Retirement Service (PARS) (CMR 7553). To date, more than $22.0 million in
principal contributions has been made into the PARS Trust. Contributions were initially made on
an ad-hoc basis, using one-time savings or excess revenues. In October 2018, the City Council
directed staff to include in budget assumptions the NC for pension benefits at an equivalent of
6.2 percent discount rate and a transfer of the additional funding beyond CalPERS actua rial
determined contribution levels to the Pension Trust Fund (CMR 9740). This change in
methodology has been factored into this forecast and is anticipated to generate an
approximately $5.0 million in ongoing additional contributions across the organization in all
funds.
City of Palo Alto Page 17
The marginal costs of the lower discount rates, approximately $3.4 million in the General Fund,
have been factored into the entirety of the forecast. In the Genera l Fund, it is anticipated the
City will spend a total of $34.3 million on total pension costs in FY 2021, including both CalPERS
contributions and additional contributions. This increases to a peak of $45.8 million in FY 2030.
These expenses represent approximately 14% of the General Fund’s total expenses.
This Base Case does not contemplate the implications of further contributions beyond what
was directed by the City Council in October 2018. Alternative Forecast A contemplates how the
Long Range Financial Forecast would change if the marginal costs associated with the lower
discount rate were excluded from the forecast.
Retiree Medical: Retiree Medical is based on the most recent actuarial study prepared by
Bartel Associates, which is completed every two years. The most recent study was completed in
FY 2018 and presented to the City Council as part of the Fiscal Year 2019 Adopted Budget (CMR
9213). The table below details the cost to the General Fund for every year through FY 2028
based on that actuarial study. The final two years represent an extrapolation of the actuarial
study but are consistent with the year over year growth seen throughout the time period.
Consistent with City Council direction, as recommended by staff, the City continues to budget
for the full payment of the Actuarial Determined Contribution (ADC) for retiree healthcare.
Since CalPERS blends active employees with pre-Medicare retirees and charges the same
medical premium, even though younger employees on average consume less healthcare and
thereby subsidize older employees and retirees, there is an implied subsidy that effectively
lowers the funding necessary to meet the ADC. The table below excludes the implied subsidy.
TABLE 10: FY 2021 – FY 2030 Retiree Medical General Fund Contributions (Millions)
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
General
Fund $9.1 $9.3 $9.5 $9.7 $9.9 $10.2 $10.5 $10.9 $11.2 $11.5
The City’s CERBT Trust, which contains prefunding for the City’s Other Post Employment Benefit
(OPEB) liabilities, maintains a very healthy fund balance. The CERBT Trust currently has over
$120 million in assets. As the City continues through the next few years, there will be
important impacts to examine associated with Retiree Medical as there may be opportunities
over the course of this forecast to subsidize the City’s ADC payments with withdrawals from the
OPEB CERBT Trust. That savings could possibly be used for other competing priorities, such as
prepaying an additional portion of the City’s pension UAL. Staff anticipates returning with an
updated actuarial study presented by Bartel Associates as part of the development of the FY
2021 Budget.
Healthcare: Consistent with the most recent labor agreements between the City and its
bargaining units in the General Fund, the City’s contribution amounts towards medical costs for
City of Palo Alto Page 18
employees are based on a flat rate contribution from the City, with the employee contributing
towards the remaining medical plan premium. Like salaries, healthcare costs are updated in
accordance with applicable Memorandum of Agreements (MOA) between the City and its labor
groups and the Management and Professional Personnel and Council Appo intees
Compensation Plan(s). Consistent with the prior year’s forecast, this forecast assumes an
inflation factor of four percent on healthcare and two percent on dental and vision costs to the
City in each year of the Forecast for all employees in years when there is not a MOA in effect.
Contract Services
This forecast assumes contract services of $23.8 million in FY 2021, reflecting a 1.7% increase
from the FY 2020 Adopted budget of $23.4 million. This increase is driven primarily by aligning
the costs of outside legal counsel in the City Attorney’s office and other important contract
increases for contractual obligations already approved by the City Council for items such as tree
maintenance, landscape maintenance, and janitorial services, among other items. These
Increases are partially offset by the reduction of one-time dollars for items such as the second
year of the FTA Grant in FY 2020 as well as a reduction for Golf Course expenses to align with
revenue reductions related to actual activity in the prior year. Through the Forecast, a 2.7
percent annual escalator was modeled to capture anticipated growth in this expense category
beginning in FY 2021.
Supplies and Materials
The FY 2020 Adopted Budget for the General Fund included $3.4 million for Sup plies and
Materials, which is anticipated to decrease slightly to $3.3 million in FY 2021. This decrease is
due to the removal of one-time expenses budgeted in FY 2020 for Computer Aided Dispatch
(CAD) software and Protective Personnel Equipment (PPE) and uniforms for Fire Department
recruits. An escalator of 2.7 percent was applied to this expense category to capture
anticipated growth over the course of the forecast.
General Expense
This category includes costs for travel and meetings, telephone and non -city utilities,
contingency accounts, bank card service charges, and subsidies and grants provided through
the Human Services Resource Allocation Program (HSRAP). The FY 2020 Adopted Budget of
$12.1 million included $1.6 million in a Budget Uncertainty Reserve that has been removed in
FY 2021 and partially accounts for the reduction to $11.3 million in FY 2021. That reduction is
partially offset by a contribution to the Budget Stabilization Reserve (BSR), which is captured in
this category for the purposes of this forecast, to maintain the BSR at the City Council target of
18.5 percent. In FY 2021, $0.6 million is needed to fund the BSR at the 18.5 percent; this
amount changes somewhat over the course of the forecast based on the adjustments to the
annual expenses. Further discussion of the BSR is detailed later in this document. An annual
escalator of 2.7 percent was applied to this category, excluding BSR contributions, to capture
anticipated growth over the course of the forecast. These figures do not inc lude General
Expenses for the Cubberley Lease, which is explained in further detail below.
City of Palo Alto Page 19
General Expense - Cubberley Lease: In FY 2015, the City and Palo Alto Unified School District
(PAUSD) agreed to an extension of the Cubberley Lease by five years s tarting January 1, 2015
and expiring December 31, 2019. On October 7, 2019, Council directed Staff to negotiate with
PAUSD to extend the lease agreement an additional five years, though December 31, 2024
(CMR 10730), these negotiations are ongoing. As part of the original lease agreement, the City
Council approved creation of a fund for Cubberley infrastructure improvements. It is expected
that the lease continues an annual $1.9 million transfer to the Cubberley Property
Infrastructure Fund. Therefore, the $1.9 million is classified as an Operating Transfer Out which
is discussed in further detail below. With the Cubberley infrastructure funds set aside, the FY
2020 Budget includes $6.3 million for Cubberley Lease payments; this includes extended child
daycare sites which may be included in a separate agreement. For planning purposes it is
assumed that the current agreement will continue during the entire Forecast period.
Rents and Leases
The Rents and Leases expense category for FY 2021 is estimated to increase by 1.6 percent
from $1.7 million in FY 2020 to $1.8 million in FY 2021. This category includes the lease
agreement for some of the Development Services staff at locations outside City Hall. However,
funding for those leases have not been increased as part of this forecast due to the uncertainty
of the extended need for these leases. Space is anticipated to become available at City Hall
after the completion of the Public Safety Building, estimated in FY 2022, however tenant
improvements will be necessary. Development Services activities have been modeled as cost
neutral through the forecast. If increased expenses for rent for Development Services are
needed, corresponding revenue offsets will be incorporated through the budget process to
ensure Development Services maintains its cost recovery levels. As a result of excluding these
Development Services lease costs from the increases, the growth throughout the forecast is
projected at approximately 1.0 percent for this category.
Facilities and Equipment
The Facilities and Equipment expense category is expected to decrease from the FY 2020
Adopted level of $771,000 to $516,000 in FY 2021. This reflects the annualization of one -time
costs that were included in the FY 2020 Operating Budget, including the procurement of solar
battery by the Office of Emergency Services and equipment, such as a gurney and air monitors,
by the Fire Department. This budget category includes subscription payments for equipment
like public safety radios as well as other non-capital equipment. Growth of approximately 2.7
percent is modeled through the forecast to capture anticipated increases.
City of Palo Alto Page 20
Allocated Charges
Allocated Charges represent expense allocations by the City’s Enterprise and Internal Service
Funds for services and products they provide to General Fund departments. The FY 2020
Adopted Budget for the General Fund included $20.9 million for these expenses, including
utilities usage, general liability insurance, technology costs, vehicle equipment maintenance
and replacement costs and other charges. The FY 2021 allocated charges in the Forecast update
the revenues and expenses for these various allocations based on the information available at
the time of the Forecast development. FY 2021 is anticipated to experience an increase of 5.6
percent to a total of $22.1 million. This change is primarily due to general CPI and rate increases
applied to various charges as well as an increase in Excess General Liability Insurance costs.
Based on initial conversations with the City’s broker, a significant increase in the City’s Umbrella
Excess Liability insurance costs is anticipated beginning in FY 2021 and continuing through the
forecast.
Operating Transfers Out
Operating Transfers Out include transfers from the General Fund to Debt Service Funds, the
Technology Fund, and various other funds but excludes transfers to the Capital Improvement
Fund, which are detailed in the following Transfer to Infrastructure s ection. Transfers to debt
service funds include the debt issued to fund the renovation of the golf course. This reflects a
change first seen in last year’s Long Range Financial Forecast, where no expenses in the Debt
Service category appear in the General Fund, but are instead captured as transfers to the
appropriate Debt Service Fund. These payments continue throughout the term of the forecast.
The FY 2020 Adopted Budget included Operating Transfers Out of $5.0 million, including a one -
time operating subsidy transfer of $0.7 million from the General Fund to the Residential Parking
Permit (RPP) Programs Fund to cover an operating deficit. In FY 2021, Operating Transfers Out
are anticipated to decrease to $4.3 million as a result of annualizing, or removing, that one-time
transfer.
Transfer to Infrastructure
In FY 2020, the adopted General Fund transfer to the Capital Improvement Fund is $28.3
million, which includes the base transfer of $16.5 million, including $1.2 million in interest
earnings, and $11.8 million from additional TOT proceeds generated through a 3.5 percentage
point TOT increase as well as through the addition of new hotels. Incremental TOT increases
from the rate increase and new hotels are dedicated to the Capital Improvement Fund to
support the 2014 Council Infrastructure Plan, consistent with City Council direction. This
transfer is anticipated to increase to $17.6 million for the base transfer in FY 2021 and $14.6
million for the dedicated TOT funds per Council priorities. The increase to the dedicated TOT
funds is due to the anticipation of new Marriot hotels coming online in FY 2021 and generating
additional TOT revenue. This budget category also includes the separate $1.9 million transfer to
the Cubberley Property Infrastructure Fund, described earlier in this document. This transfer
remains consistent throughout this Forecast despite the sunset date of the current lease in FY
2024 for Cubberley to capture the anticipated costs.
City of Palo Alto Page 21
Committed Additions - NEW
As highlighted in the FY 2020 Ad opted Capital Budget, staff focused on updating and including
operating and maintenance (O&M) costs that would begin once the capital projects were
complete in the 2020-2025 Capital Improvement Plan (CIP). Continuing this effort, a new
category, Committed Additions, has been included in the 2021-2030 Long Range Financial
Forecast to account for the estimated O&M costs in the years they are anticipated to
materialize in the General Fund. These costs can vary from project to project depending on
what was previously budgeted for a facility and generally include, but are not limited to, costs
for fixtures and equipment to outfit a new or expanded facility; custodial, landscaping, and
maintenance services; utilities; and additional staff to support operations at the facility.
Most of the costs in this category are related to the 2014 Council Infrastructure Plan projects
that will be coming online over the next five years. A majority of the O&M costs will come
online in FY 2021 and 2022 for projects like the fire station replacement, the New Public Safety
Building, and the Highway 101 Pedestrian/Bicycle Bridge. O&M costs for projects related to
parking have not been included in the General Fund forecast, because it is assumed that
parking fees in separate parking funds will be collected to support the O&M costs for these
projects. However, depending on funding needs, loans between funds to support investments
and operating costs may be needed.
There are also a number of capital projects that are included in the fi ve-year CIP that do not
have an O&M estimate, either because the full scope of the projects has not yet been defined,
or the projects require an initial study in order to establish the full scope of the project. These
projects and their subsequent O&M costs would generally fall under the category of
Assumptions Not Included in the Forecast which are detailed further below in this document ;
examples include the new Junior Museum and Zoo.
TABLE 11: FY 2021 – FY 2030 Committed Additions (Millions)
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
General
Fund $0.2 $0.7 $0.7 $0.7 $0.8 $0.8 $0.8 $0.8 $0.9 $0.9
Budget Stabilization Reserve
The City's Budget Stabilization Reserve (BSR) serves as the primary General Fund reserve. By
policy, the BSR is maintained in the range of 15 to 20 percent of General Fund operating
expenditures, with a target of 18.5 percent. Any reduction to the reserve below 15 percent
requires City Council approval. At the discretion of the City Manager, any BSR balance above
18.5 percent may be transferred to the Infrastructure Reserve (IR), which was established to
provide funding for maintenance and rehabilitation of the City’s capital assets. As recently
discussed with the Finance Committee, on November 18, 2019 the BSR is anticipated to remain
above the 18.5 percent target for FY 2020 at $43.7 million after anticipated qualifications for
excess BSR.
City of Palo Alto Page 22
The BSR is used to fund unanticipated one-time costs as opposed to ongoing or recurring
operating expenditures. The City's intent is to fund ongoing programs and services with ongoing
dollars. This forecast assumes that the BSR meets or exceeds the City Council approved target
of 18.5 percent of anticipated expenses in any given year. Maintaining the BSR a t 18.5 percent
of anticipated expenses does impact the forecast, worsening the deficits beginning in FY 2022
and dampening the surpluses through the end of the forecast. However, maintaining the BSR at
18.5 percent also provides flexibility to the City do deal with unforeseen issues that may arise.
Furthermore, establishing, and following, sound fiscal reserve policies has been a strong factor
in the City being rated AAA by rating agencies.
Assumptions NOT Included in Forecast
It should be noted that this Forecast does not include several potential impacts to the FY 2021
projected budget and the out years of the Forecast. Below is a list of a few items not included.
This is not intended to be a comprehensive list nor in any priority order.
Labor negotiations: Although the City has recently concluded negotiations with four safety
units, these contracts only extend through the first few years of the forecast. These safety units
are the Palo Alto Peace Officers Association (PAPOA), the International Association of Fire
Fighters (IAFF), Fire Chiefs Association (FCA), and Palo Alto Police Management Association
(PAPMA). Each of those contracts expires June 30, 2021. Additionally, the Service Employees
International Union (SEIU) MOA expires in December 2021. The Base Case Forecast models only
modest increases to salaries in years where there is not a contract. This region’s competition
for a qualified workforce remains a significant pressure on the City’s anticipated salary costs.
Capital Infrastructure Plan: As referenced earlier, the June 2014 Council approved
Infrastructure Plan of $125.8 million in projects was based on construction and design costs
with data from 2012. As construction costs have increased and the City is required to pay
prevailing wages, the Infrastructure Plan’s funding status has shifted. The FY 2020 Adopted
Capital Budget anticipated that these projects would cost $280.6 million. In addition, this
Forecast does not assume ongoing operating and maintenance impacts as a result of the
Infrastructure Plan, such as the operating costs associated with the new Public Safety building,
but future forecasts will incorporate operating cost impacts as the specific projects are
designed and implemented.
Grade Separation: The City is currently in the process of exploring locations for grade
separations. As the City continues the process of determining the number and type of grade
separations to pursue the financial impacts are difficult to define. Additionally, it may make
sense to undertake a coordinated area plan for transit in the downtown area to synchronize
with the grade separation process. Costs for these items are not included in this forecast.
City of Palo Alto Page 23
Parks Master Plan: The Parks Master Plan was finalized in 2017; however, when approved it
identified a need to develop a funding strategy and this is still in process. As such, this Forecast
does not yet contemplate the necessary investments to fully execute this plan.
Other Capital Improvement Projects: A number of assets and planned projects remain on the
horizon, however, none have resulted in formalized capital improvement projects. Major
improvements such as an update to the animal care shelter, rail grade separation, the former
ITT site, and the acquisition of land or assets are not factored into th e Forecast.
City owned assets operated by non-profit organizations: This Forecast does not include any
additional capital or operating investments for the Avenidas Senior Center (beyond the current
$5 million pledge), the Palo Alto History Museum, the Ve ntura Child Care Center, the Junior
Museum and Zoo, nor the Sea Scout Building. As costs around potential capital or operating
investments for these assets solidify, staff will return to City Council to address them as
appropriate.
Cubberley Community Center Concept Plan: The City is in the process of designing a Cubberley
Community Center Concept Plan; however, costs to implement that concept plan in excess of
the dedicated Cubberley infrastructure funding included in the existing agreement between the
PAUSD and the City are not assumed in this Forecast.
Loans for special projects: From time to time the City’s General Fund will assist other City
operations with modest cash flow loans to bridge fiscal years. For example, the City provided
over $3 million in loans to the Airport Fund as it works to secure significant grant funding from
the Federal Aviation Administration (FAA) for capital improvement costs. As of the FY 2020
Adopted Budget, the Airport Fund has begun to pay back the loan to the General Fund . As
mentioned in the Committed Additions section, the Base Case presumes that the parking funds
will be able to sustain the ongoing operating and maintenance costs of new parking related
capital infrastructure. However, these additions and other initiatives may need financial
support from the General Fund to ensure they are fully implemented. Additional loans from the
General Fund are not assumed in this Forecast.
Legislative Updates: Various actions at the state and federal level that could impact the C ity of
Palo Alto have not been incorporated into this forecast due to the changing context and
uncertainty of the quantitative impacts of potential legislative changes. This includes the
Cadillac Healthcare Tax at the federal level, property tax changes at a state level, and state-level
efforts focused on the provision of affordable housing. Property Tax changes may be impacted
by a potential state level ballot measure in November 2020. As uncertainty regarding the
potential impact of various legislative initiatives is clarified, appropriate adjustments will be
identified and brought forward as part of the development of the FY 2021 Operating Budget.
Greater CalPERS City contributions: The City has had ongoing conversations with the Finance
Committee about options for addressing the City’s long-term pension liability including an initial
City of Palo Alto Page 24
discussion regarding development of a pension funding policy. Currently, CalPERS assumes an
annual investment return of 7.0 percent. Further, the CalPERS Board approved a g radual de-
risking strategy, which is intended to reduce the assumed investment return to 6.5% over the
next 20 years. In accordance with the City Council’s direction for the FY 2020 Adopted budget,
this forecast assumes a discount rate of 6.2% to more aggressively fund the City’s long-term
pension liability. It is anticipated that a formal pension funding policy will be discussed with the
City Council in early 2020.
Tax revenue alignment with updated Comprehensive Plan: The City Council recently completed
updating its Comprehensive Plan, including the potential fiscal impact of various land use
scenarios. The fiscal impact of this plan and various land use scenarios are not factored into this
Forecast.
Changes in the local, regional, and national economy: This Forecast assumes a moderately
growing local economy. Any changes may have positive or negative impacts on economically
sensitive revenues such as Sales Tax and the Transient Occupancy Tax.
Alternative Forecast A: CalPERS’ Pension Rates
As discussed in the Salary and Benefits section above, the base forecast includes approximately
$3.4 million in additional pension expenses in this Long-Range Financial Forecast. These costs
capture the direction from City Council to budget the Normal Cost using a 6.2 percent discount
rate to proactively prefund the City’s pension liability. This assumption deviates from the
current CalPERS actuarial assumptions for investment earnings; CalPERS currently assumes a
7.0 percent discount rate in FY 2021. This alternative forecast models the impact of using the
CalPERS’ discount rate to determine the City’s annual pension contributions. The summary
table for this alternative forecast and the Net Operating Margin graph for this alternative
forecast are below. Additional discussion for this alternative follows these figures.
TABLE 12: FY 2021 – FY 2030 Long Range Financial Forecast
Alternative Forecast A
Adopted
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Total Revenue $232,101 $241,527 $248,358 $255,808 $263,083 $271,318 $280,028 $289,307 $299,625 $310,488 $321,728
4.1%2.8%3.0%2.8%3.1%3.2%3.3%3.6%3.6%3.6%
Total Expenditures $230,809 $236,393 $246,665 $254,647 $261,814 $269,000 $274,160 $279,706 $287,435 $294,468 $300,499
2.4%4.3%3.2%2.8%2.7%1.9%2.0%2.8%2.4%2.0%
Net One-Time Surplus/(Gap)$1,292 $5,134 $1,692 $1,161 $1,269 $2,319 $5,867 $9,600 $12,191 $16,020 $21,229
Cumulative Net Operating Margin (One-Time)$76,482
Net Operating Margin $5,134 ($3,442)($532)$108 $1,049 $3,549 $3,733 $2,590 $3,829 $5,209
Cumulative Net Operating Margin $21,229
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
City of Palo Alto Page 25
TABLE 13: FY 2021 –2030 Long Range Financial Forecast Net Operating Margin
Alternative Forecast A
Compared to the Base Case, the General Fund would run a greater surplus in the first year and
then maintain net one-time surpluses through the forecast. However, unlike the base case, no
additional contribution to the City’s Section 115 Pension Trust Fund is presumed in thi s model.
This scenario represents the significant efforts the City has taken over the past few years to
structurally balance the budget through reprioritization of work and reductions to the City’s
full-time staffing in order to help contain rising pensio n costs. It is anticipated that the City will
continue to discuss its options for prefunding its long -term pension obligations through ongoing
discussion and development of a pension funding policy.
Alternative Forecast B: Major Tax Revenue Sensitivity Analysis
For modeling purposes, the base case assumes a smoothed recession throughout the length of
the forecast. The base case takes this approach to accommodate any one-time, unusual, or
unexpected drops in revenue that may occur throughout the forecast.
This alternative scenario models the potential impact if the economy contracted and the
growth that would be anticipated for the remainder of the forecast. For modeling purposes,
this economic contraction is assumed to occur in January 2021, midway through FY 2021. The
lower revenue estimates would continue through the forecast but would recover toward the
final years of the forecast. These lower revenue estimates through the initial years of the
forecast would significantly constrain the City’s resources.
As discussed in the Revenue Assumptions section of this report, tax revenue accounts for
approximately 60 percent of the General Fund’s total revenues. This alternative scenario
assumes that average tax receipts contract by 1.7 percent, from $140.3 million at FY 2020
Adopted to $137.9 million in FY 2021. The scenario models a further decline in FY 2022 to
$131.3 million in tax revenues in FY 2022 and stays consistent in FY 2023. Consistent with
growth seen after other recessions, tax revenues begin to gro w significantly in FY 2024 through
City of Palo Alto Page 26
the end of the forecast. If all other assumptions in the base case remain constant and a major
recession were to occur of a magnitude similar to the dot-com bust or the Great Recession, the
loss in revenue would be approximately $12.6 million in FY 2021 (half a year) and $24.6 million
in FY 2022.
In this alternative scenario, the City’s expenses would exceed revenues in the first six years of
the forecast before turning positive at the end of the time period. The single g reatest one-time
gap occurs in FY 2023, with a $32.2 million deficit, before narrowing to $12.7 million in FY 2026
and turning slightly positive in FY 2027. The summary table for this Alternative Scenario and the
corresponding graph showing the Net Operating Margin are included below.
TABLE 14: FY 2021 – FY 2030 Long Range Financial Forecast
Alternative Forecast B
Adopted
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Total Revenue $232,101 $229,313 $223,830 $226,020 $237,704 $250,122 $265,085 $283,416 $310,495 $341,969 $378,923
-1.2%-2.4%1.0%5.2%5.2%6.0%6.9%9.6%10.1%10.8%
Total Expenditures $230,809 $240,447 $250,168 $258,194 $265,396 $272,465 $277,743 $283,366 $291,169 $298,276 $304,382
4.2%4.0%3.2%2.8%2.7%1.9%2.0%2.8%2.4%2.0%
Net One-Time Surplus/(Gap)$1,292 ($11,134)($26,338)($32,174)($27,693)($22,343)($12,658)$50 $19,326 $43,694 $74,542
Cumulative Net Operating Margin (One-Time)$5,271
Net Operating Margin ($11,134)($15,204)($5,836)$4,482 $5,350 $9,684 $12,708 $19,276 $24,368 $30,848
Cumulative Net Operating Margin $74,542
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
TABLE 15: FY 2021 – 2030 Long Range Financial Forecast Net Operating Margin
Alternative Forecast B
City of Palo Alto Page 27
Alternative Forecast C: Change in Long Range Financial Forecast Assumptions Related to
Salary for Bargaining Units Outside of MOA Terms
During Finance Committee discussions regarding the Long Range Financial Forecast in the past
few years there have been conversations regarding the appropr iate methodology for modeling
salary and benefit increases year-over-year. Per previous City Council direction and past
practice, the Base Case assumes a two percent general wage adjustment in the years beyond
the terms of existing MOAs. This is consistent with past direction to use two percent as a
forecasting assumption, not as a commitment for future negotiations. As part of the expense
sensitivity analysis on the City’s finances, a third alternative forecast is presented here that
analyzes a general wage adjustment of three percent for all employees in years when MOAs
have not yet been negotiated. As with other alternative models in the LRFF, this model is for
forecasting purposes and is not a commitment to future labor negotiations.
In this scenario, the initial surplus in FY 2021 is lessened somewhat compared to the Base Case
and wider gaps between revenues and expenses would occur in next few years of the forecast.
Through the ten years of the forecast, this change in the modeling would increase expen ses
significantly. In FY 2021, only the management group would be impacted by this change, so a
relatively modest increase in expenses of $285,000 is seen. The City’s agreements with the
safety units expire at the end of FY 2021 and the agreement with SEIU ends midway through FY
2022. Due to the expiration dates, FY 2023 is the first year that shows the full cost of an
additional one percent raise for the General fund. As a result of the increased expenses
modeled for the safety units and SEIU the costs increase by $1.1 million in FY 2022 before
escalating by $1.9 million in FY 2023.
Overall, the general trends of the Base Case persist through this third alternative scenario,
despite the changes to the salary and benefit parameters. The Base Case projected that by FY
2026, the City would have a positive net one-time surplus; this alternative forecast extends the
deficit to FY 2026 but still projects a positive net one-time surplus in FY 2027.
TABLE 16: FY 2021 – FY 2030 Long Range Financial Forecast
Alternative Forecast C
Adopted
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Total Revenue $232,101 $241,527 $248,358 $255,808 $263,083 $271,318 $280,028 $289,307 $299,625 $310,488 $321,728
4.1%2.8%3.0%2.8%3.1%3.2%3.3%3.6%3.6%3.6%
Total Expenditures $230,809 $240,732 $251,229 $260,093 $268,112 $275,996 $282,090 $288,528 $297,146 $305,069 $311,991
4.3%4.4%3.5%3.1%2.9%2.2%2.3%3.0%2.7%2.3%
Net One-Time Surplus/(Gap)$1,292 $795 ($2,871)($4,286)($5,028)($4,678)($2,062)$779 $2,479 $5,418 $9,738
Cumulative Net Operating Margin (One-Time)$284
Net Operating Margin $795 ($3,666)($1,415)($742)$350 $2,616 $2,841 $1,700 $2,939 $4,319
Cumulative Net Operating Margin $9,738
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
City of Palo Alto Page 28
TABLE 17: FY 2021 – 2030 Long Range Financial Forecast Net Operating Margin
Alternative Forecast C
FY 2021 Budget Development Guidelines
As discussed earlier in this document, the Long Range Financial Forecast represents the initial
steps of the FY 2021 budget development process. In the FY 2019 – FY 2028 Long Range
Financial Forecast presented in December 2018, staff included budget development guidelines
based on the trends that were identified and the anticipated fiscal con dition of the City. Due to
the clear overlap of projecting the City’s fiscal condition over the next ten years and the need to
shape service level expectations over the same time period, staff recommends that the
inclusion of Budget Development Guidelines be incorporated into the Long Range Financial
Forecast on an ongoing basis.
This year, the FY 2021 Budget Development Guidelines are detailed in Attachment C. They are
meant to reflect the anticipated fiscal condition of the City and to provide high -level budgetary
direction to the organization. These guidelines will shape and inform the annual financial
planning and the allocation of resources across the organization, especially in the General Fund.
When the Fiscal Sustainability Workplan (CMR 10267) was approved by the City Council on April
22nd, 2019 drafting a budget development policy was listed as part of the “Newly proposed or
potential activities proposed to be completed”. The inclusion of Budget Development
Guidelines in this, and future years’, Long Range Financial Forecast represents staff’s
recommended method of addressing this referral. Pairing Budget Development Guidelines with
the Long Range Financial Forecast links the anticipated fiscal condition of the organization with
the necessary context regarding service delivery prioritization and resource allocation that will
be further explored through the process. Including the Budget Development Guidelines with
City of Palo Alto Page 29
the Long Range Financial Forecast ensures that the City is able to proactively address
anticipated changes in its fiscal condition through the budget process.
Conclusion
The FY 2021 – 2030 Long Range Financial Forecast provides context for balancing high city
service expectations against the limited resources available to meet them in a timely manner.
The City’s work over the past few years to structurally balance the budget has better positioned
the City through the forecast with relatively minor deficits projected, even as the City makes
proactive pension contributions, and as costs for salaries and benefits continue to escalate.
However, the City must continue to exercise diligence to remain fiscally sustainable and balance
the ecosystem of resources, the cost of doing business, and service delivery levels. A continued
scrutiny of the expansion and enhancement of existing services, the addition of new services,
and the priorities of the community will be necessary, especially as a slowing of the economy is
anticipated in the coming years. As the Finance Committee and Council continue to discuss
major projects such as pension, infrastructure, and grade separation, the ability to manage
expectations and implement innovative solutions will be critical. A prioritization of needs and
one-time investments to modernize and advance service delivery models will be necessary to
ultimately ensure that we operate within available resources. These strategies are essential to
sustaining the City’s sound financial future.
STAKEHOLDER ENGAGEMENT
The Long Range Financial Forecast represents the beginning of the fiscal year 2021 budget
development process. As in previous years, the LRFF will be discussed with the City Council
after Finance Committee and those conversations will provide direction to staff in the budget
development process. It is anticipated that conversations with City Council and the community
will occur through public budget hearings in Spring 2020, according to the standard budget
adoption process.
RESOURCE IMPACT
Financial implications from this report and input from the Finance Committee will be
considered in the City Manager’s development of the Fiscal Year 2021 budget.
ENVIRONMENTAL IMPACT
This report is not a project for the purposes of the California En vironmental Quality Act.
Environmental review is not required.
Attachments:
• Attachment A: Long Range Financial Forecast Base Case Revenues Table
• Attachment B: Long Range Financial Forecast Base Case Expenses Table
• Attachment C: FY 2021 Budget Development Guidelines
FY 2021‐2030 Long Range Financial Forecast Base Case Revenue Table ATTACHMENT A
Revenue & Other Sources Adopted 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
CAGR 10
Years
Sales Taxes $34,346 $37,595 $39,149 $40,670 $42,169 $43,682 $45,162 $46,701 $48,326 $50,075 $51,842 4.2%
Property Taxes 48,634 52,863 55,034 57,061 59,303 62,393 66,193 70,344 74,952 80,102 85,668 5.8%
Transient Occupancy Tax‐ General Purpose 17,534 16,896 17,344 17,838 18,356 18,906 19,494 20,089 20,716 21,422 22,251 2.4%
Transient Occupancy Tax‐ Infrastructure 11,774 14,576 14,963 15,389 15,835 16,310 16,818 17,331 17,871 18,481 19,196 5.0%
Documentary Transfer Tax 8,369 7,952 8,189 8,428 8,666 8,957 9,264 9,590 9,936 10,297 10,694 2.5%
Utility Users Tax 17,581 18,199 18,962 19,804 20,354 20,859 21,465 22,156 22,815 23,222 23,626 3.0%
Other Taxes and Fines 2,032 1,989 1,989 1,989 1,989 1,989 1,989 1,989 1,989 1,989 1,989 ‐0.2%
Subtotal: Taxes 140,270 150,071 155,630 161,180 166,673 173,097 180,386 188,200 196,605 205,589 215,266 4.4%
Charges for Services 21,834 21,180 21,637 21,988 22,290 22,578 22,723 22,861 23,151 23,423 23,633 0.8%
Stanford Fire & Dispatch Services 7,885 8,127 8,466 8,758 9,005 9,233 9,396 9,587 9,819 10,038 10,176 2.6%
Permits and Licenses 9,076 8,990 8,997 9,003 9,008 9,012 9,015 9,017 9,021 9,026 9,029 ‐0.1%
Return on Investments 1,388 1,850 1,822 1,844 1,869 1,896 1,950 2,006 2,065 2,127 2,196 4.7%
Rental Income 16,399 15,590 15,088 15,480 15,884 16,300 16,728 17,169 17,623 18,091 18,573 1.3%
From Other Agencies 980 520 520 520 520 520 520 520 520 520 520 ‐6.1%
Charges to Other Funds 10,908 11,577 11,948 12,290 12,586 12,865 12,962 13,031 13,320 13,586 13,628 2.3%
Other Revenue 2,362 2,259 2,260 2,260 2,261 2,262 2,263 2,264 2,264 2,265 2,266 ‐0.4%
Total Non‐Tax Revenue 70,832 70,093 70,737 72,143 73,423 74,666 75,555 76,454 77,784 79,076 80,022 1.2%
Operating Transfers‐In 20,999 21,363 21,990 22,485 22,988 23,555 24,087 24,652 25,236 25,823 26,440 2.3%
BSR Contribution (One‐Time)
Golf Operating Loss Reserve Liquidation
Total Source of Funds $232,101 $241,527 $248,358 $255,808 $263,083 $271,318 $280,028 $289,307 $299,625 $310,488 $321,728 3.3%
Revenue & Other Sources 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Sales Taxes 9.0% 4.1% 3.9% 3.7% 3.6% 3.4% 3.4% 3.5% 3.6% 3.5%
Property Taxes 8.4% 4.1% 3.7% 3.9% 5.2% 6.1% 6.3% 6.6% 6.9% 6.9%
Transient Occupancy Tax ‐ General Purpose ‐3.9% 2.7% 2.9% 2.9% 3.0%3.1% 3.0% 3.1% 3.4% 3.9%
Transient Occupancy Tax ‐ Infrastructure 26.1% 2.6% 2.8% 2.9% 3.0% 3.1% 3.1%3.1% 3.4% 3.9%
Documentary Transfer Tax ‐5.4% 3.0% 2.9% 2.8% 3.4%3.4% 3.5% 3.6% 3.6% 3.9%
Utility Users Tax 3.5% 4.2% 4.4% 2.8% 2.5% 2.9% 3.2% 3.0% 1.8% 1.7%
Other Taxes and Fines ‐2.1% 0.0% 0.0% 0.0% 0.0%0.0% 0.0% 0.0% 0.0% 0.0%
Subtotal: Taxes 6.9% 3.7% 3.6% 3.4% 3.9% 4.2% 4.3% 4.5% 4.6% 4.7%
Charges for Services ‐3.0% 2.2% 1.6% 1.4% 1.3%0.6% 0.6% 1.3% 1.2% 0.9%
Stanford Fire & Dispatch Services 3.1% 4.2% 3.4% 2.8%2.5% 1.8% 2.0%2.4% 2.2% 1.4%
Permits and Licenses ‐0.9% 0.1% 0.1% 0.1% 0.1%0.0% 0.0% 0.1% 0.0% 0.0%
Return on Investments 24.3%‐1.5% 1.2% 1.4% 1.4% 2.8% 2.9% 2.9% 3.0% 3.2%
Rental Income ‐4.9%‐3.2% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.7% 2.7%
From Other Agencies ‐46.9% 0.0% 0.0% 0.0% 0.0%0.0% 0.0% 0.0% 0.0% 0.0%
Charges to Other Funds 6.1% 3.2% 2.9% 2.4% 2.2% 0.8% 0.5% 2.2% 2.0% 0.3%
Other Revenue ‐4.4% 0.0% 0.0% 0.0% 0.0%0.0% 0.0% 0.0% 0.0% 0.0%
Total Non‐Tax Revenue ‐1.0% 0.9% 2.0% 1.8% 1.7%1.2% 1.2% 1.7% 1.7% 1.2%
Operating Transfers‐In 1.7% 2.9% 2.2% 2.2% 2.5%2.3% 2.3% 2.4% 2.3% 2.4%
BSR Contribution (One‐Time)
Golf Operating Loss Reserve Liquidation
Total Source of Funds 4.0% 2.8% 3.0% 2.8% 3.1% 3.2% 3.3% 3.6% 3.6% 3.6%
FY 2021‐2030 General Fund Long Range Financial Forecast Base Case Expense Table ATTACHMENT B
Expenditures & Other Uses
Adopted
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
CAGR
10
Years
Salary 75,506$ 78,289$ 81,100$ 83,509$ 85,774$ 88,007$ 90,051$ 91,973$ 93,882$ 95,790$ 97,702$ 2.6%
Benefits 59,042 62,695 65,921 69,089 71,631 73,917 74,743 75,642 78,340 80,726 82,123 3.4%
Subtotal: Salary & Benefits 134,548 140,985 147,022 152,598 157,405 161,924 164,794 167,615 172,222 176,515 179,825 2.9%
Contract Services 23,429 23,832 24,355 24,998 25,607 26,224 26,862 27,520 28,188 28,878 29,589 2.4%
Supplies & Material 3,365 3,343 3,432 3,524 3,619 3,715 3,815 3,917 4,022 4,130 4,240 2.3%
General Expense 12,089 11,267 12,509 12,676 12,818 13,071 13,090 13,413 14,079 14,356 14,535 1.9%
Rents & Leases 1,734 1,762 1,777 1,793 1,809 1,825 1,843 1,860 1,878 1,897 1,916 1.0%
Facilities & Equipment 771 516 530 544 559 574 589 605 621 638 655 ‐1.6%
Allocated Charges 20,889 22,065 22,551 23,120 23,670 24,197 24,755 25,348 25,947 26,425 26,861 2.5%
Committed Additions 223 674 708 728 764 787 825 849 890 916
Total Non Sal/Ben Before Transfers 62,277 63,009 65,828 67,363 68,811 70,372 71,740 73,489 75,584 77,215 78,712 2.4%
Operating Transfers‐Out 5,023 4,317 4,411 4,508 4,607 4,708 4,817 4,923 5,037 5,154 5,268 0.5%
Transfer to Infrastructure ‐ Base/Cubb 17,187 17,561 17,945 18,337 18,739 19,152 19,575 20,009 20,455 20,912 21,381 2.2%
Transfer to Infrastructure ‐ TOT 11,774 14,576 14,963 15,389 15,835 16,310 16,818 17,331 17,871 18,481 19,196 5.0%
Total Use of Funds $230,809 $240,447 $250,168 $258,194 $265,396 $272,465 $277,743 $283,366 $291,169 $298,276 $304,382 2.8%
Expenditures & Other Uses
Adopted
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Salary 3.7% 3.6% 3.0% 2.7% 2.6% 2.3% 2.1% 2.1% 2.0% 2.0%
Benefits 6.2% 5.1% 4.8% 3.7% 3.2% 1.1% 1.2% 3.6% 3.0% 1.7%
Subtotal: Salary & Benefits 4.8% 4.3% 3.8% 3.2% 2.9% 1.8% 1.7% 2.7% 2.5% 1.9%
Contract Services 1.7% 2.2% 2.6% 2.4% 2.4% 2.4% 2.5% 2.4% 2.4% 2.5%
Supplies & Material ‐0.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7%
General Expense ‐6.8% 11.0% 1.3% 1.1% 2.0% 0.1% 2.5% 5.0% 2.0% 1.2%
Rents & Leases 1.6% 0.9% 0.9% 0.9% 0.9% 0.9% 1.0% 1.0% 1.0% 1.0%
Facilities & Equipment ‐33.0% 2.6% 2.7% 2.7% 2.7% 2.7% 2.7% 2.6% 2.7% 2.7%
Allocated Charges 5.6% 2.2% 2.5% 2.4% 2.2% 2.3% 2.4% 2.4% 1.8% 1.6%
Committed Additions N/A 202.6% 5.0% 2.9% 4.9% 2.9% 4.9% 2.9% 4.8% 2.9%
Total Non Sal/Ben Before Transfers 1.2% 4.5% 2.3% 2.1% 2.3% 1.9% 2.4% 2.9% 2.2% 1.9%
Operating Transfers‐Out ‐14.1% 2.2% 2.2% 2.2% 2.2% 2.3% 2.2% 2.3% 2.3% 2.2%
Transfer to Infrastructure ‐ Base/Cubb 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2%
Transfer to Infrastructure ‐ TOT 23.8% 2.6% 2.8% 2.9% 3.0% 3.1% 3.1% 3.1% 3.4% 3.9%
Total Use of Funds 4.2% 4.0% 3.2% 2.8% 2.7% 1.9% 2.0% 2.8% 2.4% 2.0%
Attachment C
1) Develop a structurally balanced budget that brings ongoing revenues and
expenses into alignment. Develop a plan for any structural imbalance to ensure
that the City maintains it fiscal sustainability over the short, medium, and long-
term.
2) Allocate one-time resources for one-time needs rather than committing one-time
resources to ongoing services. Examine appropriate uses of revenue surpluses
that exceed forecasted levels including planning for recession needs.
3) Ensure appropriate resource allocation for City Council’s existing priorities.
4) Focus on business process redesign to enhance quality, flexibility, and cost-
effectiveness of service delivery (include examining opportunities to streamline,
simplify, reorganize, and reallocate resources to avoid duplication of effort).
5) Explore alternative service delivery models (such as partnerships with non-profits
or other public/private sector groups) to minimize overlap, maximize cost share,
and effectively use resources.
6) Continue to thoroughly analyze non-personnel/equipment/other costs, such as
contract services, for cost savings opportunities.
7) Explore the expansion of existing revenue sources or the addition of new
revenue sources, including the alignment of existing charges for services and the
opportunity to establish new fees, when appropriate.
8) Continue to analyze and prioritize resource augmentations, seeking to offset
augmentations with reductions elsewhere for net-zero impacts to the budget
whenever possible.
FY 2021 Budget Development Guidelines