HomeMy WebLinkAbout2015-12-15 Finance Committee Agenda PacketFinance Committee
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Tuesday, December 15, 2015
Special Meeting
Community Meeting Room
6:00 PM
Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday 10 days preceding the meeting.
PUBLIC COMMENT
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Call to Order
Oral Communications
Members of the public may speak to any item NOT on the agenda.
Action Items
1.Finance Committee Review and Recommendation to Council to Adopt
an Ordinance Amending Title 5 (Health and Sanitation) and Title 18
(Zoning) of the Palo Alto Municipal Code to Require All Businesses to
Subscribe to Recycling and Compost Services and Comply With Refuse
Sorting Requirements
2.First Quarter Fiscal Year 2016 Financial Results
3.Fiscal Years 2017 to 2026 General Fund Long Range Financial Forecast
4.Budget Hearings Referrals Update
Future Meetings and Agendas
Adjournment
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2 December 15, 2015
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE.
DURING NORMAL BUSINESS HOURS.
Status of Items Requested by the Finance Committee
Referral
Date Item Title Status
2013 Police Services Utilization and Resources Study (Police)
Please see staff
report included with
12/15 packet 2015
Review and Discussion of the Public Art Ordinance
(Community Services)
Discussion of Usage and Replacement of Pool Vehicles
(Public Works)
Consideration of stronger encroachment fees for
construction that impact portions or all of a city street or
sidewalk (Public Works)
Regular updates to the Finance Committee regarding the
Animal Shelter and direction to staff to return in six
months to the City Council with an update on the Animal
Shelter (City Manager's)
Discussion of changes to the Public Art Ordinance to
simplify the calculation of the Public Art Fee (Community
Services
Discussion of usage and replacement of pool vehicles
(Public Works)
Cubberley Center Master Plan: additional information and
a timeline for the site (requested by the FC) (City
Manager)
Finance Committee Items Tentatively Scheduled
Meeting
Date Item Title
To Be Determined
City of Palo Alto (ID # 6340)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/15/2015
City of Palo Alto Page 1
Council Priority: Environmental Sustainability
Summary Title: Adoption of an Ordinance to Require All Business to
Subscribe to Recycling and Compost Service
Title: Finance Committee Review and Recommendation to Council to Adopt
an Ordinance Amending Title 5 (Health and Sanitation) and Title 18 (Zoning)
of the Palo Alto Municipal Code to Require All Businesses to Subscribe to
Recycling and Compost Services and Comply with Refuse Sorting
Requirements
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends that the Finance Committee recommend that Council adopt an
ordinance amending Title 5 (Health and Sanitation) and Title 18 (Zoning) of the
Palo Alto Municipal Code (Attachment A) to require all businesses to subscribe to
recycling and compost services and comply with refuse sorting requirements.
Executive Summary
Staff is proposing changes to Title 5 (Health and Sanitation) and Title 18 (Zoning)
of the Palo Alto Municipal Code with new requirements related to recycling and
composting that will be referred to throughout this report as the Recycling and
Composting Ordinance. The proposed changes also include updates to the
ordinance text that will ensure consistency in the new requirements and
definitions. The Recycling and Composting Ordinance would require customers to
subscribe to all three services (garbage, recycling and compost) and to sort their
waste properly. The proposal includes new enforcement provisions for the
Commercial Sector, but not for the Residential Sector. Other Bay Area
jurisdictions, such as San Francisco, Cupertino and many cities in Alameda County,
City of Palo Alto Page 2
have implemented similar ordinances resulting in improved diversion rates. On
November 2, 2015, Council passed a motion directing staff to return to the
Finance Committee for further vetting of the proposed ordinance.
Background
Zero Waste Plan Development
In 2004, City Council directed staff to develop a zero waste policy and
implementation plan for Palo Alto. In 2005, a task force was formed to assist in
the creation and development of a zero waste policy and strategic plan to guide
City officials in reaching zero waste goals. With input from the community,
businesses and industry experts, the Zero Waste Strategic Plan identified key
objectives and strategies, including developing policies and incentives to
eliminate waste at the source and maximize recycling through expanded
collection programs, processing facilities, education, outreach and technical
assistance.
In October 2005 Council approved the strategic plan and adopted goals of 73%
waste diversion by 2011 and zero waste by 2021 (CMR:382:05). Council also
directed staff to develop a Zero Waste Operational Plan (ZWOP) identifying
necessary policies, programs and facilities. The ZWOP, completed in June 2007
and approved by City Council on September 17, 2007, outlined many strategies
that were included in the GreenWaste of Palo Alto contract implemented in 2009,
resulting in a rise in the City’s waste diversion rate from 62% to 80% in 2014. The
ZWOP also included a policy recommendation to develop a “mandatory” recycling
ordinance as a key strategy to achieve zero waste.
Despite the 80% diversion rate, tons of recoverable materials are sent to the
landfill each year. A waste characterization study performed in 2012 determined
that over 70% of the City’s garbage is recoverable, approximately 21,000 tons of
compostable and recyclable material. The study found that food scraps and food
soiled paper were the largest constituent elements of recoverable material.
The landfilling of compostable materials results in greenhouse gas emissions
equivalent to 5,000 metric tons of carbon dioxide. The landfilling of recyclable
materials results in more greenhouse gas emissions. Every aluminum can, plastic
bottle, glass jar, cardboard box or piece of paper not recycled results in virgin
materials needing to be mined for manufacturing. While some recyclable
City of Palo Alto Page 3
materials (~ 18%) are recovered at the Sunnyvale Material and Recovery Transfer
(SMaRT) Station, many of the recyclable materials are buried at Kirby Canyon
Landfill in south San Jose. This “waste” of recyclable materials results in
greenhouse gas emissions estimated at 17,000 metric tons of carbon dioxide
equivalent per year. Eliminating these emissions by achieving zero waste is a key
component of the City’s Sustainability/Climate Action Plan.
Additionally, the State of California through CalRecyle, the state’s regulatory
agency overseeing solid waste disposal, has identified “moving organics out of the
landfill” as its top priority in achieving the state’s 75% recycling goal. Specifically,
by April 1, 2016, the state will require all local governments to have a program in
place to collect organics from entities generating 10 cubic yards or more of
organics per week.
Key 2015 Zero Waste Initiatives
Staff identified three initiatives to increase the City’s waste diversion rate by
focusing on compostable materials:
1. Implement a new residential food scraps collection program;
2. Implement a new recycling and composting ordinance; and
3. Extend and add scope to the GreenWaste contract to manage these new
program activities.
2015 Three Zero Waste Initiatives
Date Item Staff Report No.
Mar. 3
Submitted plan to the Finance Committee Staff Report 5546
Mar. 23 Council approval of Residential Food Scraps
Program
Staff Report 5558
Jun. 15 Council approval of GreenWaste contract
amendment no. 2
Staff Report 5763
Nov. 2 Council meeting - Recycling and Composting
Ordinance (Council motion directed staff to
return to the Finance Committee)
Staff Report 6081
Dec. 15 Finance Committee meeting - Recycling and
Composting Ordinance
Staff Report 6340
City of Palo Alto Page 4
TBD Council Meeting – First reading of Recycling and
Composting Ordinance
Staff Report TBD
TBD Council Meeting – Second reading of Recycling
and Composting Ordinance
Staff Report TBD
On July 1, 2015, the City began food scraps and food soiled paper collection for
single-family residential customers. Eighteen thousand households in the City can
now place their food scraps and food soiled paper directly into the green cart with
their yard trimmings. This program is estimated to divert 3,000 tons of
compostable materials annually.
Current Success and Challenges in Diverting Materials from the Landfill
The City’s 80% waste diversion rate from landfills has remained relatively stable
since 2010, meaning that the City will not reach zero waste without addressing
the remaining recoverable materials found in garbage. Nearly 70% of what is
discarded in the black, garbage container could either be recycled or composted
(Figure 1). This is likely due to two factors: (1) not everyone sorts properly and (2)
the majority of commercial customers do not subscribe to compost service.
City of Palo Alto Page 5
Figure 1: Material Recoverability in Citywide Garbage
To address the sorting issue, City staff and GreenWaste Environmental Outreach
Coordinators provide signage and training. Encouraging commercial customers to
subscribe to compost service, however, presents a different challenge.
Since 2009 commercial customers have had the option to subscribe to a voluntary
compostable collection service. Over 30% percent of commercial customers,
including many of the large corporate campuses and restaurants, subscribe to this
optional compost service. This program has been successful in diverting 11,000
tons of food scraps and food soiled paper from the landfill to anaerobic digestion
and/or composting. Nonetheless, 7,000 tons of commercially generated
compostable material still ends up buried in the landfill.
In 2014, staff surveyed many commercial customers who do not have compost
service to understand what barriers kept them from subscribing. The majority
responded with “compost service was not required.” Despite the fact that nearly
all would save on their utility bill, most did not feel that subscribing to compost
service was worthwhile.
The GreenWaste contract amendment went into effect July 1, 2015. The
amended and restated contract includes a modification that provides a greater
incentive to GreenWaste to collect compostable materials.
City of Palo Alto Page 6
Discussion
To minimize the amount of material sent to the landfill and reduce greenhouse
gas emissions, the Recycling and Composting Ordinance would require all
customers to subscribe to recycling and compost service and sort properly.
The Recycling and Compost Ordinance proposed by staff (Attachment 1) covers
more customers than adopted California State legislation (AB341 and AB1826).
With the full implementation of this proposed ordinance, staff anticipates that
the City could achieve a diversion rate of over 90%, reaching the zero waste goal.
Requiring recycling, compost, and garbage containers for all customers through a
modification of the Municipal Code will need coordinated outreach, education
and enforcement efforts to ensure that discards are sorted properly.
Proposed Ordinance Changes
The proposed ordinance changes (Attachment 1), are differentiated into two
categories:
1) Recycling and Composting elements - requiring customers to subscribe to
all three services and sort their waste properly (highlighted track-changes);
and
2) Updated definitions and other text for consistency with current practices
and guidelines (track-changes);
As mentioned above, the recycling and composting provisions would require all
commercial customers (including multifamily customers) to subscribe to all three
waste services and sort discards properly; garbage in the black container,
recyclables in the blue container and compostables in the green container. Other
changes to the ordinance include updating definitions and text for consistency
with current practices and guidelines. For example:
Determining the level of service required for customers – i.e. containers
sufficient to hold solid waste (5.20.080), recyclable materials (5.20.090),
and compostable materials (5.20.100) for one week;
Clarifying how refuse containers shall be stored and maintained (5.20.120);
Strengthening the language related to litter around refuse containers
City of Palo Alto Page 7
(5.20.130) and litter on the streets (5.20.160);
Eliminating sections related to the now-closed Palo Alto Landfill; and
Deleting services that are no longer offered (5.20.210 “Manure
Containers”).
Based on direction from Council on November 2, 2015, sections that address the
specifics of the Recycling and Composting Ordinance are highlighted in yellow in
Attachment 1 with the full ordinance text. The other changes are in
redline/strikeout. The modified ordinance also includes a definition of “salvage”
taken from Section 5.24 (Construction and Demolition Debris Diversion Facilities).
Salvage is allowed in Section 5.20.110(f) and addressed in greater detail as part of
Title 16 Building Regulations and City green building codes (no modification
proposed as part of Attachment 1 updates). The term “general contractor” was
also revised to the original “contractor” in this section. Section 5.20.109
(Requirements for special events) was also revised to include only items related to
sorting refuse properly. Text pertaining to single-use food service items is no
longer in the ordinance text under “special events.”
Compliance and Enforcement
Approximately 1,000 commercial customers currently do not subscribe to
compost service. These customers will be required to subscribe in three phases
based on the amount of waste they produce. All food service establishments and
multifamily customers will be included in the first phase. The phases are outlined
in the “Timeline” section below. In cases where a separate container is not
feasible, staff will work with customers to identify opportunities to share service
or determine whether the customer may qualify for a “de minimus” exemption.
Compliance activities for not sorting waste in the proper container would range
from notifications to additional fees and fines.
Single-family customers will not see a change. As is the current procedure,
customers would receive notifications (cart tags) if their carts are contaminated.
Although no fees or fines will be levied, flagrant contamination could cause
GreenWaste to reject their load until contaminants are removed.
Multifamily customers would not be subject to fees or fines, provided the
complex has easily accessible containers and signage for all recyclables,
compostables and garbage. Should managers/owners of multifamily buildings fail
City of Palo Alto Page 8
to provide appropriate containers and signage, the owner would be subject to the
same fees and enforcement actions for commercial customers. Administrative
citations will not apply to individual sorting errors as defined in section
5.20.030(b).
Proposed Compliance Process For Commercial Customers:
Incidents Compliance Action (Commercial Customers Only)
1
Cart Tag – Notifies customer of contamination. The material in the
container will still be collected.
2
A representative from GreenWaste will make a site visit and offer to
provide training to the customer’s staff, tenants and/or janitorial
staff. The material in the container will still be collected.
3
The City would send a letter to the customer including details of the
contamination witnessed and previous efforts to resolve the
problem and warn of possible fees or fines for future flagrant
contamination. The material in the container will still be collected.
4 and
beyond
The customer would have two options: (1) the customer could
remove contamination and pay a “return trip” fee as indicted in the
commercial refuse rate schedule or (2) the customer could elect not
to remove the contamination and pay both a “return trip” fee and
an “extra solid waste pick-up” fee for the extra sorting and disposal
of the waste. The current fee for a “return trip” is $77.00 and “extra
solid waste pick-up” is based on the size and type of container.
5 and
beyond
The customer would be subject to administrative penalties for non-
compliance with the City’s municipal code.
Note: GreenWaste reserves the right to not collect recyclable or compostable
materials that may jeopardize the integrity of processing equipment and/or the
marketability of the materials.
City of Palo Alto Page 9
Business and Multifamily Outreach
Outreach efforts included a September utility bill insert directing customers to
www.cityofpaloalto.org/rc-ordinance and to take a Recycling and Composting
Ordinance Survey, as well as staff meetings with the Palo Alto Chamber of
Commerce, Downtown Business Association and merchants of California Avenue.
These efforts were undertaken in order to increase awareness of the upcoming
changes and to better understand potential barriers to compliance. A few themes
emerged from the survey and comments at the meetings, including:
Education of proper sorting - focusing efforts on janitorial staff, workers
and tenants;
Unauthorized use of customer containers;
Cleanliness - keeping refuse areas clean; and
Responsibility – tenants and managers/owners for sorting errors.
In response, staff is having GreenWaste broaden outreach to businesses, provide
more sorting signage, schedule more sorting trainings and develop an online
toolkit for janitorial services, offices and restaurants. GreenWaste is also working
with downtown and California Avenue customers to provide bin locks where
appropriate and identify shared service opportunities to minimize the number of
refuse containers in alleys. GreenWaste is promoting its low-cost “bin wash”
service to help customers comply with the cleanliness requirements in the
Recycling and Composting Ordinance. To address the “ick-factor” related to food
scraps, City staff has identified and is educating customers on best management
practices and lessons learned from other communities to avoid creating odors or
vector problems.
Staff recognizes the challenges of guaranteeing proper sorting where there is no
responsibility/accountability for doing so. For multifamily customers, an
additional fee will be levied only if managers/owners fail to provide sufficient
containers and signage. Staff believes managers/owners have more tools to
ensure proper sorting, including adding appropriate language to leases advising
tenants of sorting responsibilities and penalties and training janitorial services,
with support from GreenWaste, to sort properly. Education and outreach to
customers, janitorial staff, workers and tenants will be the primary method of
ensuring compliance.
City of Palo Alto Page 10
Although most commercial customers surveyed don’t subscribe because it’s not
required, they indicated they could comply with the ordinance and sort their
refuse properly.
Timeline
The ordinance will apply to commercial customers and be phased in as follows:
Phase 1: April 1, 2016, all commercial customers generating 8 cubic yards of
garbage per week, all multifamily customers and all food service
establishments would be required to subscribe to compost service. Phase 1
represents about 150 customers that do not currently subscribe.
Phase 2: January 1, 2017, all commercial customers generating 2 cubic
yards or more of garbage per week will be required to subscribe to
compost service. This phase represents about 220 customers that do not
currently subscribe.
Phase 3: January 1, 2018, all commercial customers will be required to
subscribe. This phase represents about 600 customers that do not currently
subscribe.
Staff will develop outreach and provide education focused primarily on those
affected at each phase of implementation.
Resource Impact
Staff estimates that the impact of this Recycling and Composting Ordinance would
result in a modest reduction in net income to the Refuse Fund. When this
ordinance is fully implemented (in three years), the net impact is projected to be
a net income reduction of approximately $78,000 per year. Revenue would be
reduced because of customers downsizing their garbage service as they divert
compostables to compost service (green container). For the commercial sector,
compost service is currently priced at a 10% discount relative to the equivalent-
sized garbage container. Of the 70% of commercial customers currently not
subscribing to compost service, most could see a reduction in their utility bill if
they sort properly and downsize their garbage container.
City of Palo Alto Page 11
The following net income estimates to the Refuse Fund are cumulative:
Full Year of
implementation
Per Year Net
Income Reduction
Year 1 <$43,000>
Year 2 <$66,000>
Year 3 <$78,000>
The above estimates are based on several assumptions, which include 1) the
amount of tons of compost material diverted from the garbage; and 2) the shift in
customer service subscription levels (i.e., reduction in the size of garbage
container and increase in the size of the compost and/or recycling container).
Staff will continuously review actual costs and revenue information and propose
Refuse Rate adjustments as appropriate.
Policy Implications
Reducing the amount of recyclable and compostable materials landfilled is a key
strategy of the Zero Waste Operational Plan and a goal of the Comprehensive
Plan and Sustainability/Climate Action Plan.
Environmental Review
The Recycling and Composting Ordinance, as a key strategy in the Zero Waste
Operational Plan, will have a positive impact on the environment by dramatically
reducing greenhouse gas emissions – estimated to be the equivalent of 22,000
metric tons of carbon dioxide annally. The additional collection of compostable
material using existing collection vehicles and current routes is consistant with
previous CEQA reviews. The Recycling and Composting Ordinance does not
constitute a new or substantially changed project under CEQA.
Attachments:
Attachment A: Ordinance Section 5.20 (DOCX)
150807 jb 00710649B 1
Ordinance No. _____
Ordinance of the Council of the City of Palo Alto Amending and Restating
Chapter 5.20 of Title 5 and Amending Section 18.23.020 of Chapter 18.23 of Title
2 of the Palo Alto Municipal Code Pertaining to the Collection, Removal and
Disposal of Refuse
The Council of the City of Palo Alto does ordain as follows:
SECTION 1. Chapter 5.20 of Title 5 of the Palo Alto Municipal Code is hereby amended
to read, as follows:
"CHAPTER 5.20
COLLECTION, REMOVAL AND DISPOSAL OF
SOLID WASTE AND RECYCLABLE MATERIALSREFUSE
5.20.010 Definitions.
Within and limited to this chapter, theThe following words and phrases whenever used
in this chapter shall be construed as defined in this section, unless the context indicates
otherwise.
(1) “Bin” shall means a detachable solid waste or recycablerefuse container used in
connection with commercial/industrial premises with a 1 to 8 cubic yard capacity, equipped
with a lid, and designed for mechanical pick-up by collection vehicles.
(2) “Box”, sometimes known as a "roll-off" or "drop" box, means a wheeled or
sledded container or compactor, generally 7 to 50 cubic yards in size, suitable for the storage
and collection of commercial or industrial solid waste or recyclable materials.
(3) “Cart” means a wheeled container receptacle larger than a Standard container
and smaller than a bin, equipped with a lid, and designed for mechanical pick-up by collection
vehicles.
(4) “City” means the government of the City of Palo Alto, defined in Section
1.04.050(1) of the municipal code, with a principal place of business at 250 Hamilton Avenue,
Palo Alto, County of Santa Clara.
(4) “City landfill” means the City of Palo Alto’s landfill, located at 2380 Embarcadero
Road, Palo Alto, California.
(5) “City manager” means the person referred to in Section 2.08.140 of the
municipal code,City Manager of the City of Palo Alto or the city manager’s or designee.
(6) “Collection agreement” means a contract with the cityCity for the collection of
150807 jb 00710649B 2
solid waste and recyclable materials,refuse pursuant to Section 5.20.040.
(7) “Collector” means one or more persons authorized under by Section 5.20.040 to
provide solid waste, recyclable materials, or solid waste and recyclable materialsthe collection,
removal processing and disposal services of refuse pursuant to one or more written contracts
with the city.
(8) “Commercial/industrial business owner” means any person , firm, corporation or
other enterprise or organization holding or occupying, alone or with others,
commercial/industrial premises, whether or not it is the person holdser of the title or the is the
record owner of record of the commercial/industrial premises.
(9) “Commercial/industrial premises” means all any occupied real property in the
cityPalo Alto, except property occupied by federal, state or local governmental agencies which
do not consent to their inclusion, and except residential premises as defined in subsection
(3127) hereof, and shall include, without limitation, any wholesale and or retail establishments,
restaurants and food service establishments, bars, stores, shops, shopping center, offices,
industrial establishments, manufacturing establishments, service stations, repair, research and
development establishments, professional, services, sports or recreational facilityies, any place
or premises where an animal is maintained or sheltered, construction or demolition sites, a
multiple dwelling that is not a residential premises, and any other commercial or industrial
business facilityies, structures, sites, or other establishments in the cityPalo Alto.
(10) “Compostable materials” means organic materials designated by the City as
approved for collection and processing, including, without limitation, yard trimmings, food
scraps, soiled paper and compostable plastics, but excluding animal manure, sewage sludge,
and human biological wastes.
(110) “Composting” means the controlled, biological decomposition of organic
materials into humus for use as a soil amendment, conditioner or fertilizer or for any other
similar use or purpose.
(121) “Construction and/or demolition site” means any real property in the cityPalo
Alto, in on or fromat which a building or structure, or any portion thereof, is being
fabricatedconstructed, assembled, erected or demolished, and which producesduring which
construction or demolition waste which must be removed from the property.
(132) “Construction and/or demolition waste” means any solid waste generated as the
result of construction or demolition work, including, without limitation, discarded packaging or
containers and waste construction materials, whether brought on site for fabrication or used in
construction or resulting from demolition, excluding liquid waste and hazardous waste.
(143) “Container” means any bin, box, cart, compactor, drop box, roll-off box, or
receptacle, used for the storage of solid waste, recyclable materials, compostable materials or
other materials designated by the City for collection by the collector.standard container, mini-
can container of cart.
150807 jb 00710649B 3
(154) “Director” means the person referred to in Section 2.08.190 of the Municipal
Code, director of public works for the city of Palo Alto or the director's designee.
(165) “Disposal or processing facility” means a landfill facility,or a recycling facility, or a
composting facility or a solid waste transfer or processing station.
(17) “EPA” means the federal Environmental Protection Agency or successor agency.
(18) "Food service establishment" means any establishment, located or providing
food within Palo Alto, which provides prepared and ready-to-consume food or beverages, for
public consumption, including, but not limited to, any retail service establishment, eating and
drinking service (as defined in Chapter 18.23), takeout service (as defined in Chapter 18.23),
supermarket, delicatessen, restaurant, food vendor, sales outlet, shop, cafeteria, catering truck
or vehicle, cart or other sidewalk or outdoor vendor or caterer which provides prepared and
ready-to-consume food or beverages, for public consumption.
(1916) “Hazardous waste” means waste defined as hazardous by Public Resources Code
section 40141, as it now exists or may subsequently be amended, namely, a waste or
combination of wastes, which because ofdue to its quantity, concentration, or physical,
chemical or infectious characteristics, may do either of the following: (i) cause or significantly
contribute to, an increase in mortality or an increase in serious irreversible, or incapacitating
reversible, illness; (ii) pose a substantial present or potential hazard to human health or
environment when improperly treated, stored, transported, or disposed of, or otherwise
managed. "Hazardous waste" includes extremely hazardous waste and acutely hazardous
waste, and any other waste as may hereafter from time to time be designated as hazardous by
the Environmental Protection Agency ("EPA") or other agency of the United States
Government, or by the California Legislature or any agency of the State of California
empowered by law to classify or designate waste as hazardous, extremely hazardous or acutely
hazardous.
(20) “Home composting” means the controlled decomposition of organic material,
including, without limitation, yard trimmings and kitchen scraps, into humus by any person
owning or occupying any place or premises in Palo Alto.
(2117) “Manure” shall means the waste droppings from of any animal.
(18) “Manure container” shall mean Standard containers or bins, or other receptacles
approved by the Director for the placement of manure, which are equipped with substantial
lids or covers adequate to keep flies from the interior thereof. No Manure container shall
exceed seventy-two cubic feet in capacity.
(19) “Mini-can container” means a round, metallic or plastic can with a close fitting
cover, handles and side bails with a maximum capacity of twenty gallons or seven and one-half
dekaliters, or such other container not larger than a standard container as may be approved by
the director.
150807 jb 00710649B 4
(22) “Multifamily property” means any residential premise with five or more attached
units with shared service.
(23) “Organic wastes” means “compostable materials.”
(240) “Person” means any individual, or entity referred to in Section 1.04.050(5) of the
Municipal Code and including any general partnership, limited partnership, limited liability
partnership, or limited liability companyassociation, firm, partnership, corporation, or any other
group or combination thereof acting as a unit.
(251) “Place or premises” means every residential premises and commercial/industrial
premises, including any structure, apparatus, or portion thereof occupied or operated by any
person and situated on an integral parcel of land undivided by a public street, highway, or
railway.
(262) “Public solid waste or recycling receptacles” means receptacles any container for
the collection of solid waste, or recyclableing materials or compostable materials that are both
located on public property and intended for use by the general public.
(273) “Recyclable materials” means those materials designated by the City that are as
suitable for collection and transport to a material recovery facility for processing into a recycled
content product, including, without limitation, newspaper, paper, cans, corrugated cardboard,
glass and certain types of plastic, and metalsrecycling.
(284) “Recycling” means the process of collecting, sorting, cleansing, treating, and
reconstituting materials that would otherwise become Solid solid waste, and returning them to
the economic mainstream in the form of raw material for new, reused, or reconstituted
products which meet the quality standards necessary to be used in the marketplace. Recycling
This term does not include transformation as that term is defined in Public Resources Code
section 40180201.
(29) “Refuse” means and includes compostable materials, recyclable materials and
solid waste.
(30) “Refuse service” means the weekly or other periodic collection, processing and
disposal of materials properly deposited in the collector-provided containers for solid waste, as
well as weekly collection and processing of recyclable materials and weekly collection and
processing of compostable materials.
(25) “Resident” means any person living within the territorial limits of the city of Palo
Alto, whether or not the person owns the place or premises which he or she occupies, and any
person who is a nonresident employee of the city of Palo Alto, a municipal corporation, and
every member of his or her household related by blood, marriage, or adoption or a domestic
regular partner.
150807 jb 00710649B 5
(3126) “Residential householder” means any person or persons holdingowning or
occupying residential premises in the cityPalo Alto, whether or not the owner of the residential
premise.
(3227) “Residential premises” means any residential dwelling unit within the cityPalo
Alto, including, without limitation, a multiple unit residential complexes, such as a rental
housing projects, condominiums, apartment houses, mixed condominiums and rental housing,
and a mobile home parks, except any multiple dwelling which, with the prior written approval
of the director, receives commercial bin service.
(33) "Salvage" means the controlled removal of construction or demolition
debris/material from a permitted building, construction, or demolition site for the purpose of
recycling, reuse, or storage for later recycling or reuse. Examples include air conditioning and
heating systems, columns, balustrades, fountains, gazebos, molding, mantels, pavers, planters,
quoins, stair treads, trim, wall caps, bath tubs, bricks, cabinetry, carpet, doors, ceiling fans,
lighting fixtures, electrical panel boxes, fencing, fireplaces, flooring materials of wood, marble,
stone or tile, furnaces, plate glass, wall mirrors, door knobs, door brackets, door hinges, marble,
iron work, metal balconies, structural steel, plumbing fixtures, refrigerators, rock, roofing
materials, siding materials, sinks, stairs, stone, stoves, toilets, windows, wood fencing, lumber
and plywood. (28) “Residential recycling collection” means the process by which recyclable
materials and yard trimmings are placed at the curb of a residence for collection, removal and
disposal.
(3429) “Solid waste” shall means all putrescible and nonputrescible solid and semisolid
wastes, generated in or upon, related to the occupancy of, remaining in or emanating from
Residential residential premises or commercial/industrial premises, including garbage, trash,
refuse, paper, rubbish, ashes, industrial wastes, demolition and construction wastes, discarded
home and industrial appliances, manure, vegetable or animal carcasses, solid or semisolid
wastes, and other solid and semisolid wastes. “Solid waste” shall not include liquid wastes or
sewage, abandoned vehicles, hazardous waste, or recyclable materials or compostable
materials.
(350) “Solid waste enterprise” shall mean any individual, partnership, joint venture,
unincorporated private organization, or private corporationperson regularly engaged in the
business of providing solid waste, or recyclable materials or compostable materials handling
services.
(31) “Solid waste or recyclable materials handling services” shall mean the collection,
transportation, storage, transfer, or processing of solid waste or recyclable materials.
(32) “Source separated commingled recyclable materials” are source separated
recyclable materials in any combination of two or more source separated single recyclable
materials.
150807 jb 00710649B 6
(33) “Source separated recyclable materials” means recyclable materials which are
separated from solid waste by the generator at the location where it was created, not mixed
with or containing more than incidental solid waste, as determined by the director.
(364) “Source separated single recyclable materials” are source separatedmeans
recyclable materials that are separated from other recyclable materials or solid waste and
placed in separate containers according to type or category of materials and can be directly
marketed as a distinct single commodity, as determined by the director.
(35) Standard container means a metallic or plastic can with a close fitting cover,
handles and side bails of a capacity of more than twenty gallons or seven and one-half
dekaliters but not exceeding thirty-two gallons or twelve dekaliters, or such container other
than a mini-can container as may be approved by the director.
(376) “Yard trimmings” means any plant trimmings generated from the maintenance
or alteration of public, commercial premises or residential premises landscapes, including,
without limitation, grass cuttings, yard clippings, leaves, tree trimmings, pruning, brush and
weeds, excepting those materials which are prohibited under written rules and regulations
promulgated by the director.
5.20.020 Declaration of policy
(a) The accumulation, collection, removal and disposal of solid waste and recyclable
materialsrefuse must be controlled by the cityCity for the protection of the public health, safety
and welfare. The councilCouncil finds that to give practical effect to this policy a comprehensive
system for the periodic collection, removal and disposal of solid waste and recyclable
materialsrefuse from all places or premises is essential and benefits all occupants of places or
premises., and, therefore, Aall such occupants of places or premisesare made shall be liable for
the solid waste and recyclable materialsrefuse collection charges established by the
councilCouncil for the collection, removal and disposal of solid waste and recyclable
materialsrefuse.
(b) The City complies with the applicable provisions of the California Integrated
Waste Management Act, as amended, codified in the Public Resources Code section 40000 et
seq. The law requires that, by and after January 1, 2000, fifty percent (50%) of the solid waste
generated must be diverted through some source reduction, recycling, and composting
activities.
(c) The City also complies with the 75 percent recycling goal included as part of AB
341 Mandatory Commercial Recycling Law, adopted on October 6, 2011, which includes
modifications to the Public Resources Code.
(d) AB 1826, which amended the law in 2014, imposes organic waste recycling
requirements with a mandate that will begin on April 1, 2016.
150807 jb 00710649B 7
(e) The City may adopt, implement, and enforce requirements, rules and regulations
for local compostable materials and local recyclable materials that are more stringent or
comprehensive than California law.
5.20.030 Discarding of solid waste and recyclable materialsrefuse
(a) No person shall throw, drop, leave, place, keep, accumulate, or otherwise
dispose of any solid waste or recyclable materialsrefuse upon private property either with or
without the intent to later remove the same from such that place or premises, or upon any
street, public right-of-way, sidewalk, gutter, stream, or creek, or the banks thereof, or any
public place or public property.
(b) All persons shall separate their refuse according to its characterization as solid
waste, compostable materials, or recyclable materials, and place each type of refuse in a
separate container designated for disposal of that type of refuse. No person may mix any type
of refuse, or deposit refuse of one type in a collection container designated for refuse of
another type, except as otherwise provided in this chapter. This section shalldoes not prohibit
the placement of solid waste or recyclable materialsrefuse in public solid waste or recycling
receptacles, or in containers, bins or boxes for collection in accordance with the provisions of
this chapter, or at the city landfill or posted recycling centers in accordance with the procedures
thereof. This section does not prohibit any person from engaging in home composting.
Administrative citations or any other enforcement actions will not apply to this paragraph for a
person occupying a residential premise.
5.20.040 Collection, removal and disposal only by authorized persons
(a) The cityCity shall authorize, permit, regulate and control the collection, removal
and disposal of all solid waste and recyclable materialsrefuse generated at all places or
premises. For this purpose, the City may enter into a collection agreement with one or more
solid waste enterprises may be entered into by the city with or without advertising for bids. The
collection agreement shall not be or be deemed or construed as a franchise nor be deemed or
construed as such.
(b) Notwithstanding any permit issued by any other governmental agency
authorizing the collection of solid waste or recyclable materialsany type of refuse, no person
other than a person with a collection agreement, or his or herits duly authorized agents or
subcontractors, as provided in Section 5.20.070, shall negotiate or contract for, undertake to
receive, collect, remove, transport, or dispose of any solid waste or recyclable materialstype of
refuse from within the city Palo Alto for a fee, service charge or other consideration therefor,
except as specifically provided herein.
(c) No person shall interfere in any manner with the lawful operations of the
collector or the collector’sits duly authorized agents or subcontractors.
150807 jb 00710649B 8
(d) Except as otherwise provided in this chapter, each residential householder and
commercial/industrial business owner shall utilize the services of the collector for the collection
of solid waste and recyclable materialsrefuse from the residential or commercial/industrial
premises held or occupied by such that owner or occupant and shall pay the fees for such
services asthe fees approved by the city councilCouncil. No residential householder or
commercial/industrial business owner shall enter into an agreement with a solid waste
enterprise for the collection of for agreement for solid waste or recyclable materialsrefuse
handling services with any person, firm, or corporation other than the collector, except as
otherwise provided in this chapter.
5.20.050 No unauthorized bins, boxes, or containers.
(a) Except as expressly authorized by this Chapter 5.20, no person other than a
collector may place a bin, box ora container within the cityPalo Alto.
(b) The cityCity shall notify, in writing, any person who violates this Section 5.20.050
that the prompt and permanent removal of such the bin, box or container from the place or
premises is required. The cityCity shall deliver such the written notice by posting a copy of the
notice prominently upon the bin, box, or container. If the bin, box, or container is identified
with by the name and telephone number of the solid waste enterprise servicing it, as required
by Section 5.20.130(e), the city City shall also endeavor to contact the enterprise by telephone.
The Ffailure of the City to notify telephonically the owner of the presence of the container at
the place or premises telephonically shall not invalidate the notice. The city City may impound
or cause to be impounded any such bin, box or container if the same is not permanently
removed from the place or premises within the time set forth in the notice, which time shall be
not less than twenty-four hours after the posting of the notice, or not less than six business
hours after the telephonic notification, if any notice is provided. For purposes of this Section
5.20.050, “business hours" shall means the hours of 7:00 a.m. to and 6:00 p.m., Monday
through Saturday. Any person who violates this Section 5.20.050 shall be liable to the city City
for all fines and charges levied in connection with the collection, transportation, storage and
handling of such that bin, box or container by the cityCity. The bin, box or container
impounded by the city City shall be retrieved by the owner or his or her representative
immediately after all applicable fines and charges have been paid. The city City manager may
delegate to the collector the authority to impound any unauthorized bins, boxes, and
containers and to collect the fines and charges levied by the cityCity.
(c) Upon posting of a written notice of violation upon the unauthorized bin, box or
container, the customer person using the unauthorized bin, box or container shall immediately
cease placing solid waste and recyclable materialsrefuse therein.
5.20.060 Contracting for special hauling services.
Any owner, or occupant or tenant of any place or premises may contract with the
collector or his or herits duly authorized agents or subcontractors, as provided in Section
5.20.070, but not otherwise, for special hauling services for the collection, removal and disposal
of solid waste in excess of the regular services provided by the collector.
150807 jb 00710649B 9
5.20.070 Use of agents or subcontractors by the collector.
The city City may provide in any written contract entered into pursuant to Section
5.20.040(a) that the collector may designate, in writing, one or more agents or subcontractors
who may collect, remove, and dispose of such solid waste or construction and demolition waste
as may be in excess of the regular collection made by the collector, subject to the limitations
set forth in the collection agreement.
5.20.080 Number of solid waste containers required.
(a) No All persons owning or occupying any place or premises where solid waste is
created, produced or accumulated shall subscribe and pay for this type of refuse service and
shall subscribe and pay forfail to procure a sufficient number of containers to hold all solid
waste created, produced or accumulated at or on the place or premises during a one-week
period, unless a more frequentdifferent frequency for a collection schedule has been approved
or directed pursuant to this chapter.
(b) Every place or premises shall receive solid waste service at the automatic service
level, unless a person who is duly authorized to represent the place or premises selects a
different service level which meets the requirements of this section. The following automatic
service levels shall apply for new customers:
(1) Single family residential users: one Standard container;
(2) Two-family dwellings, three-family dwellings, apartment houses and multiple
dwelling buildings: one Standard container per dwelling unit; and
(3) Motel, hotel, trailer park or mobile home park: one Standard container per dwelling
unit or space.
(4) Manufacturing, commercial or institutional establishments: two Standard containers.
(c) In determining the sufficiency of the number of Containers required for any of the following
places or premises, the following minimum standards shall apply:
(1) Single family residential users: one Mini-can container;
(2) Two-family dwellings, three-family dwellings, apartment houses and multiple dwelling
buildings: one Mini-can container per dwelling unit;
(3) Motel, hotel, trailer park or mobile home park: one Standard container per dwelling unit
or space; and
(4)Manufacturing, commercial or institutional establishments: one Standard container.
150807 jb 00710649B 10
(d) Unless otherwise approved by the Director pursuant to rules and regulations
prescribed by the City: Standard containers shall not exceed sixty pounds or twenty-seven
kilograms in weight when filled with Solid waste for collection, removal and disposal; Mini-can
containers shall not exceed forty pounds or eighteen kilograms in weight when filled with Solid
waste for collection, removal and disposal; and Standard containers or Mini-can containers
used for Yard trimmings shall not exceed forty pounds or eighteen kilograms in weight when
filled for collection, removal and disposal.
5.20.090 Collection and ownership of recyclable materials – Residential Premises.
(a) All persons owning or occupying any place or premises where recyclable
materials are created, produced or accumulated shall subscribe and pay for this type of refuse
services and shall subscribe and pay for a number of containers sufficient to hold all recyclable
materials created, produced or accumulated at the place or premises during a one-week
period, unless a different frequency collection schedule has been approved or directed
pursuant to this chapter.The city shall provide a program for the collection of recyclable
materials from residential premises. For the purposes of this Section, recyclable materials
includes yard trimmings and any other similar materials designated by the director.
(b) Recyclable materials placed for curbside residential recycling collection in or
outside of a container shall become the property of the collector at the time of placement at
the curb or other designated location for collection in or outside of the container. The collector
shall have the exclusive right to collect such the recyclable materials, unless the collection
agreement specifies a different arrangement.
(c) The disposal of solid waste and compostable materials in containers designated
for the collection of recyclable materials is prohibited. Recyclable materials that are placed in a
recyclable materials container for collection by the collector must be free of solid waste and
compostable materials.
(c) If Recyclable materials placed for curbside residential recycling collection are not
collected as part of the city’s program for residential recycling collection, the person who
placed the recyclable materials for curbside residential recycling collection is entitled to receive
a written explanation pertaining to the failure of the collector to collect and dispose of the
recyclable materials. It shall be the responsibility of the person who places the Recyclable
materials for residential recycling collection to remove the recyclable materials within twenty-
four hours of receipt of the explanation. The collector is expressly authorized to reject
Recyclable materials that are not free of all but incidental amounts of putrescible solid and
semisolid wastes, or that are not free of hazardous wastes.
5.20.100 Collection and ownership of recyclable compostable materials –
Commercial/industrial premises.
(a) The city shall provide a program for the collection of recyclable materials from
commercial/industrial premises.
150807 jb 00710649B 11
(b) When recyclable materials are placed in bins, boxes, or containers that the city or
the collector provide for the collection of recyclable materials, such recyclable materials shall
become the property of the city or the collector, as the case may be. The city or the collector
shall have the exclusive right to collect recyclable materials from such bins, boxes, or
containers.
(a) All persons owning or occupying any place or premises where compostable
materials are created, produced or accumulated shall subscribe and pay for this type of refuse
services and shall subscribe and pay for a number of containers sufficient to hold all
compostable materials created, produced or accumulated at the place or premises during a
one-week period, unless a different frequency collection schedule has been approved or
directed pursuant to this chapter.
(b) Compostable materials placed for curbside collection in a container shall become
the property of the collector at the time of placement at the curb or other designated location
for collection of the container.
(c) On or after April 1, 2016, all commercial premises at which 8 cubic yards or more
of solid waste refuse service is subscribed per week, multifamily properties, and food service
establishments shall subscribe and pay for a number of containers sufficient to hold
compostable materials created, produced or accumulated at or on the places or premises
during a one-week period, unless a different frequency collection schedule has been approved
or directed pursuant to this chapter.
(d) On or after January 1, 2017, all commercial premises where 2 cubic yards or
more of solid waste refuse service is subscribed per week, shall subscribe and pay for a number
of containers sufficient to hold compostable materials created, produced or accumulated at or
on the place or premises during a one-week period, unless a different frequency collection
schedule has been approved or directed pursuant to this chapter.
(e) On or after January 1, 2018, all commercial premises at which solid waste refuse
service is subscribed, shall subscribe and pay for a number of containers sufficient to hold
compostable materials created, produced or accumulated at or on the place or premises during
a one-week period, unless a different frequency collection schedule has been approved or
directed pursuant to this chapter.
(f) The City may direct the collector to audit individual solid waste streams
generated at commercial premises to determine the owner, occupant or tenant’s compliance
with this section.
5.20.105 Contamination of containers
(a) No person subscribing to refuse service shall dispose or permit the disposal of
solid waste in a container designated for the collection of recyclable materials or compostable
materials. The person shall remove any solid waste deposited in the recyclable materials and
compostable materials containers before the collection of the recyclable materials and
compostable containers occurring that week.
150807 jb 00710649B 12
(1) The collector will notify any person who occupies commercial premises
whenever the City or the collector determines the recyclable materials or compostable
materials container of that person is contaminated with solid waste and the waste must be
removed. After the person removes the solid waste from the recyclable materials and
compostable materials container, the collector will return to the commercial premises to
service the container or containers and the person occupying the commercial premises will be
charged a “return trip” fee specified in the refuse rate schedules.
(2) If the person occupying the commercial premises does not remove the waste
from the recyclable materials and compostable materials containers by the scheduled pick-up
date, the containers will be serviced at the next business day and the person occupying the
commercial premises will be charged both an “extra solid waste pick-up” fee and a “return trip”
fee in addition to the refuse charges that apply to the level of service subscribed by the person
occupying the commercial premises. The extra solid waste pick-up fee shall be determined
according to the size of the contaminated recyclable materials or compostable materials
container and the established rates approved by the City.
(3) The fees outlined in 5.20.105 (a)(1) – (2) will also apply if a person occupying a
commercial premises places recyclable materials in containers designated for compostable
materials or compostable materials in containers designated for recyclable materials.
(4) On or after July 1, 2021, if a person occupying a commercial premises places
recyclable materials and/or compostable materials in containers designated for solid waste, the
person will be subject to a “contamination” fee.
(5) A person occupying residential premises will not be subject to a “return trip” fee,
an “extra solid waste pick-up” fee, a “contamination” fee, an administrative citation or any
other enforcement action. A multifamily property will not be subject to a “return trip” fee or an
“extra solid waste pick-up” fee if owners or managers of the multifamily property can
demonstrate compliance with Section 5.20.108 to the satisfaction of the director.
(b) No person shall dispose of commercial grease or cooking oil in a compostable
materials container.
5.20.108 Requirements for owners or managers of multifamily properties and
commercial premises.
(a) The owner or manager of any multifamily property or commercial premises must
provide a level of refuse service sufficient to contain the refuse generated by the owners,
occupants, tenants, employees, contractors, and customers of the property or premises.
(b) The owner or manager of any multifamily property or commercial premises must
provide the number and type of containers at the property or premises sufficient to make the
150807 jb 00710649B 13
source separation of refuse convenient for the owners, occupants, tenants, employees,
contractors, and customers of the property or commercial premises.
(c) The three types of containers shall: (1) Be appropriate in number and size with
respect to the quantity of solid waste, compostable materials, and recyclable materials
anticipated to be generated at the property or premises; (2) Bear appropriate signage and be
color-coded – blue containers for recyclable materials, green containers for compostable
materials, and black containers for solid waste – to identify the type of refuse to be contained
and meet any additional design criteria established by the City; and (3) Be placed as close
together as practicable to provide equally convenient access to users.
(d) The owner or manager of any multifamily property or commercial premises shall
provide information or training for new occupants, tenants, employees and contractors,
including janitors, on the manner of source separation of solid waste, compostable materials,
and recyclable materials. The owner or manager shall provide information or train current
occupants, tenants, employees and contractors at least once per calendar year.
(e) The owner or manager of any commercial premises or their contractor shall
collaborate with on-site janitors to create effective source separation programs.
(f) The use of public solid waste, recycling, or composting receptacles by any
commercial premises is prohibited.
5.20.109 Requirements for special events.
(a) The promoter or coordinator of a special event held in Palo Alto must provide a
level of refuse service sufficient to contain the refuse generated at the special event.
(b) The promoter or coordinator shall provide containers at appropriate locations at
the special event to facilitate the source separation of solid waste, compostable materials, and
recyclable materials by event employees, vendors, and attendees.
(c) The three types of containers shall:
(1) Be appropriate in number and size with respect to the quantity of solid waste,
compostable materials, and recyclable materials anticipated to be generated at the
property or premises;
(2) Bear appropriate signage and be color-coded – blue containers for recyclable
materials, green containers for compostable materials, and black containers for solid
waste – to identify the type of refuse to be contained and meet any additional design
criteria established by the City; and
(3) Be placed together as a waste station to provide equally convenient access to
users.
150807 jb 00710649B 14
(d) If the promoter or coordinator determines that vendor booths at the special
event will require refuse containers, the vendors shall receive from the promoter or
coordinator a set of refuse containers that bear appropriate signage and are color-coded to
identify the type of waste to be contained.
(e) The use of public solid waste recycling or composting receptacles at special
events is prohibited. The promoter or coordinator shall remove or cover all public solid waste
recycling or composting receptacles to prevent their use during the special event.
5.20.110 Exclusions
(a) Residential Householder Exclusion. No provision of this chapter shall prevent a
residential householder from collecting and disposing of occasional loads of solid waste
generated in or on his or herat the residential premises, or from composting yard trimmingsat
home, or from selling, donating or disposing of recyclable or compostable materials generated
in or on his or herat the residential premises. The containers provided by the collector may not
be used for activities authorized by this paragraph (a). Notwithstanding the foregoing, no
residential householder shall employ or engage any solid waste enterprise, other than the
collector to haul or transport solid waste, or recyclable materials, or compostable materials to a
disposal or processing facility.; nor shall any No residential householder may collect or dispose
of solid waste generated elsewhere than in or on his or herat a location that is not the
residential premises.
(b) Gardener's Exclusion. No provision of this chapter shall prevent bar a gardener,
tree trimmer or other person engaged in a similar trade from collecting and disposing of grass
cuttings, prunings, and similar materialyard trimmings not containing other solid waste
whenever the collection and disposal are incidental to providing such the gardening, tree
trimming or similar services.
(c) Commercial Source Separated Recyclable Materials and Compostable Materials
(1) Commercial/industrial business owners shall retain the right to donate or sell
recyclable materials and compostable materials, or to pay fees for services to solid waste
enterprises other than the collector for the collection of particular recyclable materials and
compostable materials, so long as all recyclable materials and compostable materials collected
are source separated single recyclable materials and compostable materials. Glass, tin,
aluminum, and plastics can be collected as source separated commingled recyclable materials.
The director may authorize, by written rules and regulations, collection of other recyclable
materials as source separated commingled recyclable materials. All rRecyclable materials and
compostable materials collected pursuant to this paragraph (c) must shall be taken transported
to a recyclable materials and compostable materials ing facility achieving a diversion rate of 90
percent and where not more than 10 percent of the materials are, and not disposed of in a
landfill.
150807 jb 00710649B 15
(2) Commercial/industrial business owners shall demonstrate compliance with the
provisions of this paragraph (c) upon at the request of the director.
(3) The city City may require any recycler, junk dealer or other enterprise engaged in
the business of buying and marketing recyclable materials and compostable materials to
provide the city City with information pertaining to such the collection and, including without
limitation, the amount of recyclable materials and compostable materials collected from within
the city’sPalo Alto’s territorial limits.
(d) Collection of Source Separated Single Recyclable Materials. No provision of this
chapter shall prevent a recycler, junk dealer or other enterprise engaged in the business of
buying and marketing source separated single recyclable materials in the stream of commerce
and which buys such materials for marketing and not for disposition in a landfill or transfer
station (as defined in Public Resources Code Section 40200), from buying recyclable materials
for a monetary or other valuable consideration. ; nor shall any provision of this chapter prevent
suchA recycler, junk dealer or enterprise which buys such recyclable materials shall not be
prohibited from removing and transporting such those materials to a destination for marketing
in the stream of commerce.
(e) Renovation, Rebuilding, Repairs. No provision of this chapter shall prevent a
commercial/industrial business owner from arranging for any worn, spent, or defective
equipment, or part thereof, used in such the commercial business and requiring renovation,
rebuilding, recharging, regeneration or repair, to be picked up, renovated, rebuilt, recharged,
regenerated or otherwise restored and repaired and returned to such that
commercial/industrial business owner.; nor shall any provision of this chapter prevent aAny
person engaged in the business of renovating, rebuilding, recharging, regenerating, or
otherwise restoring or repairing such the equipment or part thereof, is not prohibited from
transporting the same from or returning it to the commercial business, or from removing,
transporting or disposing of any suchthe equipment, or part thereof, replaced in connection
with an equipment repair or service contract.
(f) Contractors' Exclusions. In addition to the authority granted by paragraph (c) of
this Section 5.20.110, no provision of this chapter shall prevent a licensed contractor having
aunder contract for the demolition or reconstruction of a building, structure, pavement, or
concrete installation from marketing any saleable items salvaged from such the demolition or
reconstruction, or from causing such the salvageable items or Cconstruction or demolition
waste to be removed and transported from the place or premises aton which such waste is
generated, pursuant to the provisions of the demolition or construction contract, subject to the
following:
(1) Such The collection, removal and disposal activity shall be performed only by the
licensed contractor having theunder contract for the Cconstruction or demolition work that
generated such the salvageable items or Construction or demolition waste, or by regularly
employed personnel carried on the licensed contractor's payroll records as an employee.
150807 jb 00710649B 16
(2) For purposes of this paragraph (f), no bins or boxes that are detachable from the
vehicle that delivered them to the Construction or demolition site can be used.
(23) All vehicles used in to carrying out suchfacilitate the collection, removal and
disposal activities shall be owned by or under the exclusive control of the licensed contractor
and shall meet all of the requirements of this chapter and all other laws, statutes, rules,
regulations and ordinances of the state of California and the cityCity. All vehicles shall be
subject to inspection by and the approval of the director from time to time.
(g) Reinforced Concrete Exclusion. In addition to the authority granted by
paragraph (f) of this Section 5.20.110, nothing in this chapter shall prevent a
commercial/industrial business owner, residential householder, or licensed contractor from
using a solid waste enterprise other than the collector to dispose of reinforced concrete.
(h) Document Destruction Service. No provision of this chapter shall prevent any
person engaged in the business of destroying or disposing of secret, confidential or sensitive
documents from transporting or disposing of such those documents, provided the transport
and disposal of the documents are incidental to the as a part of such document destruction or
disposal service.
(i) Self-Haul Exclusion. In addition to the authority granted by paragraph (a) of this
Section 5.20.110 nothing in this chapter shall prevent a commercial/industrial business owner
or residential householder from, on a regular basis, collecting and disposing of solid waste
generated in or onat their place or premises, in lieu of availing themselves of the services of the
collector. No residential householder or commercial/industrial business owner shall employ or
engage any solid waste enterprise, other than the collector, to haul or transport such
materialsthe solid waste to a disposal or processing facility. Any residential householder or
commercial/industrial business owner who pursuant to this paragraph (hi) seeks to on a regular
basis collect and dispose of solid waste generated in or onat the place orir premises, must shall
first obtain a self-haul permitapproval from of the directorcity, and must comply with the
procedures for applicable to self-hauling that areto be adopted by the city council by
resolution.
(j) General Requirement. In all cases where the right to an exclusion pursuant to this
Section 5.20.110 is exercised, disposal shall be made at a disposal or processing facility which
that meets all applicable regulatory requirements. Any disposal by a person exempted under
this section shall not be relieved such person from of any obligation or liability imposed by this
chapter or any other city ordinance, resolution, rule or regulation for the payment of the
minimum solid waste and recyclable materials disposal rates imposed pursuant to this chapter,
or or of rates for the use of the city landfill, or of any other applicable rates or fees.
Notwithstanding the foregoing, any person with a valid self-haul permit obtained pursuant to
paragraph (hi), and who does not use the solid waste collection services offered by the
collector, shall be exempt from the payment of the solid waste collection rates imposed for use
of the services provided by the collector.
150807 jb 00710649B 17
(k) Backhauling Compostable Materials. A commercial business may opt out of the
compostable materials service levels required by this chapter, provided that business verifies to
the satisfaction of the director that all compostable materials generated on-site will be
transported to a central facility to be later composted or otherwise recycled at a 90 percent
rate and not placed in a landfill.
(l) Space Limitations for Existing Structures. The director may grant a written
exemption for any existing commercial business structure that lacks sufficient storage space for
compostable materials or recyclable materials from all or portions of this section in accordance
with the written rules and regulations established by the director. The director, in cases where
space constraints are determined to exist, shall also evaluate the feasibility of shared container
usage by contiguous businesses or multifamily property structures.
(m) De Minimus Exception. The director may waive any of the requirements of this
section if documentation satisfactory to the director, based upon rules and regulations, is
provided to establish that the materials in any type of container, on an on-going basis is
incidental to any other materials originating from that collection location.
5.20.120 Recycling storage design requirementsRefuse containers.
The design of any new, substantially remodeled, or expanded building or other facility
shall provide for proper storage, handling, and accessibility which will accommodate the Solid
waste and Recyclable materials loading anticipated and which will allow for the efficient and
safe collection. The design shall comply with the applicable provisions of Sections 18.22.100,
18.24.100, 18.26.100, 18.32.080, 18.37.080, 18.41.080, 18.43.080, 18.45.080, 18.49.140,
18.55.080, 18.60.080, and 18.68.170 of Title 18 of this Code.
(a) All types of refuse containers shall be kept in a sanitary condition with the lids
closed except whenever they are being loaded or unloaded.
(b) Refuse containers suitable for residential places or premises shall be provided by
the collector or the City. Any container shall be of a size based upon the subscription service
level requested by the person responsible for the payment of charges therefor or as may be
required by this chapter. Any container shall not be loaded with more than the quantity of
materials that either can fit in the container with its lid closed or is in excess of the weight limit
marked on the container, when the lid is closed. All containers for use at commercial premises
shall be provided by or approved by the collector, except for industry-approved grease or
cooking oil tallow containers that shall be provided by a designated tallow hauler.
(c) Refuse containers shall be collected by the collector whenever the containers are
placed in a solid waste enclosure or at the authorized collection area. Collection may be made
at another location upon approval of the director, based upon the subscription service level
requested.
5.20.130 Maintenance and placement of bins, boxes, and containers.
150807 jb 00710649B 18
(a) The commercial/industrial business owners andor residential householder , as
the case may be, shall maintain their bins, boxes, and containers on at their places and
premises, and the areas in whichwhere the containersy are located, in a good, usable, clean and
sanitary condition, and shall ensure that the lids or cover on the bin, box, or container is are
kept fully closed, and shall ensure that there is no litter underneath or surrounding the
containers. No refusesolid waste or recyclable materials are shall be placed outside of the bin,
box, or container. Bins, boxes, and cContainers shall at all times be maintained by the
commercial business owners and residential householders kept in a manner that will prevents
leakage, spillage and the escape emission of odors. Commercial premises sharing receptacles
placed outside of retail areas, must also share equally in the responsibility of emptying the
receptacles so that they do not overflow and maintaining the area around the receptacles so
that it is free of loose litter.
(b) The location or placement of bins, boxes, or containers at any place or premises
shall be subject to the approval of the director. Every commercial/industrial business owner
shall provide a location on at the commercial/industrial premises for the bins, boxes, and/or
containers they use, and shall keep the area in good repair.
(c) Any collection agreement may provide for the rental of approved bins, boxes and
containers approved by the collector to customers. The collector shall be responsible for
maintaining maintenance of the bins, boxes andrental containers by keeping the containers in
good and sanitary condition (ordinary wear and tear excepted) and shall repaint such the bins,
boxes and containers at a frequency as determined by the citydirector. The collector and the
renter shall determine and agree upon plan with the customer the placement of the bins,
boxes, and containers to minimize traffic, aesthetics and other potential effects that may be
problems associated with their placement.
(d) Where a bin, box, or container is not rented from the collector but is rented from
another solid waste enterprise and approved by the cityCity, the customer renter shall be
responsible for ensureing that the bins, boxes, or containers meets the same standards of
quality and upkeep as aremaintenance applicable to the bins, boxes, and containers supplied by
the collector. The renter shall procure the written standards or rules and regulations of the
collector prior to renting from another solid waste enterprise.
(e) Anyll bins, boxes, and containers of a one cubic yard or more greater size shall be
identified with the name and telephone number of the collector or other solid waste enterprise
servicing the bins, boxes, and containers. The container shall be identified by the type of
materials that can be deposited in the container..
5.20.140 Frequency of solid wasterefuse collection.
The Collector or his or herits duly authorized agents or subcontractors shall collect solid
wasterefuse from all residential premises and commercial/industrial premises within the
cityPalo Alto at least once a week, unless the director authorizes less a different frequency oft
collection as provided in Section 5.20.
150807 jb 00710649B 19
5.20.150 Collection hours, quietness of collections, and collection of equipment.
(a) Solid waste and recyclable materials collectionsRefuse shall be made collected
only between the hours of six 6:00 a.m. and six 6:00 p.m. in residential districts and at schools,
churches, and commercial premises located in commercial districts properties adjacent to
residential districts.
(b) Refuse shall be collected only between the hours of 4:00 a.m. and 9:00 p.m.
Solid waste and recyclable materials collections in commercial districts other than as indicated
in (a) above shall be made between the hours of four a.m. and nine p.m., subject to such any
reasonable modifications of collection periods as the director may impose.
(c) All collections shall be made as quietly as possible. All trucks and equipment for
solid waste and recyclable materialsrefuse collection shall be operated in a manner that
complies comply with the noise ordinance codified in the provisions Chapter 9.10 Title 9 of the
municipal Municipal codeCode. All unnecessarily noisy trucks or equipment for such collections
are prohibited.
5.20.160 Litter, Sspillage or leakage of solid waste and recyclable materialsrefuse.
All solid waste and recyclable materialstypes of refuse hauled by any person over public
streets in the cityPalo Alto shall be securely tied and covered during hauling thereof so asin
order to prevent litter and the leakage, spillage, or blowing or dropping of refuse of any type on
to public streets. No person shall allow any solid waste or recyclable materials of any kind
whatsoevertype of refuse to leak, spill, scatter, blow or drop from any vehicle operated on any
public streets within the CityPalo Alto.
5.20.170 Special permits in hardship cases.
(a) Upon a showing of hardship by the owner, or occupant or tenant of a place or
premises, the director may issue or cause to be issueda special written permits authorizing
variations froma variance with the provisions of this chapter yet the variance will be subject to
the imposition of such terms and conditions as the or shedirector may deem necessary to
protect the public health, and safety and welfare.
5.20.180 No Accumulation of solid waste or recyclable materialsrefuse.
(a) Every No person shall keep the place or premises occupied by him or her, and
every owner of any unoccupied place or premises shall keep the same, in a clean and sanitary
condition and shall not cause, suffer or permit any solid wastetype of refuse to accumulate in,
on or about suchat its place or premises for a period in excess of one calendar week, except the
director may authorize by written rules and regulations a different frequency of less frequent
collection, removal and disposal of refuse for compactors at commercial/industrial premises.
This provision shall not be construed to prohibit any person from keeping temporarily storing
building materials in, on or aboutat any place or premises during the period of active
150807 jb 00710649B 20
construction, reconstruction or repair of a building or structure thereon under a current valid
building permit, nor the keeping ofstoring wood neatly piledin an orderly pile upon suchat the
place or premise for household use, nor the retaining compostable materials for home
composting of yard trimmings purposes.
5.20.190 No bBurning, burial, or dumping of solid waste or recyclable
materialsrestrictions.
(a) No person shall burn any solid waste or recyclable materialsrefuse within the
cityPalo Alto at any time.
(b) No person shall bury or dump any solid waste or recyclable materialstype of
refuse within the cityPalo Alto. Compostable materials may be buried on-site by the occupant
of the residential place or premises, except at the city landfill in accordance with the
procedures thereof, at any time.
5.20.200 Hazardous waste.
No person shall deposit any Hazardous hazardous waste in the city landfill nor in any
bin, box, ora container.
5.20.210 Manure containers required.
(a) Any and all manure produced, kept or accumulated within or upon any place or
premises shall be placed without delay in a manure container.
(b) All manure containers shall be kept closed at all times excepting when the manure is
being placed into or taken out of the manure containers and shall be kept at all times in the
rear of the place or premises and not less than one hundred feet or thirty and one-half meters
from any residence.
(c) Manure may be mixed with solid waste in the same standard container when it is to
be disposed of with and in the same manner and at the same time as solid waste, but in such
case, each standard container so used, including its contents, shall not exceed sixty pounds or
twenty-seven kilograms in weight, and shall be equipped with a lid or cover adequate to keep
flies from the interior thereof.
5.20.220 Scavenging prohibited.
(a) No person shall scavenge in any city-operated Disposal or processing facility,
including the city landfill, nor disturb nor remove any material therein, without the express
advance permission of the director.
(ab) No person shall tamper with, modify, scavenge from or deposit any type of
refuse placed in any refuse container solid waste or recyclable materials in, any solid waste or
recyclable materials bin, box, or container which has is not been provided for his or herthe use
150807 jb 00710649B 21
of that person, without the permission of the person responsible for owner of the container
and payment of the fees therefor under this chapter.
(bc ) Except as otherwise provided in Sections 5.20.090110 and 5.20.110090 of this
code, no person shall collect any type of refuse originating the recyclable materials from any
residential place or premises or any posted recycling centers within the cityPalo Alto.
(cd) The foregoing prohibitions are in addition to the prohibitions set forth in Section
41950 et seq. of the Public Resources Code.
5.20.230 No trespassing in city landfill.
No person shall enter, be upon, or remain in the city landfill, except during the hours of
operation posted on the main entrance thereto, or except as may be authorized in advance by
the director.
5.20.240 Schedule of rates for the use of the city landfill.
(a) The schedule of rates for the classification of vehicles carrying the solid waste and
the maximum load for use of the city landfill shall be set forth in the municipal fee schedule.
(b) Vehicles operated by the city may be allowed toll-exempt use of the city landfill.
Vehicles operated by any collector of the city may also be exempt if their contract so provides,
and the collector produces the same for inspection if requested by a city landfill employee.
(c) Vehicles owned by the Palo Alto Unified School district may be allowed toll-exempt
use of the City Landfill.
5.20.250 Liability for payment of rates.
(b) Except as set forth in Section 5.20.110(h), every person with residential premises or
commercialoccupying, owning, controlling, or maintaining place or premises within the cityPalo
Alto shall be liable for the payment of the refuse service rates, including any solid waste
collection rates authorized by the cityCity.
5.20.260 Penalty for failure to pay collection rate.
(a) All collection rates and charges imposed by the council Council pursuant to the
provisions of this chapter for the collection, removal and disposal of solid wasteall types of
refuse shall be a civil debt owing to the city City from the owner, occupant or person
maintaining or controlling the place or premises receiving the services.
(b) All such collection rates and charges shall be billed along with other municipal
utility bills, if so billed, and shall be subject to the provisions of the city’s City’s utility rates and
regulations governing the collection and payment of other utility rates. The City may by
agreement permit the collector or other person to collect the applicable rates and charges for
150807 jb 00710649B 22
refuse service. Notwithstanding the foregoing, fees for the use of drop-boxes may be collected
by the collector.
(c) The collection of the rates imposed pursuant to this chapter shall be in addition
to any other remedies available to the city City for the failure of any person to pay the rates.
5.20.280 Administration by city City manager.
(a) The city City manager or designee shall adopt such written rules and regulations,
not inconsistent with this chapter, as may be necessary for the proper administration and
enforcement of this chapter. Such The written rules and regulations may include, but are not
limited to, regulations relating to the required frequency of solid waste and recyclable
materialsrefuse collection from various types of places or premises, the types of special bins,
boxes, and containers required for placement at certain classes of places or premises, and
regulations governing the vehicles used in making such collections, and regulations governing
the use and operation of the city landfill.
(b) The city City manager shall resolve all disputes concerning the administration or
enforcement of this chapter, and. H his or her decision in such matters shall be final.
5.20.290 Penalty for violation.
Violation of any provision of this chapter shall be subject to the provisions and penalties
set forth in Title 1 of the Municipal Code unless otherwise specified.this code.
SECTION 2. Section 18.32.020 of Chapter 18.23 of Title 18 is hereby amended to read,
as follows:
18.23.020 RefuseTrash Disposal disposal areasand Recycling
(A) Purpose
Assure that development provides adequate and accessible interior areas or covered
exterior enclosures for the storage of trash and recyclable materialsrefuse in appropriate
containers with storage capacity for a maximum of one week,, and that trash refuse disposal
and recycling areasstructures and enclosures are located as far from abutting residences as is
reasonably possible.
(B) Requirements
(i) Refuse disposal and structures and enclosures Trash disposal and recyclable areas
shall be accessible to all residents or users of the property.
(ii) Compostable materials and recyclable materials Recycling facilities shall be located,
sized, and designed to encourage and facilitate convenient use.
150807 jb 00710649B 23
(iii) Refuse disposalTrash disposal and recyclable areas shall be screened from public
view by masonry or other opaque and durable material, and shall be enclosed and covered.
Gates or other controlled access shall be provided where feasible. Chain link enclosures are
strongly discouraged.
(iv) Refuse disposal structures and enclosures Trash disposal and recycling structures
shall be architecturally compatible with the design of the project.
(v) The design, construction and accessibility of recycling refuse disposal areas and
enclosures shall be subject to approval by the architectural review boardArchitectural Review
Board, in accordance with design guidelines adopted by that board Board and approved by the
city councilCouncil pursuant to Section 18.76.020.
SECTION 3. The Council finds that the adoption of this ordinance is not considered a
project under the California Environmental Quality Act or the CEQA Guidelines, therefore, no
environmental impact assessment is necessary.
//
//
//
//
SECTION 4. This ordinance shall be effective on the commencement of the thirty-first
day after the date of its adoption.
150807 jb 00710649B 24
City of Palo Alto (ID # 6351)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/15/2015
City of Palo Alto Page 1
Summary Title: 1st Quarter FY 2016 Financial Results
Title: First Quarter Fiscal Year 2016 Financial Results
From: City Manager
Lead Department: Administrative Services
Motion
Staff recommends that Finance Committee review and approve the first (1st) Quarter financial
report.
Background
The purpose of this report is to provide the Council with information on the financial condition
of the City’s General Fund and Enterprise Funds as of the end of the 1st Quarter of fiscal year
(FY) 2016.
Discussion
The FY 2016 1st Quarter ended on September 30, and this report summarizes the actual
financial activity of the General and Enterprise Funds for the three months then ended, and
compares those amounts to the same period prior year and to the FY 2016 Adjusted Budget.
Attachment A provides a breakdown of revenues by source and expenses by function, with
separate columns for Adopted Budget and Adjusted Budget. The Adjusted Budget column
includes prior year commitments that were carried forward into this fiscal year and Budget
Amendment Ordinances (BAOs) through September 30. Encumbrances and actual expenses for
the three month period are also reported.
General Fund revenues (excluding operating transfers and other sources) for the 1st Quarter FY
2016 total $22.9 million which is $1.8 million, or 7 percent, lower than the same period prior
year. Revenue decreases occurred in the sales tax and charges for services categories, and
revenue increases occurred in the transient occupancy tax (TOT) and documentary transfer tax
(DTT) categories. These variances are explained in detail in the Revenue Highlights section.
General Fund expenses for 1st Quarter are 8 percent higher than prior year, and are tracking at
23 percent of Adjusted Budget which is identical to the prior year’s trend.
City of Palo Alto Page 2
Following is a detailed discussion of the most significant revenue and expense items.
Revenue Highlights for 1st Quarter FY 2016
Following is a table which highlights the City’s major revenue sources for the 1st Quarter,
compared to 1st Quarter of the prior year. Each quarter’s revenue is expressed as a percentage
of the Adjusted Budget for that year. Revised projections for the major tax categories are
currently being prepared, and adjustments may be brought forward for City Council
consideration as part of the FY 2016 Mid-Year Budget Review.
FY 2016 FY 2015 % change FY 2016 %FY 2015 %
Property Tax 57$ 69$ N/M 35,067$ 0%31,927$ 0%
Sales Tax 1,251 3,624 (65%)27,630 5%25,957 14%
Charges for Services 3,450 6,027 (43%)24,379 14%24,379 25%
Transient Occupancy Tax 3,283 2,276 44%18,791 17%14,156 16%
Utility User Tax 2,635 2,473 7%11,189 24%11,285 22%
Permits and Licenses 2,340 1,896 23%8,211 28%7,804 24%
Documentary Transfer Tax 1,914 1,302 47%6,852 28%7,514 17%
All Other Revenue Sources 8,019 7,121 13%33,232 24%29,380 24%
Total Revenue 22,949$ 24,788$ (7%)165,351$ 14%152,402$ 16%
1st Quarter Actuals Adjusted Budget
City of Palo Alto
General Fund Revenue
FY 2016 1st Quarter
(000's)
Property tax revenue in the 1st Quarter of the fiscal year is typically only a nominal amount as
property tax receipts are paid by the County primarily in the months of November and March.
FY 2015 actual property tax revenue was $34.1 million which included a one-time receipt of
$1.0 million from the County of Santa Clara for an Educational Revenue Augmentation Fund
(ERAF) distribution. The FY 2016 budgeted amount is $35.1 million, 2.8 percent higher than the
prior year’s actual revenue (5.9 percent higher without the one-time receipt).
Sales tax revenue for the 1st Quarter has decreased $2.4 million from the same period last year
due to the one-time accounting adjustment made in FY 2015 which aligned the sales tax accrual
with the fiscal year, increasing the FY 2015 revenue and decreasing the FY 2016 revenue.
Exclusive of this accounting adjustment, the first receipt of $1.251 million for the current fiscal
year compares to the prior year’s first receipt of $1.256 million.
Charges for services revenue is down $2.5 million from the same quarter last year. This
decrease is due to a combination of the following items:
City of Palo Alto Page 3
Stanford fire service revenue for the 1st Quarter of FY 2016 in the amount of $2.0 million
was invoiced in October (2nd Quarter). In the prior year it was invoiced in September (1st
Quarter). This is a timing difference which will be neutralized before the end of the
fiscal year.
Paramedic service fees decreased $240 thousand from the same period last year due to
fewer trips.
Plan check fees for the 1st Quarter decreased by $299 thousand from prior year’s 1st
Quarter due to two large projects in the prior year’s 1st Quarter.
Transient occupancy tax (TOT) revenue of $3.3 million represents approximately two months
of collections and compares to revenue of $2.3 million for the same period prior year. Factors
contributing to this increase are:
TOT rate increased from 12 percent to 14 percent effective January 1 2015, which
generated $0.5 million in receipts in the current year 1st Quarter from all hotels. In
addition, the 12 percent TOT from newly opened hotels contributed $0.7 million in the
1st Quarter, for a total of $1.2 million that is separated out for transfer to the
Infrastructure Plan.
Daily rates increased 28 percent from prior year - $190 per day to $244 per day -
however occupancy rates decreased from 85 percent to 80 percent. The total number
of rooms available increased by 182, or 9 percent, with the Hilton Garden Inn and
Homewood Suites both opening in March 2015.
Documentary transfer tax receipts total $1.9 million, which is $0.6 million greater than prior
year receipts for the same period. Year over year, the number of transactions is comparable
but the dollar value of current year transactions is higher. These receipts are variable in nature
and difficult to predict. The 2nd Quarter receipts to date are trending lower than 1st Quarter as
a result of fewer transactions.
Permits and licenses revenue totals $2.3 million, or 28 percent of the FY 2016 Budget, with the
$0.4 million increase from prior year primarily due to an increase in new construction permit
revenue.
Expense Highlights for 1st Quarter FY 2016
Following is a table which highlights the City’s expenses by function for the 1st Quarter,
compared to 1st Quarter of the prior year. Each quarter’s expense is expressed as a percentage
of the Adjusted Budget for each year.
City of Palo Alto Page 4
City of Palo Alto
General Fund Expenses
FY 2016 1st Quarter
(000's)
FY 2016 FY 2015 % change FY 2016 %FY 2015 %
inc (dec)
Police 8,675$ 8,120$ 7%37,042$ 23%34,399$ 24%
Fire 6,902 6,425 7%27,022 26%28,597 22%
Community Services 6,199 5,896 5%25,966 24%24,115 24%
Public Works 3,718 3,191 17%16,040 23%14,315 22%
Development Services 2,235 1,977 13%12,018 19%10,772 N/A
Library 1,944 1,708 14%8,727 22%8,253 21%
Administrative Services 1,859 1,651 13%7,738 24%7,326 23%
Planning and Community Env 1,832 1,616 13%11,289 16%8,839 18%
All Other Departments 4,940 4,781 3%24,203 20%19,836 24%
Total Expenses 38,304$ 35,365$ 8%170,045$ 23%156,452$ 23%
1st Quarter Actuals Adjusted Budget
Total expenses for the 1st Quarter of the fiscal year are up 8 percent from the same quarter last
year, which is right in line at 23 percent of the total budgeted amounts.
Police and Fire expenses comprise 41 percent of total General Fund expenditures for the 1st
Quarter, which is comparable to the prior year. Following is a table which highlights Police and
Fire overtime for the 1st Quarter.
Police and Fire
Overtime Expense
FY 2016 1st Quarter
(000's)
FY 2016 FY 2015 % change FY 2016 %FY 2015 %
Inc (Dec)
Police - Overtime 486 465 5%1,539 32%1,500 31%
Fire - Overtime 790 780 1%1,383 57%1,609 48%
1st Quarter Actuals Adjusted Budget
Police overtime is up slightly from prior year, and higher than normal due to overtime in the
dispatch center because of staff vacancies. Fire overtime is comparable to prior year, but has
consumed a higher percentage of budgeted dollars year to date. This is due to the additional
strike teams that were deployed this year to assist with regional fires. Reimbursement will be
City of Palo Alto Page 5
received from the state Office of Emergency Services. Further analysis of police and fire
overtime can be found in Attachment B.
General Fund Budget Stabilization Reserve (BSR) Balance
As reported to the Finance Committee on November 17, FY 2015 ended with a surplus of $13.6
million and a BSR balance of $48.2 million, after transferring $5.1 million of surplus funds to the
Infrastructure Reserve. After deducting the General Fund Adopted Budget BSR balance of
$34.6 million, staff made recommendations for disposition of the remaining surplus funds as
noted below. Council review and approval of these recommendations is scheduled for early
2016.
Description Amount
% of FY
2016
Budget
Beginning BSR balance, July 1, 2015 $ 48,198
Previously approved transfer to Roth Rehabilitation
Reserve per CMR #5879 dated June 2015 (1,000)
FY 2016 one-time expenditures per Adopted Budget (2,123)
FY 2016 BAOs approved and scheduled for approval (2,130)
Reserved for projects in Infrastructure Plan (7,000)
Potential funding for Pension Trust Fund (1,305)
Ending BSR Balance, September 30, 2015 $34,640 18.7%
Enterprise Funds
Following is a summary of change in net position for each of the Enterprise Funds for the three
months ended September 30, 2015, including a comparison of results from the same period last
year.
City of Palo Alto Page 6
City of Palo Alto
Enterprise Funds Change in Net Position
FY 2016 1st Quarter
1st Qtr 1st Qtr Increase
FY 2016 FY 2015 (Decrease)% Change
Water 3,277 3,946 (669)(17%)
Electric (643)(744)101 14%
Fiber Optic 463 600 (137)(23%)
Gas 295 (205)500 (244%)
Wastewater collection 632 476 156 33%
Wastewater treatment 268 524 (256)(49%)
Refuse 2,781 2,873 (92)(3%)
Storm Drainage 832 777 55 7%
Airport 88 14 74 N/A
Total Change in Net Position 7,993$ 8,261$ (268)$ (3%)
Water Fund 1st Quarter net position decreased $0.7 million from prior year due to the
continued reduction of operating revenues as a result of the reduced water consumption
mandated by the San Francisco Public Utilities Commission.
Electric Fund 1st quarter improved $0.1 million from prior year. Utility purchase costs remain at
a high level due to less hydroelectric power as a result of the continued drought.
Gas Fund increased $0.5 million from prior year primarily due to reduced operating transfers to
the Electric Fund.
Pension Update
Following is a table which shows the employee count in each of the Miscellaneous and Safety
Plans as of November 2015 and November 2014.
City of Palo Alto Page 7
Nov 2015 Nov 2014 Nov 2015 Nov 2014
Tier 1 6 7 Tier 1 74 81
Tier 2 2 2 Tier 2 7 6
Tier 3 3 1 Tier 3 8 7
Sub-total 11 10 Sub-total 89 94
Tier 1 112 119 Tier 1 5 2 *
Tier 2 48 37 Tier 2 0 0
Tier 3 34 26 Tier 3 0 0
Sub-total 194 182 Sub-total 5 2
Tier 1 369 385 Tier 1 4 3
Tier 2 67 74 Tier 2 0 0
Tier 3 101 73 Tier 3 0 0
Sub-total 537 532 Sub-total 4 3
Tier 1 44 43 Tier 1 63 67 **
Tier 2 0 0 Tier 2 3 3
Tier 3 1 1 Tier 3 11 11
Sub-total 45 44 Sub-total 77 81
Tier 1 7 7
Tier 2 1 0
Tier 3 0 0
Sub-total 8 7
Tier 1 1 1
Tier 2 0 0
Tier 3 0 0
Sub-total 1 1
Total Tier 1 531 554 Total Tier 1 154 161
Tier 2 117 113 Tier 2 11 9
Tier 3 139 101 Tier 3 19 18
Grand Total Misc Plans 787 768 Grand Total Safety Plans 184 188
%Tier 1 67%72%%Tier 1 84%86%
Tier 2 15%15%Tier 2 6%5%
Tier 3 18%13%Tier 3 10%10%
Tier 1 2.7% @ 55 Tier 1 3% @ 50
Tier 2 2% @ 60 Tier 2 3% @ 55
Tier 3 2% @ 62 Tier 3 2.7% @ 57
*4 @ 3%@50; 1 @ 2.7%@55
**Excludes police trainees
Service Employees
International Union
Utilities Management
Miscellaneous Plans Safety Plans
Fire Chiefs
Association
Employee Group
IAFFCity Council and
Council Appointed
Officers
Employee Group
Management and
Professional
# of Employees # of Employees
Police Management
Association
Police Management
Fire Management
PAPOA
Attachments:
Attachment A: FY2016 Q1 GF (XLSX)
Attachment B Police & Fire OT (XLSX)
ATTACHMENT ACITY OF PALO ALTO
GENERAL FUND FIRST QUARTER FINANCIAL REPORT
FISCAL YEAR ENDING JUNE 30, 2016
(in thousands)
BUDGET ACTUALS (as of 09/30/2015)
Adopted Adjusted Pre % of Adj
Categories Budget Budget Encumbr Encumbr Actual Budget*
Revenues & Other Sources
Sales Tax 27,630 27,630 - - 1,251 #DIV/0!
Property Tax 35,067 35,067 - - 57 #DIV/0!
Transient Occupancy Tax 18,791 18,791 - - 3,283 #DIV/0!
Documentary Transfer Tax 6,852 6,852 - - 1,914 #DIV/0!
Utility Users Tax 11,189 11,189 - - 2,635 #DIV/0!
Motor Vehicle Tax, Penalties & Fines 2,180 2,180 - - 494 #DIV/0!
Charges for Services 25,399 25,399 - - 3,450 #DIV/0!
Permits & Licenses 8,211 8,211 - - 2,340 #DIV/0!
Return on Investment 824 824 - - 5 #DIV/0!
Rental Income 15,296 15,296 - - 3,817 #DIV/0!
From Other Agencies 373 457 - - 577 #DIV/0!
Charges To Other Funds 11,930 11,930 - - 3,017 #DIV/0!
Other Revenues 1,609 1,646 - - 109 #DIV/0!
Total Revenues 165,351 165,472 - - 22,949 #DIV/0!
Operating Transfers-In 18,589 18,589 - - 4,450 #DIV/0!
Encumbrances and Reappropriation 6,452 - - - #DIV/0!
Contribution from Budget Stabilization Reserve 1,732 1,732
As Assumed in the Adopted Budget - - - #DIV/0!
Total Sources of Funds 185,672 192,245 - - 27,399 #DIV/0!
Expenditures & Other Uses
City Attorney 3,101 3,683 583 698 #DIV/0!
City Auditor 1,175 1,206 101 258 #DIV/0!
City Clerk 1,328 1,401 66 223 #DIV/0!
City Council 455 496 42 86 #DIV/0!
City Manager 3,008 3,244 200 741 #DIV/0!
Administrative Services 7,635 7,738 270 1,859 #DIV/0!
Community Services 24,804 25,966 268 3,731 6,199 #DIV/0!
Development Services 11,901 12,018 87 264 2,235 #DIV/0!
Fire 26,532 27,022
Library 8,555 8,727 23 442 1,944 #DIV/0!
Office of Emergency Services 1,051 1,051
Office of Sustainability 423 423 50 136 #DIV/0!
People Strategy and Operations 3,555 4,037 11 519 812 #DIV/0!
Planning and Community Environment 8,900 11,289 150 1,233 1,832 #DIV/0!
Police 36,859 37,042
Public Safety - 126 1,414 15,601 #DIV/0!
Public Works 15,017 16,040 278 1,159 3,718 #DIV/0!
Non-Departmental 8,662 8,662 1,962 #DIV/0!
Total Expenditures 162,961 170,045 943 10,074 38,304 #DIV/0!
Operating Transfers-Out 1,834 2,212 - - 459 #DIV/0!
Transfer to Infrastructure 20,877 20,877 - - 5,219 #DIV/0!
Total Use of Funds 185,672 193,134 943 10,074 43,982 #DIV/0!
Net Changes to BSR - Surplus/(Deficit)(889)
Current BSR Balance (as of September 30, 2015)34,640
BSR % of Total Use of Funds, excluding
Prior year reappropriations & encumbrances 18.7%
12/3/2015
Attachment B
Overtime Analysis for Fiscal Years 2013 through 2016
thru 09/30/15
2013 2014 2015 2016
POLICE DEPARTMENT
Overtime Expense
Adopted Budget $967,900 $1,500,000 $1,500,000 $1,500,000
Modified Budget 970,382 1,500,000 1,500,000 1,500,000
Net Overtime Cost - see below (82,849) 593,565 1,119,728 187,398
Variance to Budget $1,053,231 $906,435 $380,272 $1,312,602
Overtime Net Cost
Actual Expense $1,542,754 $1,711,764 $1,893,220 $486,302
Less Reimbursements
Stanford Communications 51,299 54,552 62,000 13,932
Utilities Communications Reimbursement 28,247 29,845 36,614 7,811
Local Agencies (A)16,255 8,905 10,425 3,838
Police Service Fees 83,785 73,934 69,570 40,234
Total Reimbursements 179,586 167,236 178,608 65,816
Less Department Vacancies 1,446,017 950,963 594,884 233,088
Net Overtime Cost ($82,849)$593,565 $1,119,728 $187,398
Department Vacancies (number of days)5,543 4,251 2,506 1,009
Workers' Compensation Cases 10 14 11
Department Disabilities (number of days)641 776 468
FIRE DEPARTMENT
Overtime Expense
Original Budget $1,624,415 $1,424,414 $1,424,414 $1,382,714
Modified Budget 1,624,415 1,750,956 1,608,710 1,382,714
Net Overtime Cost - see below 628,711 1,012,521 484,339 282,420
Variance to Budget $995,704 $738,435 $1,124,371 $1,100,294
Overtime Net Cost
Actual Expense $1,812,170 $2,562,549 $2,171,795 $790,604
Less Reimbursements
Stanford Fire Services (B)549,088 776,452 658,054 239,553
Cal-Fire/FEMA (Strike Teams)- 50,542 118,317 -
Total Reimbursements 549,088 826,994 776,371 239,553
Less Department Vacancies 634,371 723,034 911,085 268,631
Net Overtime Cost $628,711 $1,012,521 $484,339 $282,420
Department Vacancies (number of days)2,340 2,618 2,709 963
Workers' Compensation Cases 9 18 12
Department Disabilities (number of days)216 489 175
NOTES:
(A)Includes Animal Services contract with Los Altos and Los Altos Hills.
(B )Stanford reimburses 30.3% of Fire Service expenditures.
Data not available
Public Safety Departments
12/3/2015
City of Palo Alto (ID # 6428)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/15/2015
City of Palo Alto Page 1
Summary Title: Fiscal Years 2017 to 2026 General Fund Long Range Financial
Forecast
Title: Fiscal Years 2017 to 2026 General Fund Long Range Financial Forecast
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee review, comment, and accept the Fiscal Year
2017 to 2026 General Fund Long Range Financial Forecast and forward the Forecast to the City
Council for acceptance.
Executive Summary
The Fiscal Year (FY) 2017 to 2026 General Fund Long Range Financial Forecast (LRFF), which
marks the beginning of the FY 2017 budget planning process, projects a slight General Fund
surplus of $0.1 million in FY 2017, a shortfall of $0.6 million in FY 2018, and surpluses in the
remaining years of the Forecast. Although economic indicators and rebounding tax revenues
reveal that the City of Palo Alto has reached a turning point from the Great Recession, this
Forecast reflects financial obligations and rising benefits costs that diminish the positive outlook
over the next 10 years. Despite improving revenue receipts as projected forward, the City
continues to face challenges related to the funding of infrastructure, the desire to retain and
attract a talented workforce to be responsive to the City Council and the community, rising
benefits costs, and unfunded long-term pension and retiree healthcare liabilities in the amount
of $439 million. Additionally, as an alternative Forecast Model shows, the City needs to prepare
for the next recession. While the base model captures the past 20 years of compounded
revenue annual growth rates, which includes economic booms and recessions, staff included
the alternative model for further discussion. While recessions are difficult to predict, history
shows that one will be experienced during the term of this Forecast.
In June 2014, the City Council approved the Infrastructure Plan in the amount of $125.8 million.
Since approval of the plan, the City was able to dedicate additional funding to close the initial
funding gap of $7.5 million and fund the related public art expenditure of $1.1 million, and a
small Infrastructure Plan Reserve of $0.8 million. However, as discussed during the Council
Infrastructure Plan Study Session on December 9, the projects identified in the Infrastructure
City of Palo Alto Page 2
Plan are estimated to cost substantially more due to updated designs, rising construction costs,
and the State imposed requirement to pay prevailing wages. Some of these higher costs will be
funded through higher than previously estimated Transient Occupancy Tax receipts dedicated
to the Infrastructure Plan. Over the ten years of the Forecast, the additional funding for
Infrastructure is estimated at $68 million.
Since the Great Recession, the City Council has approved various strategies to mitigate the
rising cost of salaries and benefits. These strategies include: (1) employees paying their own
CalPERS contribution (between 6 percent to 9 percent of salary) except for the members of the
Fire Chiefs’ Association; (2) sharing future health plan cost increases; (3) creating a second
pension tier (and the state implemented a third tier effective January 1, 2013); (4) reducing
professional development expenses; (5) cost of living freezes for four years; and (6) terminating
the Variable Management Compensation Plan. Continuing with previous actions to curtail the
growth of benefits costs, in 2014, as part of approving the agreement with SEIU and the
compensation plan for Management and Professional employees, the City Council approved the
cost sharing of future health plan costs. Currently, the City is in negotiation with all of its
bargaining groups. It is the City’s desire to retain and attract a talented workforce.
Therefore, this Forecast includes salary and benefits adjustments based upon projected cost of
living increases and market changes. This Forecast provides a long-term view of the City’s
General Fund to provide a strategic focus for addressing future funding needs in the FY 2017
Proposed Budget and beyond. This Forecast assumes FY 2016 service level remain the same. As
in past years, the Forecast has been updated based on current information compiled from
various sources, in addition to utilizing available tools to project revenues and expenditures.
This document facilitates City Council members’ and staff’s understanding of the long-term
impacts of past decisions and identifies issues that must be addressed in the near and long-
term. The Forecast is not a prediction or a commitment of resources; rather, it is a reasonable
snapshot of the City’s future financial condition based on various assumptions and currently
available data.
A continuously improving economic climate is noted by the majority of national, state, regional,
and local economic indicators. This Forecast assumes a continued, gradual growth of the
national economy with positive impacts to the local economy, which is reflective in the
estimates of economically sensitive revenue estimates. It is important to note that consistent
with previous forecasts, the methodology for calculating changes for out-years of the Forecast
(FY 2017 to FY 2026) are based on a historical analysis of increases using the Compounded
Annual Growth Rate (CAGR) with adjustments factored in for known items. By using the
historical average growth rate that incorporates the up and down cycles over the past 10 or 20
years, there is no single year in which a downturn is depicted. Instead, past downturns (e.g. dot
com bust and Great Recession) have been factored into the compound growth rate used to
forecast future revenue streams. Staff performed a reasonableness test of the results and
made appropriate changes to the CAGR analysis.
City of Palo Alto Page 3
As shown in the table below, the FY 2017 Forecast Budget anticipates a slight General Fund
surplus of approximately $0.1 million for FY 2017, a shortfall of $0.6 million in FY 2018, and
surpluses in the remaining years of the Forecast. During the forecast period, surpluses range
between $0.1 million and $12.6 million with an approximate cumulative one-time surplus of
$41.0 million. Assuming that the General Fund Budget Stabilization Reserve (BSR) is fully
funded at the City Council approved target level of 18.5 percent of General Fund operating
expenditures, $13.1 million would have to be set aside to maintain the target level. With these
funds set aside, the one-time resources projected in this Forecast would decrease by $13.1
million from $41.0 million to $27.9 million. It is important to note that the majority of these
surpluses are predicted in the last five years of the Forecast. The further we look into the
future, the less reliable these predictions are.
Fiscal Year 2017-2026 Long Range Financial Forecast
The table includes a calculation for the net operating margin which reflects the year over year
change of surpluses and shortfalls. With the net operating margin, it is assumed that each
shortfall is addressed completely with ongoing solutions in the year it appears, and that each
surplus is completely expended with ongoing expenditures. Based on these assumptions, the
cumulative net operating margin, or ongoing surplus, during the forecast period is
approximately $12.0 million, with the majority of these ongoing surpluses generated in the last
five years of the Forecast.
Although this Forecast presents overall a positive fiscal outlook for the City’s General Fund, it is
important to note that it does not include the following potential impacts, which can increase
or decrease the projected annual surpluses to the FY 2017 Projected Budget and the out-years
of the Forecast: (1) ongoing labor negotiations; (2) funding of the Council approved
Infrastructure Plan after completion of full design, increased construction costs, and prevailing
wage requirements; (3) operating budget impact of Infrastructure Plan projects; (4) cost impact
related to the Parks Master Plan; (5) additional costs related to the future Junior Museum and
Zoo facility; (6) potential acquisition of the downtown Palo Alto Post Office; (7) one-time costs
related to City assets managed by non-profits such as Avenidas Senior Center, the Palo Alto
History Museum, the Ventura Child Care Center, the Junior Museum and Zoo, or the Scout
Building; (8) Cubberley Community Center Master Plan; (9) construction loans for the Palo Alto
Airport; (10) potential termination of the Fire Services Contract with Stanford University; (11)
Cadillac Healthcare Federal Excise Tax expected to impact in calendar year 2018; (12) future
changes to pension plan assumptions by CalPERS; (13) Transient Occupancy Tax increases
City of Palo Alto Page 4
related to two new hotels on San Antonio Road; (14) Tax revenue alignment with updated
Comprehensive Plan; and (15) changes in the local, regional, and national economy.
At this time, staff projects a $6.5 million General Fund budget surplus for FY 2016. This surplus
assumes City Council authorized budget amendments to date and includes higher tax revenue
estimates as indicated in this Forecast ($5.5 million) and expenditure savings related to the
Retiree Healthcare Implied Subsidy ($1.0 million) as discussed further in the Salary and Benefits
section of this report. The majority of the excess revenue is related to the Transient Occupancy
Tax of which $4.2 million will be recommended for transfer to the Capital Improvement Fund
for the Infrastructure Plan as part of the Fiscal Year 2016 Midyear Budget Review report. This
amount does not assume any other recommendations to adjust revenues and expenditure that
staff intends to bring forward for City Council consideration as part of the FY 2016 Midyear
Budget Review. During the next few months, staff will continue to monitor revenues and
expenditures based on available information and include these updates in the FY 2017
Proposed Budget scheduled for release late April 2016.
Officially, the Great Recession ended in June 2009. According to the National Bureau of
Economic Research, the average duration of a business cycle from 1945 to 2009 lasted about six
years and the period between the last two recessions was about ten years. Therefore, staff has
provided an alternative Forecast model which assumes a recession in the first half of Fiscal Year
2019. As can be seen from this model, the City needs to start preparing for the next recession.
As discussed this fall with the City Council and Finance Committee, during a recessionary
period, the City is expected to receive less revenue and pension cost expenses increase. The
Budget Stabilization Reserve has been used in the past in small parts to buffer revenue
decreases. To address the anticipated higher pension costs, staff will bring forth a
recommendation as part of the Fiscal Year 2017 budget to establish a 115 Supplemental
Pension Trust Fund with one-time sources. The funds in the pension trust fund can be used in
the future to mitigate rising pension costs for one or more fiscal years.
Economic Outlook
In preparing the FY 2017 to 2026 General Fund Long Range Financial Forecast, key economic
indicators and measures available through various publications and reports were reviewed.
Overall, the economic outlook for 2017 calls for continued measured optimism even as global
economic conditions continue to produce uneven economic growth across regions and sectors.
International
As a world renowned hub of technological innovation, and at the heart of the Silicon Valley,
Palo Alto is connected to the global economy in immeasurable ways. According to the October
2015 World Economic Outlook (WEO), “global growth for 2015 is projected at 3.1 percent, 0.3
percentage point lower than in 2014, and 0.2 percentage point below the forecasts in the July
2015 World Economic Outlook Update.”i
City of Palo Alto Page 5
Slower global activity is taming inflation in 2015. The continued moderate growth is a
combination of advanced economies anticipating continued grow contrasted with anticipated
declines in emerging markets for the fifth year. With declining commodity prices, depreciating
emerging market currencies, and increasing financial market volatility, downside risks to the
outlook have risen, particularly for emerging markets and developing economies. Modest
increases are anticipated in advanced economies as a result of the strengthening of the euro
and a return of positive growth in Japan assisted by declining oil process and monetary
policies.ii
Looking forward, “Global activity is projected to gather some pace in 2016. In advanced
economies, the modest recovery that started in 2014 is projected to strengthen further. In
emerging market and developing economies, the outlook is projected to improve: in particular,
growth in countries in economic distress in 2015 (including Brazil, Russia, and some countries in
Latin America and in the Middle East), while remaining weak or negative, is projected to be
higher next year, more than offsetting the expected gradual slowdown in China.”iii
United States
In November 2015, the Bureau of Economic Analysis revised their Q3 2015 Gross Domestic
Product (GDP) second estimate to 2.1% compared to the 3.9% increase during Q2. The increase
in Q3 is primarily reflective of “positive contribution from personal consumption expenditures,
nonresidential fixed investment, state and local government spending, residential fixed
investment, and exports that were partially offset by a negative contribution from private
inventory investment.”iv
Overall, Q1 2014 continues to be the worst first quarter showing since Q1 2009, amidst the
Great Recession period, which has been attributed the sharp decline in output and productivity
to unusually cold weather in much of the US in early 2014. According to the UCLA Anderson
Forecast, the federal funds rate is forecasted to be about 1.5 percent by the end of 2016 and
approximately 3.25 percent at the end of 2017. This combined with the continued job growth
and anticipated wage growth will drive consumption levels upward in 2016 leading to the first
year of greater than 3.0% in real GDP since 2005.v The chart below provides a quarterly view of
GDP growth from 2009 to present.
City of Palo Alto Page 6
As noted briefly above, the UCLA Anderson Forecast cites several factors attributing to their
favorable outlook for 2016. As of December, UCLA Anderson Senior Economist David Shulman
cites, that “employment remains healthy, with the economy generating jobs at a
200,000-a-month clip that will bring it further declines in the unemployment rate to 4.6
percent.”vi As a result of the continuing decline in unemployment, reaching nearly full
employment levels, and the continued upward pressure on wage increases, it is anticipated
that the likelihood of inflation reaching its 2.0 percent target will be achieved. National
Unemployment levels continue to decline, and are holding steady at October 2015 levels of 5.0
percent in November 2015. This is 13.8 percent below November 2014 levels of 5.8 percent.vii
With the higher wages and a slight rebound in oil prices and housing costs resulting in inflation
reaching 2.0 percent, UCLA Anderson Forecast anticipated that the Fed will begin to normalize
the Federal Funds rate and gradually begin to tighten.viii
California
California’s economy continues to be a bright spot in the nation’s economic outlook with job
growth continuing to outpace national levels. According to the Bureau of Labor Statistics (BLS),
California’s unemployment rate dropped from 7.2 percent in October 2014 to a preliminary
estimate of 5.8 percent in October 2015, a 19.4 percent decline.ix The current UCLA Forecast
echoes this and forecasts continued steady gains in employment through 2017 with an
unemployment rate of 4.9 percent by the end of the forecast period.
In addition, UCLA Anderson Forecast senior economist Jerry Nickelsburg reviewed economic
indicators that differentiate the state of California from the U.S. average forecast such as trade
through California’s ports, travel through international airports, state government finances, and
residential construction and employment. Overall, continued steady growth through 2017 is
anticipated in these sectors with some notable historical highs in port activity in September
City of Palo Alto Page 7
2015 as well as record levels of travel, continued residential construction, and steady growth in
employment of 2.6 percent for 2016 and 1.4 percent for 2017. California’s payroll will grow
more, at about the same rate and personal income growth is estimated to be 4.3 percent in
2015 and forecast to be 3.4 percent in 2016 and 3.2 percent in 2017.x
According to the Zillow Home Value Index, the median home value in California for October
2015 is $449,500. California home values have gone up 5.8 percent over the past year (October
2014 to October 2015) and Zillow predicts they will rise 2.8 percent within the next year. The
median price of homes sold is $418.250. xi
Palo Alto and the Bay Area
Palo Alto’s traditional economic indicators of growth and prosperity, which are highlighted
below, continue to be strong. The unemployment rate in the San Jose, Sunnyvale, Santa Clara
Metropolitan Statistical Area (MSA), ticked up slightly in the preliminary October 2015 estimate
to 4.0 percent, up from 3.7 percent in September 2015, but down from the October 2014 rate
of 5.0 percent.xii
The employment picture, though returning to normalcy nationally, is showing different
influential factors. Of particular focus in the UCLA Anderson Forecast and significant to the
Silicon Valley in particular is the office-using employment which includes the three leadings
sectors – information, financial services, and professional and businesses services.
These positions are significant as they have the highest average annual salaries for their
employees ranging from $70,070 to $105,000 annually. This is compared to other employment
sectors such as manufacturing, education and health, trades, and leisure and hospitality which
range from $34,490 to $61,000 annually. Therefore, growth in these lucrative sectors is critical
to the prosperity of cities as they bring significant purchasing power.
Finally, home values in Palo Alto continue to reach new highs. According to the Zillow Palo Alto
Real Estate Market Summary, the average price per square foot for Palo Alto was $1,468, an
increase of 12.6 percent compared to the same period last year. The median sales price for
homes for August 2015 to November 2015 was $2.5 million, a 22.5 percent increase from the
same period a year ago. Over the last five years, sales have appreciated a staggering 154.2
percent in Palo Alto. The number of sales has increased 1.2 percent and the average list price
for homes was $3.1 million, according to Trulia.xiii
Fiscal Year 2017-2026 General Fund Long Range Financial Forecast
The FY 2017-2026 General Fund LRFF projects a slight General Fund surplus of $0.1 million for
FY 2017, a shortfall of $0.6 million in FY 2018, and surpluses in the remaining years of the
Forecast. During the forecast period, surpluses range between $0.1 million and $12.6 million
with an approximate cumulative one-time surplus of $41.0 million. Assuming that the General
Fund Budget Stabilization Reserve (BSR) is fully funded at the City Council approved target level
of 18.5 percent of General Fund operating expenditures, $13.1 million would have to be set
aside to maintain the target level. With these funds set aside, the one-time resources projected
City of Palo Alto Page 8
in this Forecast would decrease by $13.1 million from $41.0 million to $27.9 million. It is
important to note that the majority of these surpluses are predicted in the last five years of the
Forecast. The further we look into the future, the less reliable these predictions are.
The operating margin reflects the variance between the projected General Fund revenues and
expenditures for each year of the forecast or the annual surplus or deficit. With the operating
margin, the year over year change in surpluses and deficits, it is assumed that each shortfall is
addressed completely with ongoing solutions in the year it appears and that each surplus is
completely expended with ongoing expenditures. During the Forecast period, the net
operating margin fluctuates between negative $0.6 million and positive $2.9 million. Although
this Forecast projects healthy revenue growth, the revenue growth is barely keeping pace with
the projected expenditure growth during the first five years of the Forecast. In the second half
of the Forecast, revenues substantially outpace expenditures resulting in significant surpluses
ranging from $2 to $12 million annually. This is primarily due to tapering off of City pension
rate increases as discussed further in the salary and benefits section of this report.
Fiscal Year 2017-2026 Base Long Range Financial Forecast
The graph below provides a representation of the operating and net operating margin of the
base model as described above.
City of Palo Alto Page 9
It should be noted that this Forecast, as outlined in the following sections of this report, does
not include the following potential impacts to the FY 2017 Projected Budget and the out-years
of the Forecast:
(1) Labor negotiations: The City is currently in negotiations with the Palo Alto Police Officers
Association (PAPOA), the International Fire Fighters Association (IAFF), the Service
Employees International Union, the Police Management Association, and the Fire Chiefs
Association. Any agreements reached between the City’s bargaining units and approved
for the Management and Professional Personnel Compensation Plan and the City will be
incorporated into future budgets and forecasts, as applicable.
(2) Infrastructure Plan capital budget impacts: In June 2014, the Infrastructure Plan was
approved by the City Council and contains $125.8 million in projects recommended by the
Infrastructure Committee; however, the Plan’s construction and design costs were based
on data from 2012. As construction costs have increased and the City is required to pay
prevailing wages, the Plan is not sufficiently funded. However, the higher than
anticipated revenues for Transient Occupancy Taxes related to new hotels and the 2%
voter approved tax increase will partially offset the higher construction costs.
(3) Infrastructure Plan operating budget impacts: In June 2014, the City Council approved the
Infrastructure Plan which includes $125.8 million in projects recommended by the
Infrastructure Committee. This Forecast does not assume ongoing operating impacts as a
result of the Infrastructure Plan, but future forecasts will include operating cost impacts as
the specific projects are designed.
City of Palo Alto Page 10
(4) Parks Master Plan: the Parks Master Plan will be finalized in 2016 and future forecasts will
include associated cost impacts as necessary.
(5) Junior Museum and Zoo: In November 2014, the City Council directed staff to negotiate a
capital lease with the Friends of the Junior Museum and Zoo for the reconstruction of the
Junior Museum and Zoo. This Forecast does not assume any additional operating costs
related to the renovated building.
(6) Acquisition of the downtown Palo Alto Post Office: The City may acquire the downtown
Palo Alto Post Office with the plan to relocate staff from leased facilities. The acquisition
would be financed through issuance of debt with the annual debt service paid through
lease cost savings. If the Palo Alto Post Office is acquired, it would require substantial
improvements while the City pays the annual debt service, and during that time the City
will also have to continue paying for leasing existing facilities. Staff is reviewing potential
strategies, which would reduce the impact to the General Fund in the short-term.
(7) City owned assets operated by non-profit organizations: This Forecast does not include
any additional capital investments for the Avenidas Senior Center, the Palo Alto History
Museum, the Ventura Child Care Center, the Junior Museum and Zoo, or the Scout
Building.
(8) Cubberley Community Center Master Plan: The FY 2016 Adopted Capital Budget included
funding for the Cubberley Community Center Master Plan. Costs in excess of the
dedicated Cubberley infrastructure funding as agreed to between the Palo Alto Unified
School District and the City are not assumed in this Forecast.
(9) Loans to the Airport Fund for capital improvement projects: Staff intends to apply for
Federal Aviation Administration (FAA) reimbursable grants during the Forecast period. If
approved, the FAA reimburses 90% of capital improvement costs. Since some of these
capital improvements may bridge fiscal years, the General Fund may have to provide
loans crossing fiscal years until the Airport Fund receives the FAA reimbursements.
(10) Fire Services Contract with Stanford University: On October 8, 2013, the City received a
Notice of Termination letter from Stanford with the intent to terminate the contract with
the City no sooner than one year and no later than two years from the date of the notice.
During the termination period as well as the last two months, the City continued to
negotiate with Stanford to settle on a service level and cost. This Forecast assumes the
continuation of the contract for $6.5 million.
City of Palo Alto Page 11
(11) Cadillac Healthcare Federal Excise Tax: Beginning 2018, a 40 percent excise tax will be
imposed on the value of health insurance benefits that exceed a certain threshold.
CalPERS may be able to design healthcare premiums to stay below the threshold and
discussions are in the preliminary stage. Congress is also discussing possibly delaying or
modifying this tax. If the tax is applicable, the City may have to pay the tax.
(12) CalPERS City contribution increases: Currently, CalPERS assumes an annual investment
return of 7.5%. This Forecast assumes that CalPERS will meet the annual investment
return. However, staff provided an alternative Forecast which assumes a poor investment
return for the next ten years. Further, the CalPERS Board approved a gradual de-risking
strategy, which is intended to reduce the assumed investment return to 6.5% over the
next 20 years in the years when CalPERS earns an investment on its portfolio in excess of
11.5%. In the event that the de-risking strategy does not result in a reduction of the
expected rate of return, the CalPERS board will revisit this assumption as part of their
process starting in November 2017 with formal action to take place in February 2018.
(13) Transient Occupancy Tax increases related to two hotels on San Antonio Road: The City is
in the process of reviewing plans for two Mariott hotels with a potential location at San
Antonio Road. This Forecast does not assume any potential Transient Occupancy Tax
increases from these two hotels.
(14) Tax revenue alignment with updated Comprehensive Plan: The City is currently in the
process of updating its Comprehensive Plan including the potential fiscal impact of various
land use scenarios. The fiscal impact of various land use scenarios will be brought forward
for City Council discussion in 2016.
(15) Changes in the local, regional, and national economy: This Forecast assumes a steadily
growing local economy. Any changes may have positive or negative impacts on
economically sensitive revenues such as Sales Tax and the Transient Occupancy Tax.
At this time, staff projects a $6.5 million General Fund budget surplus for FY 2016. This surplus
assumes City Council authorized budget amendments to date and includes higher tax revenue
estimates as indicated in this Forecast ($5.5 million) and expenditure savings related to the
Retiree Healthcare Implied Subsidy ($1.0) as discussed further in the Salary and Benefits section
of this report. The majority of the excess revenue is related to the Transient Occupancy Tax of
which $4.2 million will be recommended for transfer to the Capital Improvement Fund for the
Infrastructure Plan as part of the Fiscal Year 2016 Midyear Budget Review report. This amount
does not assume any other recommendations to adjust revenues and expenditure that staff
intends to bring forward for City Council consideration as part of the FY 2016 Midyear Budget
Review.
City of Palo Alto Page 12
Since the Great Recession, the City Council has approved various strategies to reduce the costs
of salaries and benefits. These strategies include: (1) employees paying their own CalPERS
contribution (between 6 percent to 9 percent of salary) except for the members of the Fire
Chiefs’ Association; (2) sharing the cost of health plan costs at 90/10; (3) creating a second
pension tier (and the state implemented a third tier effective January 1, 2013); (4) reducing
professional development expenses; (5) cost of living freezes for four years; and (6) terminating
the Variable Management Compensation Plan. Continuing with previous actions to curtail the
growth of benefits costs, in 2014, as part of approving the agreement with SEIU and the
compensation plan for Management and Professional employees, the City Council approved the
cost sharing of future health plan costs. However, in comparison to market studies to
comparable agencies, the salaries of our employees, primarily safety employees, have fallen
behind. Currently, the City is in negotiation with all of its bargaining groups. It is the City’s
desire to retain and attract a talented workforce. Therefore, this Forecast includes salary and
benefits increases to adjust employees’ salaries to the average of the market over the next few
years. Due to these adjustments, for Fiscal Year 2018 only, revenue growth is outpaced by a
salary and benefits growth resulting in a shortfall of about $0.6 million. Looking forward to the
next fiscal year, in Fiscal Year 2019, this Forecast predicts a surplus of $0.9 million. Therefore,
the projected Fiscal Year 2018 shortfall can be bridged with one-time funding.
The next section of the report discusses the analysis and assumptions of major revenue and
expenditure categories. Consistent with the 2016-2025 LRFF, the methodology for calculating
changes for out-years of the Forecast (FY 2018 to FY 2026) are based on a historical analysis of
increases using the Compounded Annual Growth Rate (CAGR) with adjustments factored in for
known items. Staff performed a reasonableness test of the results. Typically, the average
business cycle lasts six years and the period between the last two recessions was about ten
years. Therefore, this report includes an alternative Forecast model with a recession assumed
in Fiscal Year 2019.
Revenues
City of Palo Alto tax revenues continue to parallel the strong local economy. Robust residential
and commercial property values, business driven transient occupancy and daily rates, and the
emergence of new hotels have propelled key revenue sources upward since Fiscal Year 2013.
The fundamental economic drivers of low unemployment, strong incomes in Silicon Valley,
vibrant business activity, and the demand for Palo Alto property will continue to buttress
revenue in the near future.
City of Palo Alto Page 13
Fiscal Year 2017-2026 Long Range Revenue Forecast
The tables above (also available in Attachment A) highlight the annual revenue estimates and
year over year increases for this Forecast. Compared to FY 2016 projected, FY 2017 revenues
are estimated to increase by $5.0 million, or approximately 2.6 percent. Based on the
economic analysis presented in the previous section of this report, revenue estimates, which
are primarily linked to the performance of the regional and local economy, are reflective of
increased consumer spending, continued rise in home prices, and the opening of hotels. The
upward trend of the City’s tax revenues is expected to continue over the next 10 years.
These tax revenues have significantly improved since the beginning of the Great Recession. The
table above illustrates the steady growth projected for the General Fund’s revenue streams, by
percentage, from FY 2017 through FY 2026.
During the 2013 Finance Committee discussions, it was recommended that staff consider use of
a historical annual growth rate derived for each tax revenue source to project future revenue
streams. This methodology was used in the final forecast presented for FY 2015 to 2025 and
City of Palo Alto Page 14
has been used in this forecast as well. The Compound Annual Growth Rates (CAGR) utilized in
this Forecast is cited in each revenue section and reflected in the revenue section table.
The graph above depicts a historical and the base model projected view of the five major
General Fund tax revenues. It includes 10 years of actual revenue history; the projections for FY
2016 based on actual data available for the first five months of the fiscal year; as well as the
projections for FY 2017 and the subsequent years of the Forecast. Revenue forecasts are based
on current data and application of the Compound Annual Growth Rate (CAGR) methodology.
The following section is a detailed discussion of General Fund Tax revenue and other major
revenue sources by category.
Sales Tax
Sales taxes have risen from a low of $17.9 million in FY 2010 to a projected level of $27.9
million in FY 2016. They are expected to grow by a compound annual growth rate of around 2.6
percent through FY 2026. Staff has factored into the forecast weakening receipts over the past
several years from a few key generators. In addition, the ongoing movement of tangible good
purchases from brick and mortar stores to online vendors continues and poses a long-term
threat. Evidence of this was reported in a December 1, CNBC article, “According to the Adobe's
Digital Index, total online sales on Cyber Monday rose 16 percent compared to last year, to
$3.07 billion.” The article goes on to say that in-store data “showed sales were down an
estimated 10.4 percent over Black Friday weekend” compared to the prior year.
As reported to Council, there was a one-time tax windfall from one vendor in FY 2014 and a
Government Accounting Standards Board tax accrual adjustment in FY 2015. In each year, sales
tax was reported at $29 million. As shown below, the FY 2016 and FY 2017 projections return
to a more realistic level in 2017.
City of Palo Alto Page 15
TABLE 1: SALES TAX REVENUE BY FISCAL YEAR (MILLIONS)
Fiscal Year 2012 2013 2014 2015 2016 2017
Revenue $22.1 $25.6 $29.4 $29.7 $27.9 $28.5
Restaurant and auto sales are trending higher, while department store and electronic firm sales
are trending lower. The State will terminate its “triple flip” program this January so the City
will receive more timely payments and slightly higher interest earnings due to better cash flow.
The CAGR applied to the period FY 2016 through FY 2025 is 2.6 percent which is in line with
historical growth rates.
Property Tax
As the table below indicates, since FY 2012 property taxes have risen substantially. Staff
projects this source to grow at 5.9 percent over the next ten years which is in line with
historical trends. The recent purchases of the Tibco Site in the Stanford Research Park ($330
million) and the Epiphany Hotel ($71.6 million) evidence a compelling commercial real estate
market. Other contributing factors include: single family home sales that have exceeded asking
prices and the unleashing of latent property values from the sale of long held homes that were
“shielded” from assessed value appreciation by Proposition 13.
TABLE 2: PROPERTY TAX REVENUE BY FISCAL YEAR (MILLIONS)
Fiscal Year 2012 2013 2014 2015 2016 2017
Revenue $26.5 $28.7 $30.6 $34.1 $35.1 $37.5
The City’s property tax estimate for FY 2016 is based on information received from quarterly
meetings with the Santa Clara County Assessor’s Office. The estimate includes appeals on
record with the Assessor’s Office, additions to the roll, and movements in assessed values.
Projections beyond FY 2016 are based on historical growth rates. The CAGR used in this 10 year
forecast equals 5.9 percent, slightly higher than the 5.4 percent in last year’s forecast. This
higher growth rate is justified by the factors cited above.
As requested by the City Council, staff contacts the Palo Alto Unified School District (PAUSD)
regarding their assumptions in property tax growth. Typically, the initial growth assumptions
used by PAUSD in developing their budget are lower than the City’s.
As the budget year progresses, however, PAUSD will align their property tax revenue with
actual increases that tend to be closer to the City’s projections. PAUSD’s growth rate
assumption for FY 2016 was 5.34 percent.
In FY 2015, the Administrative Services Department contracted with a firm to produce detailed
reports on property taxes. The consultant’s reports have provided key insights into Palo Alto’s
real estate market that supports property taxes growing at around 6 percent per year,
including:
City of Palo Alto Page 16
There are 8,010 residential properties in Palo Alto under $600,000 in Assessed Value
(AV). These properties, over a seven year period ending in FY 2015, turned over at an
average rate of 582 annually.
On average, 3.1 percent of the above residential parcels annually changed ownership
and the average AV increased by 171 percent. For example, a property with an AV of
$1,000,000 is expected to sell in today’s market at $1,710,000 which is somewhat
conservative given current sale prices.
Per the 2015-2016 Assessor’s Roll, average Assessed Value of residential properties in
Palo Alto equal $1,080,000.
Transient Occupancy Tax (TOT)
As the table below shows, Transient Occupancy Taxes continue to perform exceptionally well.
As summarized in the table below, average daily room rates and occupancy levels continue to
demonstrate considerable strength since FY 2011. Generally, occupancy levels between 80 and
85 percent indicate full occupancy. Demand for Palo Alto rooms is strong, leading to
construction and planned construction of five new hotels. A vibrant business and tourist
environment has led to a surge in hotel bookings from San Francisco down through the
Peninsula to San Jose.
TABLE 3: TRANSIENT OCCUPANCY TAX BY FISCAL YEAR (MILLIONS)
Fiscal Year 2012 2013 2014 2015 2016* 2017
General Purpose Revenue
(millions)
$9.7 $10.8 $12.3 $13.4 $15.3 $16.1
Infrastructure Revenue (millions) N/A N/A N/A $3.3* $9.2 $9.7
TOTAL $9.7 $10.8 $12.3 $16.7 $24.5 $25.8
Average Daily Room Rate $165 $182 $208 $208 $253 N/A
Average Occupancy (percent) 79% 80% 79% 79% 80% N/A
* This $3.3 million is currently retained in the Budget Stabilization Reserve to support Infrastructure
Plan projects, as recommended for approval by the Finance Committee as part of closing the Fiscal
Year 2015 budget.
** Projected revenue based on trend and Fiscal Year 2016 year to date data. Average Daily Room Rate
and Occupancy are year-to-date through October 2015.
This forecast includes estimated revenues for all of the new hotels that have come on-line, the
Epiphany and the two new Hilton hotels as well as the Westin Annex which is expected to open
this year. Plans for a hotel on the Ming’s restaurant site have been terminated. The new hotels
planned for San Antonio Road are not included in the LRFF. Revenues from the 2.0 percent TOT
increase effective January 1, 2015 and from the new hotels that are dedicated to infrastructure
are isolated in the LRFF. The CAGR applied to the period FY 2016 through FY 2026 is 4.8
percent which is in line with historical growth rates.
City of Palo Alto Page 17
Documentary Transfer Tax (DTT)
After two solid years of unusually strong performance, the Documentary Transfer Tax will likely
approach more normal levels in FY 2016. Through November 2015, transactions and receipts
are down 24 percent and 35 percent, respectively, compared to the same prior year period. As
mentioned above, there were sizable, one-time transactions (Hudson Pacific purchases of office
space) along the Page Mill corridor last FY that are unlikely to be duplicated in FY 2016. Based
on current activity, staff expects $7.1 million in FY 2016 with a mild uptick in FY 2017 to $7.4
million.
TABLE 4: DOCUMENTARY TRANSFER TAX BY FISCAL YEAR (MILLIONS)
Fiscal Year 2012 2013 2014 2015 2016 2017
Revenue $4.8 $6.8 $8.1 $10.1 $7.1 $7.4
The CAGR applied to the period FY 2016 through FY 2026 is 5.8 percent, again, in line with prior
year CAGR trends.
Utility Users Tax (UUT)
The Utility Users Tax forecast includes a 5 percent tax on water, gas and electric usage and a
4.75 percent tax on telephone activity. In FY 2015, the step down tax for large users of utilities
was eliminated.
Receipts anticipated from the UUT are based on the Utilities Department’s five-year revenue
and rate projections. These estimates could change as the department discusses its proposed
rate plan with the Utilities Advisory Commission and the City Council during the annual budget
process. With the drought and heightened water conservation efforts as well as lower gas
prices and consumption, the utilities UUT is expected to decline from FY 2015 to FY 2016.
Revenues in FY 2015 registered at $7.6 million and these are expected to drop to $7.1 million in
FY 2016. Upward movement in revenues is anticipated in FY 2017 with increasing rates.
Telephone receipts have been increasing marginally since FY 2014 and are expected to do so
despite the drop of 0.25 percent in the UUT rate for this category.
Other Taxes & Fines
Based upon a review of historical collection patterns, it is anticipated that the budgeted
revenue estimate for this category will need to be reduced as part of the FY 2017 Proposed
Operating Budget. As such, this forecast assumes a reduction of 7.2 percent, primarily
attributable to lower parking violations and library fines. In the remaining years of the forecast,
revenues are anticipated to increase between 2.7 and 4.9 percent.
Charges for Services
For FY 2017, total revenues in this category will increase 1.7 percent or $296,000 from the FY
2016 Adopted Budget. Revenues collected primarily reflect the costs to provide services to the
community and therefore, are significantly impacted by personal service costs. The slight
increase reflects an increase in estimated receipts to maintain cost recovery levels in FY 2017
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partially offset by any one-time revenue adjustments approved as part of the FY 2016 Adopted
Budget and adjustments reflective of the Golf Course closure in Fiscal Year 2017. The golf
course revenues are decreased by $542,000 from the FY 2016 Adopted budget due to the
anticipated closure. This decline in revenues is partially offset by a reduction in contract
services associated with operating the Golf Course. As discussed in City Manager Report (CMR)
#6335, to be heard by the City Council on December 14th, 2015, the Golf Course is now
anticipated to remain open through the end of FY 2016 and construction is now anticipated to
begin in the summer of 2016 and continue through FY 2018.
Ongoing, this Forecast assumes an increase in charges for services revenue by approximately
3.1 percent to account for general salary and benefit increase included in the Forecast. These
figures do not include Charges for Services revenue for Stanford Fire & Dispatch which is
explained in further detail below.
Stanford Fire & Dispatch Services
The City has two separate agreements with Stanford University to provide fire response
services and emergency dispatch services. As part of these agreements, Stanford is charged
30.3 percent of the Fire Department’s net cost and 16 percent of the Police Department’s
Communication and Dispatch Division to reimburse the City for Stanford’s proportional share of
these services. The term of the fire response service contract between the City and Stanford is
through September 30, 2026; however, at Stanford’s request, the two parties have been in
negotiations over the past two years to restructure the contract. On October 8, 2013, the City
received a Notice of Termination letter from Stanford with the intention to terminate the
contract with the City no sooner than one year and no later than two years from the date of the
notice. During the termination period as well as the last two months, the City continued to
negotiate with Stanford to settle on a service level and cost. Based on outcome of these
negotiations, this Forecast assumes the continuation of the Fire Services contract for $6.5
million and dispatch contract for $741,000 with Stanford University escalated by the increased
salary and benefits costs.
Permits and Licenses
Revenue from permits and licenses has experienced consistent growth over the past several
years, primarily due to increased development activity around Palo Alto. Based on year-to-date
estimates, FY 2016 revenues are projected to reach the Adopted Budget revenue estimate of
$8.2 million. Revenues collected primarily reflect the costs to provide services to the
community and therefore, are significantly impacted by personal service costs. In FY 2017,
revenues in this category are expected to increase 5.6 percent, consistent with the projected
increased personal service costs. From the FY 2016 projected level with ongoing annual
increases of 2.6 percent through the forecast. As discussed in the FY 2016 Adopted Budget, the
Planning and Community Environment and Development Services departments are reviewing
the cost recovery model for these departments. Upon completion of this analysis, the staff will
evaluate changes in planning and development fees and bring forward recommended
adjustments as appropriate as part of the annual budget process.
City of Palo Alto Page 19
Return on Investment
Interest earnings continue to be depressed as a consequence of the Federal Reserve’s loose
monetary and interest policies. Expectations for earnings from investments are around $0.9
million which is a 1.9 percent increase from FY 2015 yearend projections.
Rental Income
The largest source of rental income comes from the City’s Enterprise Funds and the Cubberley
Community Center. Compared to the FY 2016 Adopted Budget, rental income will decrease
from $15.3 million to 15.0 million. The decrease includes a projected loss of $500,000 in rental
income at Cubberley due to Foothill College moving out. As part of the development of the
Fiscal Year 2017 budget, staff will pursue replacement tenants to offset the rental loss figure
related to Foothill College. The forecast does assume that by Fiscal Year 2018, Cubberley will
have new tenants on board resulting in a rental income revenue increase of $200,000. The
forecast out years also assume a 2.6 percent growth for all rental properties, except for the
Refuse Fund rent which is assumed until FY 2021 as approved by the City Council to account for
the closing costs related to the Middlefield Well landfill site.
Revenue from Other Agencies
Included in this category is funding from Community Services Outreach theatre programs,
reimbursements from the Palo Alto Unified School District (PAUSD) for School Resource
Officers, and state and federal grants, if received. Many of these revenue streams are difficult
to predict and are dedicated often to specific purposes. In this category revenues over the past
five fiscal years have remained well below $0.5 million. This forecast assumes $0.4 million for
FY 2017 with a growth rate of approximately 1.3 percent in subsequent years due to the
unpredictability of this funding source.
Charges to Other Funds
Approximately 86 percent of this category is General Fund administrative cost plan charges to
the Enterprise and Internal Service Funds. Internal support departments such as ASD, HR, and
Council Appointees provide services to enterprise and internal service funds. The costs for
these services are recuperated through the administrative cost plan charges. The charges for
Fiscal Year 2017 are determined based on actual services provided in Fiscal Year 2015. The FY
2017 projected amount is $11.5 million, a decrease of 3.2 percent, from the FY 2016 Adopted
Budget. The decrease in cost plan charges to the Enterprise and Internal Service funds is
attributable to internal support departments providing more support to General Fund
departments in Fiscal Year 2015. The forecast includes increases ranging between 2.6 to 4.9
percent each year based primarily on assumed increases in salary and benefit costs. In addition
to the General Fund administrative cost plan, this revenue category includes several other
allocations, most notably Public Works administration charged to Public Works Enterprise
Funds and public safety communication services provided to the Utility Department.
City of Palo Alto Page 20
Other Revenues
Major revenue sources in this category are reimbursements for the Shuttle program (e.g. City of
East Palo Alto), Animal Services charges to Los Altos and Los Altos Hills, reimbursements from
PAUSD for its share of Cubberley and athletic field maintenance, donations from non-profits to
City libraries, and miscellaneous revenues. Revenues for this category are estimated to decline
by 16.4 percent in FY 2017, mostly due to the elimination of $0.3 million in one-time revenue in
approved in the FY 2016 Adopted Budget. The FY 2017 projected revenue for this category is
$1.3 million, with a 2.6 percent to 2.8 percent annual increase forecasted for through FY 2026.
Operating Transfers In
Operating Transfers include the equity transfer from the Electric and Gas funds as well as
transfers from the University Ave Parking Permit Fund. In accordance with a methodology
approved by Council in June 2009, the equity transfer is calculated by applying a rate of return
to 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 2015, the equity transfer from the Electric and Gas funds
are projected to increase from $17.3 million in FY 2016 to $18.8 million in FY 2017 (8.4
percent), and then increase annually by 2.3 percent over the rest of the forecast period. The
higher increase in FY 2017 reflects updated Gas Fund capital asset data while the subsequent
years reflect the average annual adjustment in the equity transfer since 2009. Overall
Operating Transfers are estimated to increase to $20.1 million in FY 2017, an increase of $1.5
million from the 2016 Adopted Budget level of $18.6 million.
Expenditures
As part of developing the FY 2017 Forecast expenditure budget, the General Fund expenditure
categories have been adjusted by removing FY 2016 Adopted Budget one-time expenditures
and updating major cost elements such as salary and benefits costs. The tables below display
the General Fund expense forecast. Compared to FY 2016 Adopted Budget, FY 2017
expenditures are estimated to increase by $9.7 million, or 5.2 percent primarily due to
increased salary and benefits, an increased transfer to infrastructure, and allocated charges
costs from Enterprise Funds and Internal Service Funds.
City of Palo Alto Page 21
Fiscal Year 2017-2026 Long Range Expenditure Forecast
Salary and Benefits
The table above (also available as an attachment) depicts the salaries and benefits costs for the
next ten years. Over the Forecast period, the salaries and benefits cost gradually increase in
comparison to the total expenditure budget. In FY 2017, salaries and benefits costs represent
60.6 percent of the expenditure budget; in FY 2026, the salaries and benefits cost represent
61.8 percent of the budget. In the same period, though, the benefits cost as a percentage of
total salaries and benefits costs increase from 50.6 percent in FY 2017 to 53.7 percent in FY
2026. Over the Forecast period, salaries compounded growth is 28.0 percent versus a
compounded growth in benefits costs of 42.4 percent. This compounded growth is less than
estimated in the previous Forecast primarily due to lower estimated City pension contributions
in the out-years of the Forecast as described in more detail below. The following sections
describe the assumed increases in salary and benefits costs and depict the reasons for the
faster increasing benefits versus salaries costs.
Salary
Consistent with the City’s change in salary budget methodology that was implemented as of
recent budgets, positions are budgeted at actual rate of pay including benefits as of fall 2015.
Then, by position, salary costs are updated in accordance with applicable Memoranda of
Understanding (MOU) between the City and its labor groups and the Management and
Professional Personnel and Council Appointees Compensation Plan. It is important to note that
the City is currently in negotiations with the Palo Alto Police Officers Association (PAPOA), the
City of Palo Alto Page 22
International Fire Fighters Association (IAFF), the Service Employees International Union, the
Police Management Association, and the Fire Chiefs Association. This Forecast includes salary
and benefits increases based on projected increases in the cost of living and market based
adjustments. The Forecast also assumes step increases consistent with applicable MOUs and
merit increases for Management and Professional employees.
Benefits
Pension
The forecast includes the pension rates from CalPERS as of the June 30, 2013 valuation for the
City’s Miscellaneous and Safety plans, as updated by Bartel Associates (Bartel), the City’s
actuary. Staff asked Bartel to update the pension rates based on the latest available
information from CalPERS since CalPERS advised cities that the actuarial valuations as of June
30, 2014 will become available in December and project the rate for the ten-year period of the
Forecast. In the last Forecast, staff relied on the CalPERS projections and extended those for
the out years of the Forecast. Once CalPERS releases the latest valuation, staff will update the
pension costs for the Fiscal Year 2017 budget as necessary.
As shown in the table below, the FY 2017 pension contribution rates for the Miscellaneous and
Safety plans, as calculated by Bartel increased from the current year. For the Miscellaneous
Plan, the projected pension contribution rate increase is 1.8 percentage points from the FY
2016 rate of 27.7 percent to a FY 2017 rate of 29.5 percent. For the Safety Plan, the projected
pension contribution rate increase is 2.7 percentage points, from the FY 2016 rate of 41.9
percent to a FY 2017 rate of 44.6 percent. The table below shows the pension contribution
rates from FY 2018 through FY 2026.
TABLE 5: PENSION RATES BY PLAN (FISCAL YEAR)
Pension Plans 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Miscellaneous 27.7% 29.5% 31.3% 33.1% 34.9% 35.3% 35.6% 35.4% 35.2% 35.0% 31.9%
Safety 41.9% 44.6% 47.9% 50.8% 53.6% 54.1% 54.6% 54.1% 53.7% 53.2% 52.8%
The City pension contribution rates assumed in this Forecast are substantially lower for the last
few years of the Forecast period than assumed in the last Forecast due to a change in
methodology for projecting the rates. Last year, staff used a linear extrapolation of rate
increases provided by CalPERS during the first four years (CalPERS only provides rates for five
fiscal years). This year, staff asked Bartel and Associates to provide projection of the City
Contribution rates as presented to the Finance Committee in November. To exemplify the
impact of this change in methodology, the last Forecast assumed for FY 2025 a 42.6% City
contribution rate for Miscellaneous employees and a 64.3 % City contribution rate for Safety
employees. The lower City contribution rates for this Forecast resulted in lower overall benefits
costs.
It is important to note, however, that the CalPERS Board approved a de-risking policy of its
investment portfolio in order to reduce the assumed investment return of 7.5% to 6.5% over a
City of Palo Alto Page 23
20 year period. With this policy CalPERS will only reduce the investment return assumption in
years with investment returns higher than 11.5%. However, the Board is scheduled to revisit
this policy in February 2018. If the Board decides to reduce the assumed investment return
regardless of the actual earnings at this time, the City’s contribution rate would most likely
increase for FY 2021.
Retiree Healthcare
This Forecast includes the Annual Required Contribution (ARC) per the May 2014 actuarial
valuation based on information as of June 30, 2013, (accepted by the City Council on June 9,
2014) for the City’s retiree healthcare plan as updated by Bartel. Bartel’s update to the last
actuarial valuation assumes the latest CalPERS mortality rate assumptions, incorporates the
investment gain for the Retiree Healthcare Trust Fund as of June 30, 2015, and assumes a
lowering of the assumed investment return assumption from 7.61% to 7.25%. Currently, Bartel
is preparing the Retiree Healthcare valuation as of June 30, 2015. Staff will incorporate the
findings of the valuation as part of the FY 2017 budget. As this Forecast predicts surpluses in
the out-years, staff intends to revisit the investment earning assumptions for further reductions
in coming years.
The table below details Bartel’s estimate for the City’s annual Retiree Healthcare contribution
by the General Fund, non-general funds, and all funds for the next ten years.
TABLE 6: RETIREE HEALTHCARE ANNUAL REQUIRED CONTRIBUTION (IN MILLIONS BY FISCAL YEAR)
Fund 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
General Fund $10.0 $10.9 $11.2 $11.6 $12.0 $12.4 $12.8 $13.2 $13.6 $14.0 $14.5
Non-General
Funds
$4.8 $5.2 $5.4 $5.6 $5.8 $5.9 $6.1 $6.3 $6.6 $6.8 $7.0
TOTAL $14.8 $16.1 $16.6 $17.2 $17.8 $18.3 $18.9 $19.5 $20.2 $20.8 $21.5
On June 9, 2014, City Council accepted the Retiree Healthcare Plan GASB 45 Actuarial Valuation
as of June 30, 2013 and approved full funding of the Annual Required Contribution (ARC) for
Retiree Healthcare for FY 2015 and FY 2016. As documented in the report (CMR #4891) which
recommended approval of full payment of the ARC, the primary reason for the increased ARC
for Retiree Healthcare was the inclusion of a new actuarial standard regarding the implied
subsidy of healthcare premiums of active employees in relationship to healthcare premiums for
retirees. CalPERS blends active employees with pre-Medicare retirees and charges them the
same medical premium; however, younger employees on average consume less healthcare
services and therefore are subsidizing older employees and retirees. The implied subsidy is the
difference between average retiree claims and retiree premiums charged by CalPERS.
Consistent with City Council direction, as recommended by staff, the City budgeted for full
payment of the ARC for FY 2015 and FY 2016, including the implied subsidy. The implied
subsidy for FY 2015 was $1.9 million for all funds. As part of preparing for the FY 2015 CAFR,
staff worked closely with the City’s actuary, the managers of the City’s trust fund for Retiree
City of Palo Alto Page 24
Healthcare, and the City’s external auditor about the implied subsidy in the Retiree Healthcare
Fund. After many discussions, staff realized that the implied subsidy budgeted in the Retiree
Healthcare Fund should have been budgeted as a contribution from the City’s healthcare
premiums for active employees. However, the FY 2015 budget had fully funded the City’s
healthcare premiums of approximately $17.4 million for active employees. Therefore, the cost
of healthcare premiums related to the implied subsidy in the amount of $1.9 million was
budgeted twice. For FY 2015, the savings of healthcare premiums related to the implicit
subsidy remained in the General Benefits Fund for future use. For FY 2016, staff will bring
forward recommendations as part of the FY 2016 Midyear Budget Review report to correct
departmental budgets regarding the implied subsidy. Starting with this Forecast and the FY
2017 Budget, staff correctly budgeted for the implied subsidy for active employees healthcare
premiums. This means that for all funds approximately $2.2 million of the active employees
healthcare premiums are included in the Retiree Healthcare ARC.
Healthcare
Consistent with the previous Forecast and as a result of the most recent labor agreement
between the City and the Service Employees International Union (SEIU), the City’s contribution
amount towards medical costs for SEIU employees is based on a flat contribution from the City
with the employee contributing towards the remaining medical plan premium. This flat
contribution towards medical costs is also used for the Management and Professional
employees. All other labor groups eligible for medical benefits will remain on the 90/10
contribution structure until new labor agreements are reached with the City and the affected
bargaining groups. This Forecast assumes an annual health care cost inflator of 8 percent for
the labor groups on the 90/10 medical benefit structure, and a 4 percent annual health care
cost inflator for the labor groups on the flat rate contribution structure. Consistent with the
previous Forecast and with historical trends, the 2017-2026 LRFF assumes a 4 percent increase
for dental and vision costs for the out-years.
Contract Services
The FY 2016 Adopted Budget included $17.4 million to fund contract services of which
approximately $2.4 million was for one-time items that include $0.3 million for trash
receptacles on University Avenue, $0.3 million for the Fry’s Master Plan, and $0.3 million for
the continuation of services at the Palo Alto Animal Shelter and transition operations to a non-
profit. This $2.4 million has been removed from the forecast for FY 2017 and beyond. In
addition, the FY 2016 Adopted Budget assumed that the Golf Course would be closed during
the second half of the fiscal year; however, due to continued delays in securing the required
permits to begin the Golf Course Reconfiguration Project, as detailed in CMR #6335 to be heard
by City Council on December 14, 2015, this Forecast assumes that the project will begin in early
FY 2017. As a result, contractual expenses related to the Golf Course are anticipated to be
reduced by approximately $0.6 million from the FY 2016 Adopted Budget level. This reduction
in Golf Course expenses is partially offset by a reduction in revenue collections in Charges for
Services. In FY 2018, upon the assumed completion of the Golf Course Project, contractual
expenses will increase by approximately $0.9 million.
City of Palo Alto Page 25
As discussed with the Finance Committee in October, staff continues to look for implementing
alternative service delivery models such as partnering with a non-profit agency to provide
animal services or identifying a partner for the City’s swim program. For the FY 2017 Forecast
Budget year, $0.1 million has been added for the maintenance of the Magical Bridge
playground and parkland maintenance. In the out-years of the Forecast, a 2.6 percent growth
factor for contract services is assumed. This is aligned to the 20 year historical average of the
San Francisco Metropolitan Statistical Area Consumer Price Index – All Urban Consumers of 2.6
percent.
Supplies & Materials
The category for Supplies and Materials decreases from $3.7 million in FY 2016 to $3.6 million
in FY 2017 due to the elimination of one-time items funded in the FY 2016 Adopted Budget. For
the out-years of the Forecast, it is assumed that costs will increase based on the 2.6 percent
annual CPI increase.
General Expense
This category includes costs for travel and meetings, telephone and non-city utilities,
contingency accounts, subsidies and grants provided through the Human Services Resource
Allocation Process (HSRAP), and bank card service charges. The FY 2017 Forecast for this
category remains flat as compared to FY 2016 at $4.7 million. For the remaining years of the
forecast, this category assumes annual increases between 2.5 and 2.6 percent. These figures
do not include General Expenses for the Cubberley Lease which is explained in further detail
below.
Cubberley Lease
In Fiscal Year 2015, the City and Palo Alto Unified School District (PAUSD) agreed to an
extension of the Cubberley Lease by five years starting January 1, 2015. As part of the lease
agreement, the City Council approved creation of a fund for Cubberley infrastructure
improvements. Based on the new lease, $1.9 million will be transferred to the Cubberley
Property Infrastructure Fund for future infrastructure improvements. 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 2017 Forecast Budget includes $5.8 million
for Cubberley Lease payments. In accordance with the lease agreement, the Forecast assumes
a 3.0 percent annual CPI increase for the lease payments to the Palo Alto Unified School District
(PAUSD) for the Cubberley facility. Also, the lease agreement period is five years; however, for
planning purposes in this Forecast, it is assumed that the agreement will continue during the
entire Forecast period.
Rents & Leases
Rent and Lease expenses for FY 2017 are estimated to increase by $38,000 from the FY 2016
adopted level of $1.5 million. The largest expense in this category is $1.1 million for the
City of Palo Alto Page 26
Development Services Center. From FY 2018 forwards, this expense is expected to increase by
2.6 percent per year.
Facilities & Equipment
Facilities and Equipment expenses for FY 2017 are projected to decrease by 20.1 percent, or
$0.1 million, as compared to the FY 2016 Adopted Budget, due to the elimination of one-time
funding included in FY 2016. One-time items funded during FY 2016 include the purchase of 30
AEDs ($50,000), community center furniture replacement ($25,000), and the build out of office
space at the Development Center ($20,000). After the elimination of one-time funding,
projected expenses in this category of $0.5 million will remain fairly consistent in FY 2018 and
beyond. Consistent with the 20-year CPI for the San Francisco San Jose Metropolitan Statistical
Area, the forecast assumes a 2.6 percent annual increase starting in FY 2018.
Allocated Charges
Allocated Charges represent expense allocations by the City’s enterprise and internal services
funds for services and products they provide to General Fund departments. In FY 2017, these
charges are estimated at $18.1 million including utilities usage (24.2 percent or $4.4 million),
liability insurance (7.5 percent or $1.4 million), technology costs (33.9 percent, or $6.1 million),
vehicle equipment and replacement costs (27.7 percent or $5.0 million), and other costs (6.7
percent, or $1.2 million). The FY 2017 charges of the forecast updates the revenue and expense
for these cost plans based on the most current information available at the time of Forecast
development. Growth of 2.6 percent is anticipated in the out-years, which is based on the
average annual expense growth over the forecast period.
Operating Transfers Out
Operating Transfers Out includes transfers from the General Fund to the Debt Service Fund,
Technology Fund, and Airport Fund. Fiscal Year 2016 year-end projected transfers out total
$1.8 million, and are expected to remain at that level for FY 2017. In FY 2018, the transfer level
is anticipated to increase by approximately $0.3 million, primarily attributable to debt service
payments for the Golf Course Reconfiguration project ($0.5 million), partially offset by the
elimination of a transfer to the Airport Fund ($0.3 million)
Transfer to Infrastructure
In FY 2016, the adopted General Fund transfer to the Capital Improvement Fund is $19.0
million, which includes the base transfer of $14.0 million and $5.0 million from additional
Transient Occupancy Tax (TOT) proceeds generated through a two 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
Infrastructure Plan, consistent with City Council direction. The transfers to the Capital
Improvement Fund are anticipated to increase significantly as compared to the FY 2016
Adopted Budget, as the revenue generated from these new sources has outpaced initial
City of Palo Alto Page 27
projections. In FY 2016, an additional $4.2 million is anticipated to be transferred to the Capital
Improvement Fund. In the out-years of the forecast, the TOT-associated transfer is anticipated
to increase between 4.1 and 5.2 percent annually. These additional increases will help in
offsetting the rising costs of Infrastructure Plan projects and ensuring the projects in the plan
will remain fully funded. Additionally, the base transfer to the Capital Improvement Fund is
anticipated to increase by 2.6 percent each year. Finally, this category includes the $1.9 million
transfer to the Cubberley Property Infrastructure Fund, described earlier in this document. This
transfer remains flat in all out-years of this Forecast.
Alternative Fiscal Year 2017-2026 Long Range Financial Forecast
In order to provide potential alternative perspectives, staff analyzed two other long range
alternatives including one with a low pension investment return and another with a projected
recession beginning in FY 2019.
CalPERS Poor Investment Return
As discussed with the City Council in September 2015 and the Finance Committee in November
2015, Bartel Associates provided the City with a continuous poor CalPERS investment
performance scenario. A continuous poor CalPERS investment scenario which Bartel defines as
investment returns between 0.2% and 4.1% will result in exceedingly high pension rates. The
table below shows the Bartel projected City pension contribution rates by plan based on
continuous poor investment results.
TABLE 7: PENSION RATES BY PLAN (FISCAL YEAR) WITH FOR POOR INVESTMENT RETURNS
Pension Plans 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Miscellaneous 27.7% 29.5% 31.3% 33.8% 36.9% 39.1% 41.6% 43.8% 45.6% 47.0% 45.4%
Safety 41.9% 44.6% 47.9% 52.0% 57.0% 60.3% 64.1% 67.6% 70.2% 72.2% 73.9%
Based on these higher annual pension rates, pension costs would increase by a total of $34.0
million over the Forecast period, compared to the base model. The General Fund annual
surplus in FY 2018, the first year impacted by the higher rates, would be reduced from $1.1
million in the base model to $0.7 million, a 36 percent reduction. This trend would continue
through FY 2026 as the projected General Fund surplus of $3.4 million in FY 2026 would
become a General Fund deficit of $5.4 million. During the Forecast period, the net operating
margin fluctuates between positive $0.6 million and negative $5.4 million. This model does not
project any additional revenue growth compared to the base model, which is the main reason
expenditures begin to outpace revenue in FY 2021 and this gap continues to grow through FY
2026.
City of Palo Alto Page 28
Fiscal Year 2017-2026 Long Range Revenue Forecast – CalPERS Poor Investment Return
Alternate Model
Fiscal Year 2019 Recession Alternate Forecast
As described previously, the assumptions included in this Forecast, consistent with previous
forecasts, are based on a historical analysis of increases using the Compounded Annual Growth
Rate (CAGR) with adjustments factored in for reasonableness. The adjusted CAGR model
factors in the impact of prior recessions but does not make assumptions about when a
recession may occur. Typically, the average business cycle lasts six years and the period
between the last two recessions was about ten years. Below, an alternative Forecast model is
presented for informational purposes showing the projected impact of a recession beginning in
FY 2019. This recessionary model adjusts the projected tax revenues and decreases the rate of
growth for certain non-salary expenditures, which would be expected when the next downturn
occurs.
Assuming an onset of a recession at the beginning of FY 2019, as can be seen in the table
below, a significant annual deficit of $9.7 million would exist in FY 2019. Assuming the FY 2019
deficit is not solved with ongoing expenditure reductions the annual deficit would grow to
between $10.6 and $21.7 between FYs 2020 and 2024. However, as shortfalls are addressed
primarily due to expenditure reductions, the subsequent ongoing deficits are reduced as shown
in the net operating margin analysis. By addressing the net operating margin shortfalls over
three years, the City will return to surpluses starting with FY 2022.
The recessionary model assumes a reduction in major tax revenues, though they are
anticipated to decline at a lower rate than those in the Dot.Com bubble and Great Recession.
The economically sensitive revenue sources follow somewhat different patterns in reacting to a
recession. Acting like a harbinger, historical data indicates that Documentary Transfer Taxes
decline just prior to the onset of a downturn.
City of Palo Alto Page 29
Sales Tax and TOT decline dramatically, as was the case during the Dot.Com bubble and Great
Recession, in the year a recession is declared. A recession’s impact on Property Taxes,
however, lags behind the other categories by approximately 2 years as it takes considerable
time for the County Assessor to reflect residential and commercially assessed valuations
downward. Staff’s assumptions for economically sensitive revenues in this alternative scenario
are as follows:
Documentary Transfer Tax: declines by 8.5% or $0.6 million in FY 2018 followed by another
decline of 22.4% or $1.5 million in FY 2019.
Sales Tax: declines 11.8% or $3.5 million in FY 2019 and by another 5.0% or $1.3 million in FY
2020.
Transient Occupancy Tax: declines by 11.5% or $3.1 million in FY 2019 and dips further in FY
2020 by 4.6% or $1.1 million
Property Tax: Palo Alto has been fortunate in past recessions with property taxes plateauing
rather than declining. Beginning in FY 2019, staff expects revenues to level off at $43.0 million
and stay at this level through FY 2021.
Conclusion
The Long Range Forecast projects a slight General Fund surplus of $0.1 million for FY 2017 and,
except for a budget shortfall in FY 2018, reflects a generally positive outlook over the next 10
years. Economic indicators demonstrate that the local business environment is rebounding;
however, substantial financial obligations and added uncertainties may diminish the General
Fund surplus over the next 10 years.
Despite improving revenue receipts as projected forward, the City continues to face challenges
related to the funding of infrastructure, the desire to retain and attract a talented workforce,
being responsive to the City Council priorities and the community expectations, rising benefits
costs, and unfunded long-term pension and retiree healthcare liabilities in the amount of $439
million. Additionally, as an Alternative Forecast Model shows, the City needs to be prepared for
the next recession. Having healthy reserves and a potential separate pension trust plan to
offset a recession impact will be critical in order to have a future budget that allows staff and
the City Council at least a year to plan for permanent budget adjustments.
While the City is addressing these short and long-term issues, the City needs to continue
reviewing its operations and service delivery options. Over the last few years, the City has
outsourced services to the private sector and entered into negotiations with the non-profit
sector for public-private partnerships. Staff is engaged in finding a partner to effectively and
efficiently operate Animal Services and is exploring different service delivery options for the
City’s aquatic operations While the City further explores alternative service delivery models
with the goal to reduce staff levels and related benefit costs, the City will also review cost
recovery levels of services currently provided to the community. In early 2016, staff will bring
forward recommendations to increase fees for the Planning and Community Environment
Departments as well as other departments to align the fees with the cost recovery goals set by
the City Council approved User Fee Cost Recovery Level Policy.
City of Palo Alto Page 30
This 10-year Forecast assumes an additional $68 million to be dedicated towards the
completion of infrastructure needs. Although these additional funds are substantial, they may
not be sufficient to build the projects due to escalating construction costs or within existing
timelines. Therefore, as prior infrastructure plans have not completely materialized to
completion, it will be important to focus on maintaining the current plan as a top priority and
not be tempted to increase ongoing operational expenses that surface unless they are deemed
absolutely necessary in order to complete the plan.
The City is currently updating its Comprehensive Plan. Staff is in the final stages of assessing
the fiscal impacts of the various planning scenarios that will be used to analyze policy choices
that will have to be made as part of the Comprehensive Plan Update. Once the City Council
approves the Comprehensive Plan update with its inherent policy choices, revenue assumptions
for future Forecasts will be aligned with the new Comprehensive Plan.
During the next two months, staff will continue to monitor revenue sources as well as update
revenues and expenditures, as applicable, based on newly available information. This updated
information will be reflected in the FY 2017 Proposed Budget, which is scheduled to be released
to the City Council late April 2016. While facing some significant unfunded financial challenges,
the City is in a good position to plan accordingly and based on the diversified revenue sources it
can continue to address the necessary infrastructure needs, but decisions must be prioritized
and focused.
Attachments:
Attachment A: Revenues (PDF)
Attachment B Expenditures (PDF)
Endotes
i International Monetary Fund (IMF), World Economic Outlook: Executive Summary, October 2015,
Page XV
ii International Monetary Fund (IMF), World Economic Outlook: Executive Summary, October 2015
iii International Monetary Fund (IMF), World Economic Outlook: Chapter 1 Recent Developments and
Prospects, October 2015, Page 1
iv U.S. Department of Commerce Bureau of Economic Analysis (BEA), “National Income and Product
Accounts Gross Domestic Product: Third Quarter 2015 (Second Estimate),” November 24, 2015.
v UCLA Anderson Forecast, December 2015
vi UCLA Anderson Forecast, December 2015
vii Bureau of Economic Analysis (BEA), Labor Force Statistics from the Current Population Survey,
December 2015
viii UCLA Anderson Forecast, December 2015
ix Bureau of Economic Analysis (BEA), Local Area Unemployment Statistics, December 2015
x UCLA Anderson Forecast, Job growth, wage increases to push real GDP growth past 3% for first
time since ’05, December 2, 2015.
City of Palo Alto Page 31
xi Zillow, California Home Prices & Values, Zillow Home Value Index, Accessed December 2015
xii United States Bureau of Labor Statistics (BLS), Local Area Unemployment Statistics: San Jose-
Sunnyvale-Santa Clara, CA MSA, Accessed December 2015
xiii Zillow, Palo Alto Real-Estate Market Overview, Zillow Real Estate Data for Palo Alto, Accessed
December 2015
Attachment A Fiscal Year 2017-2026 Base Long Range Financial Forecast - Revenues
Attachment B
Fiscal Year 2017-2026 Base Long Range Financial Forecast – Expenditures
City of Palo Alto (ID # 6419)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/15/2015
City of Palo Alto Page 1
Summary Title: Budget Hearing Referrals Update
Title: Budget Hearings Referrals Update
From: City Manager
Lead Department: Administrative Services
This is an informational report and no Finance Committee action is required.
Background and Discussion
In May 2015, the Finance Committee reviewed the Fiscal Year 2016 Proposed Budget
during several meetings. As part of this review, the Finance Committee requested various
information items. Additionally, the Police Department had an outstanding budget referral
from a previous budget year. The table below provides an update of outstanding referrals
from the Finance Committee.
Referral Assigned
Department
Status
Regular updates
to the Finance
Committee reg.
the Animal
Shelter
City Manager’s
Office
Since July 1 staff has worked with the Friends of
Palo Alto Animal Services (FoPAAS), Palo Alto
Humane Society (PAHS), and other stakeholders to
develop a Request for Proposal (RFP). The RFP
closes on 12/11/15. Further information and month
by month updates since 7/1/15 are located at
following website:
www.cityofpaloalto.org/AnimalServicesAssessment.
Finally, to date, staff has not spent or committed any
of the approved FY 2016 transition funding.
Public Art
Ordinance for
private
development to
simplify the
calculation of the
Public Art Fee.
Community
Services
In Spring 2016, staff intends to bring a discussion of
the public art fee structure change for private
development to the Council as part of the Public Art
Master Plan Study Session. Specifically, based on
Council feedback, staff will bring forward an
amendment to apply the 1% fee to required projects
with no budget cap.
City of Palo Alto Page 2
Police Services
and Utilization
Study
Police
The Police Department is evaluating the possibility
of using the California Commission for Police Officer
Standards and Training to conduct the police
services evaluation. Based on the outcome of the
evaluation, staff will proceed with the California
Commission or issue a Request for Proposal for a
consultant.
Considerations
of stronger
encroachment
fees for
construction that
impact portions
or all of a city
street or
sidewalk.
Public Works
Staff is evaluating the nexus for charging fees above
and beyond staffing and overhead costs including
surveying of neighboring cities. Staff intends to
bring the results of the analysis to the Finance
Committee early 2016.
Discussion of
usage and
replacement of
pool vehicles
Public Works Scheduled for February 2016.
Cubberley Center
Master Plan:
additional
information and
a timeline for the
site
Public Works Staff is working closely with PAUSD in developing a
scope of work for the Cubberley Community Center
Master Plan project that was approved in the Fiscal
Year 2016 Capital Plan, and is also evaluating short-
term repairs and improvements at Cubberley for
consideration independent of the Master Plan
process. Staff will bring these items to the Finance
Committee in 2016.