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HomeMy WebLinkAbout1999-04-19 City Council (14)C ty City of Palo Alto Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:APRIL 19, 1999 CMR:213:99 SUBJECT:1999-01 BUDGET ISSUES This is an informational report and no Council action is required. BACKGROUND This report provides information regarding selected programs and projects requiring funding or resource commitments from the General Fund and the Utility Funds. The report also includes a discussion of those items which represent significant policy issues for the Council. By reviewing these items before budget hearings, the Council will have additional insight as it makes decisions regarding the allocation of City resources during the 1999-01 budget process. The following programs, projects and issues merit Council consideration during the 1999-01 budget process and in the near future: Council Priorities Traffic Management and Safety - Local Shuttle Bus System - Special Events Shuttle - Traffic Enforcement - Downtown Parking Structures - Commute Coordinator - Residential Permit Parking Program CMR:213:99 Page 1 of 18 Implementation of the Comprehensive Plan - Implementation Plan and Committee - Integration into the Mission Driven Budget - Comprehensive Plan Status Report Infrastructure Plan - Infrastructure Management Plan - Infrastructure Financing Plan Update - Augmented Infrastructure Maintenance Funding - Infrastructure Staffing Study - New Infrastructure - Library Master Plan - Citywide Space Needs - School District Athletic Fields General Fund Issues Technology - Information Technology Strategic Plan - Year 2000 Compliance - Permit Tracking System Long-term Financial Plan Planning Issues - Historic Preservation - Development Center User Fee Study - Zoning Ordinance Update - PAMF/SOFA Coordinated Area Plan Public Safety - Emergency Preparedness - Firefighter Safety - Paramedic Master Plan - Communications Dispatch Staffing Competitiveness Initiative CMR:213:99 Page 2 of 18 Utility Funds Issues Storm Drain Fund Rate Increase Utilities Risk Management Activities Electric Rates Utility Equity Transfers Refuse Fund Contract Negotiations Cable Co-op Franchise Agreement DISCUSSION Council Priorities Traffic Management and Safety Local Shuttle Bus System: In October 1998, the Transportation Division retained a transit planning consultant and initiated a planning and design study for a community-based shuttle bus system. The proposed system would serve Palo Alto residential neighborhoods and local destinations, including commercial areas, employment centers, transit stations, schools, cultural and social centers. It is envisioned as an attractive, convenient, user-friendly service that will provide an alternative to the automobile. The consultant’s report will include an assessment of needs and demand, a funding plan, system alternatives, and development of a long-range plan and phasing strategy. The Planning Commission and City Council will review the consultant’s interim report in Spring 1999, with the draft plan for the preferred alternative returning to City Council in early Summer 1999. The plan will include an analysis of staffing, contract and capital costs, and funding options for one-time and ongoing costs. The Proposed Budget includes seed money of $256,000 in the Planning Department Budget for the first year of the local shuttle bus system. The source of this funding is a transportation-related grant (TEA 21) received by the City. Special Events Shuttle: In 1998-99, the City assumed full responsibility for the special events shuttles (May Fete, Black and White Ball, Chili Cookoff, Downtown Art Fair, Halloween Haunt, Snowmen and Sleigh Rides, and Millennium Event). Previously, the Chamber Of Commerce oversaw the shuttle program and the City contributed to its funding. The Proposed Budget includes funding of approximately $15,000 in both 1999-00 and 2000- 01 for the special events shuttle. Traffic Enforcement: For several years, a high priority has been placed upon addressing speed and traffic safety issues throughout the City. In 1997-98, the Police Department fully CMR:213:99 Page 3 of 18 implemented the motorcycle team and increased enforcement efforts for red light violations and pedestrian safety. The Proposed Budget includes funding of $94,000 for the addition of a Traffic Enforcement Officer which will further enhance the Department’s ability to address red light violations, pedestrian safety, and school commute corridor safety. Downtown Parking Structures: The funding to build two new downtown parking structures is dependent on downtown property owners approving a new assessment via a mailed ballot procedure. Staff plans to conduct the ballot procedure when design is 50 percent complete. At that stage, the City’s assessment engineer will have sound cost estimates, which are needed to calculate the assessments for each parcel. The design plans are contingent upon approval from the Architectural Review Board (ARB), the Planning Commission, and the City Council. To date, pending approval of the new assessment, the General Fund has expended approximately $1.0 million for feasibility and design services. The ARB has suggested changes to the design of the parking structure on High Street (Lot R) that may require the City to advance additional funds for design. Depending on the resolution of design issues, an assessment ballot procedure could occur as early as Fall of 1999. In 1999-00, staff intends to return to the Council to receive further direction on a number of issues related to the parking structures. Due to the design of the structure on Lots S/L, there will be an area along the Lytton and Bryant frontage of the structure that cannot be used for parking spaces. There are a variety of options for use of this space, including creating space for a new Teen Center, using it as office, or as retail space. Commute Coordinator: With the adoption of the 1998-99 Budget, the Council directed staff to explore opportunities to increase City efforts to promote commute programs in the business community. In January 1999, staff returned to the Finance Committee with.a recommendation to conduct a needs assessment to develop information about employees working in City business districts, including commute patterns, modes, work schedules, program incentives, and commute program financing alternatives. Instead of approving the needs assessment, the Finance Committee directed staff to hire a Commute Coordinator to develop and conduct a one-year trial commute coordination program. The 1999-00 Proposed Budget includes $50,000 for a Commute Coordinator (hourly position), and program materials and furniture ($20,000). This funding will be for one-year period, subject to review for continuation. The Human Resources Department is working jointly with the Transportation Division of the Planning and Community Environment Department and the Chamber of Commerce to define the parameters of the position, which will be placed organizationally in the Transportation Division. (While this initiative was originally in the Human Resources Department, it has been transferred to the Transportation Division.) Staff will report back to the Council regarding the success of the program during the 2000-01 CMR:213:99 Page 4 of 18 budget process. An important consideration for continuing the program in subsequent years will be the participation of the business community and the possibility of grant funding. Residential Permit Parking Program: In December 1996, the Council directed staff to study the feasibility of a Residential Permit Parking Program in the neighborhoods adjacent to the downtown area. Since that time, staff has been working with the Downtown North Neighborhood Association and the University South Neighborhood Group on the feasibility and development of a program. Staff has also held several meetings and conducted surveys with residents in these neighborhoods to obtain feedback on the program. There are still a number of issues that need to be addressed prior to staff returning to the Council with a recommendation. Staffis in the process of developing cost and revenue estimates associated~ with the program. The 1999-01 Proposed Budget includes no funding for a Residential Permit Parking Program since the program has not been finalized. Implementation of the Comprehensive Plan Implementation Plan and Committee: After adoption of the Comprehensive Plan, staff developed a Comprehensive Plan Implementation Plan, which includes all of the programs and policies in the Comprehensive Plan, identifies the lead department, and indicates the timing and financing implications of each element. This was reviewed by the various City boards and commissions, and adopted by the Council in March 1999. Staff has created a Comprehensive Plan Steering Committee, which includes representation from most City departments. The purpose of the Committee is to oversee the implementation of the Comprehensive Plan, ensuring that implementation is accomplished in a timely and systematic matter, making resource allocation recommendations, and providing outreach and education to City staff about the Plan. Integrating the Comprehensive Plan into the Mission Driven Budget: Staff has integrated the adopted 1998-2010 Comprehensive Plan into the 1999-01 Proposed Budget. The intent of this integration is to make it simple for citizens and employees alike to pick up the budget document and identify how the programs and policies of the Comprehensive Plan are linked to the allocation of resources in the budget. As a first step for accomplishing this, departments were asked to use the Comprehensive Plan as a guide when developing their budgets. Departments identified current programs and proposed new programs which met the goals and policies of the Comprehensive Plan, and noted such programs in their budget submittals. The integration of the Comprehensive Plan into the proposed budget has taken place on three CMR:213:99 Page 5 of 18 levels. A new section has been added to each department or fund in the budget document, the "Comprehensive Plan Overview." This section highlights the goals of the upcoming year which implement the Comprehensive Plan, organized by Comprehensive Plan element. It may have overlap with the previously existing sections, Department Overview and Resource Level Changes, but is unique in that it focuses exclusively on those initiatives which link back to the Comprehensive Plan. The next level at whicfi the Comprehensive Plan has been integrated is in Functional Area key plans. ~ Those key plans which implement policies and programs of the Comprehensive Plan have an icon indicating which element of the Comprehensive Plan is being implemented, and note the actual policy or program from the Comprehensive Plan which is being implemented. Thus, a reader can seek further information regarding the specific Comprehensive Plan item. The last level at which the Comprehensive Plan has been integrated is into impact measures. Those impact measures which are linked to implementation of the Comprehensive Plan are identified through the addition of a column which will refer to the specific programs or policies of the Comprehensive Plan.. Finally, as submittals for the Capital Improvement Program (CIP) budget were developed, departments were asked to look at the Comprehensive Plan. The previously used format for CIP project descriptions continues to include a place to describe the link between the project and the Comprehensive Plan. Comprehensive Plan Status Report: In order to collect in a single place the pro.gress which is being made towards implementing the Comprehensive Plan, staff is developing a status report. This status report will use the Comprehensive Plan Implementation Plan as its template, and will provide an update on the status of every program and policy in the Implementation Plan. The report will be organized by Comprehensive Plan element. Staff intends to distribute a copy of the status report to the Council annually, during the budget review process. Infrastructure Plan Infrastructure Management Plan: In July 1998, after several years of development and review, the Council approved an increase in infrastructure funding of approximately $3.0 million annually, to implement the General Fund Infrastructure Management Plan. The Proposed 1999-04 CIP Budget reflects this direction from the Council, and includes total funding of $6.0 million to begin implementation of the Infrastructure Management Plan. The amount of funding is less than the $7.4 million annual funding approved by the Council because it is the first year of the Plan and many of the projects are in the. design, rather than the construction, phase. It should be noted that the Infrastructure Management Plan is evolving. As staffhas begun to complete infrastructure work on specific facilities, it has become necessary to enhance CMR:213:99 Page 6 of 18 certain elements (e]g., lighting and electrical systems) rather than using in-kind replacements. Further, infrastructure needs not originally identified in the Plan have been added, such as air conditioning at the Community Theatre and new Mitchell Park improvements. Such adjustments may add two or three years to the timeline for completion of the Plan. Infrastructure Financing Plan Update: The Council-approved Financing Plan covers $78.5 million of the ten-year $100 million Infrastructure Management Plan. This leaves a funding shortfall of $21.5 million. Staff proposed to increase the City’s transient occupancy tax from 10 percent to 13 percent to cover this shortfall. The Council directed staff to work with the business community to gauge support for this increase, or alternative tax increases. Staff has met several times with Chamber of Commerce representatives to discuss various revenue raising strategies. Staff plans to prepare a report for the Finance Committee in early Summer 1999 on the results of those meetings. Augmentedlnfrastructure Maintenance Funding: In the course of planning infrastructure improvements, staff determined that there was a need to view facilities in an all- encompassing fashion. Rather than looking exclusively at the infrastructure needs of a particular facility, staff is also looking to see whether or not augmented maintenance is required to ensure a safe, attractive, and user-friendly place. For example, at the same time that staff repairs a roof and repaints the exterior and interior of a heavily used public structure, an evaluation is being done of furnishings, such as floor coverings, drapery, tables and chairs, to see if they need to be repaired or replaced. To this end, funding in the amount of $100,000 is included in the operating budget to augment the infrastructure work at Foothills Park and the Baylands Nature Preserve. Infrastructure Staffing Study: Staff has hired an outside engineering and management consulting firm, Black and Veatch, to analyze the need for additional staffto accomplish the General Fund Infrastructure Management Plan. Staff is working with the consultant to finalize a report, which will be presented to the City Manager in May 1999. Staff expects that it will be completed and ready for Finance Committee review in July 1999. The Proposed Budget contains a placeholder in the amount of $300,000 for augmented infrastructure staffing. Since the 1999-04 General Fund Proposed CIP includes the first year of Infrastructure Plan funding, the additional staff will be critical to its success. New Infrastructure: The Council-approved Infrastructure Management Plan included the direction that new infrastructure be funded from new revenue resources. In December 1998, the Finance Committee gave conceptual approval to staffs identification of the highest priority new infrastructure projects: a new public safety building, Library Master Plan improvements, and traffic calming improvements. At that time, staffhad indicated it would CMR:213:99 Page 7 of 18 bring additional information (financing altematives and timing for going to the voters) for these new infrastructure priorities to the Finance Committee in the Spring of 1999. Staff has not been able to address this task, due to the more immediate priorities of preparing a Storm Drainage Fund financing plan, supporting financing plans for the Regional Water Quality Control Plant and the downtown parking structures, and overseeing the Infrastructure Staffing Study. Staff plans to bring a report to the Finarice Committee in Summer of 1999 with this additional information. Library Master Plan: The draft Library Master Plan (Plan) was distributed to Council in March 1998. The Plan will be reviewed by the Library Advisory Commission (LAC), prior to being finalized for discussion and action by the Council. The first meeting of the LAC was held in March 1999. It is anticipated that public input and Plan revisions will take several months to complete. Although the Plan has both operating and capital budget impacts, the 1999-01 Proposed Budget includes no funding related to the Library Master Plan because it has not been finalized. Citywide Space Needs: In July 1998, the Council gave its approval to the first phase of a multi-phase project to address serious overcrowding in the Civic Center tower and in various Community Services offices. A comprehensive needs assessment had been completed for all departments except Fire and Police; those needs were anticipated to be met through the Public Safety Building initiative. The Space Master Plan envisioned three main elements: relocation of the Utilities Engineering Division from the Civic Center tower as an interim step prior to potentially relocating that division to the Municipal Services Center, and the conversion of records storage on the A Level for office space; creation of a one-stop permit center and relocation of the Planning, Building, Public Works and Utilities staff associated with the development process; and the reconfiguration of the vacated space in the Civic Center tower to meet the space deficit for the remaining staff. In July 1998, the Council authorized the Utilities Department to lease space for its Engineering Division (then located on the 3rd floor of the Civic Center) at 1007 Elwell Court, and approved funding for the A Level office conversion project. In September 1998, the Council approved the lease of space at 285 Hamilton Avenue in order to realize the vision of a Development Center. The City of Palo Alto Development Center opened in March 1999. The 1999-04 Proposed CIP contains funding for the final phase of the Space Master Plan, the reconfiguration of the space vacated in the Civic Center Tower due to the departure of Utilities Engineering and the creation of the Development Center. Originally anticipated to be completed over two years, the timeframe has been extended somewhat due to funding CMR:213:99 Page 8 of 18 constraints, but the Public Works Department anticipates having the Plan essentially completed by the end of 2000-01. School District Athletic Fields: In 1999-00, the City and the Palo Alto Unified School District (PAUSD) proposed to expand the cooperative agreement for the maintenance of the school district athletic fields. The current program covering three sites (JLS, Jordan, and Walter Hayes), would be expanded to include an additional 11 elementary school sites, an increase from 20 to 40 acres. A tennis court resurfacing program for the district tennis facilities would also be incorporated into the program. All costs associated with this program are shared equally between the City and PAUSD. The Proposed Budget requests CIP funding of $138,000 to purchase two trucks, a rotary mower, and a trailer, for maintenance tasks related to this additional maintenance. The operating budget requests $117,500 for two additional staff and $105,500 for supplies and materials to expand the maintenance program. This $361,000 represents the total costs; PAUSD will reimburse the City $180,500 for its share of the expenses.. General Fund Issues Technology Information Technology Strategic Plan: The City is working with the Wamer Consulting Group to prepare a long-range Information Technology (IT) Strategic Plan. The Plan will address issues such as technical infrastructure and architecture; systems planning and development; and organizational structure, staffing levels, reporting relationships and training. The Plan will be completed in Summer 1999. The Plan will recommend changes to the City’s technical architecture and environment, which will result in the need to make changes to the City’s computer hardware and sottavare. It is also expectedthat the Plan will recommend a number of staffing additions and changes. In the coming months, staff will prepare an implementation plan which will prioritize the Plan’s recommendations.’ Staff anticipates that the recommendations will be implemented over the next three to five years. The 1999-01 Proposed Budget includes a placeholder in the amount of $200,000 in each year for the implementation of high-priority recommendations. Year 2000 Compliance: The City has developed a Year 2000 (Y2K) Transition Plan to provide the necessary technical solutions and community partnerships to enable the City to make the Y2K transition successfully. The City’s Y2K Transition Plan has three distinct phases: 1) assessment, testing and remediation of the City’s central computer system hardware and software; 2) assessment, testing and remediation of departmental computer CMR:213:99 Page 9 of 18 systems, hardware, software and electronic devices; and 3) community awareness and preparation. Phase One began in early 1996, when the City began pursuing Y2K compliance for its centralized hardware and sottware; it is nearing completion. The City’s centralized systems support critical functions, such as Emergency 911 dispat6hing, utility systems which control the flow of electricity-through the City, the Regional Water Quality Control Plant, utility billing, financial management, planning, public works, and traffic management. The City is now working with a consultant to complete an assessment of departmental computer applications, hardware, and processors (phase two). Since the potential areas of noncompliance are unknown, the Proposed CIP Budget includes funding of $150,000 to be used, as needed, to address any departmental computer systems, processors, and office equipment that are not Y2K compliant. The final phase involves a public communications program regarding Y2K. An interdepartmental Y2K Committee has been formed and is creating a Y2K awareness program. This program, initiated in April 1999, includes a meeting hosted by the Mayor on Y2K, working with other agencies on Y2K preparation, the establishment of a Y2K website, neighborhood association meetings, distribution of Y2K informational flyers, utility bill inserts regarding Y2K, and an Emergency Operations Center Y2K test exercise. Permit Tracking System: In 1998-99, staff issued a Request for Proposals (RFP) to acquire a Permit Tracking System. The proposal responses came in with costs to implement which were higher than expected. Atter extensive negotiations with the preferred vendor, staffwas unable to finalize an agreement. The Proposed CIP Budget includes an additional $300,000 in funding for this project, to address the higher price expected to acquire a system. Staffhas reissued a RFP and plans to purchase the automated Permit Tracking System early in 1999- 00. It is important to note that the Permit Tracking System is needed to replace the current Building Inspection Permit System (BIPS) that is not Y2K compliant. The Permit Tracking System will have a number of benefits, including the tracking and monitoring of many types of permits and activities, such as applications, licenses, inspections, complaints, and code enforcement. It will increase efficiency and improve customer service by decreasing time spent searching for permits and applications, providing easy access to the current status of applications and permits, automating approvals and clearances, and decreasing time spent coordinating interdepartmental review. CMR:213:99 Page 10 of 18 Long-Term Financial Plan In the last year, it has becoming increasingly clear that a longer-term (5- to 10-year) f’mancial plan for the General Fund is necessary. With the approval of the new Comprehensive Plan, the demand for new and augmented services, programs and infrastructure has exceeded the City’s ongoing revenue base. However, it is unclear at this point how much demand outstrips revenues and what amount may be available fo~ the funding of new initiatives. Recognizing this need, the Administrative Services Department began to put together a ten-year financial forecast last summer. The forecast had to be delayed when the budget process began in September 1999. With ongoing responsibilities for budgeting, impact measure reporting and other priorities, existing Administrative Services staff cannot absorb long-term financial planning without deferring other important citywide projects. Staffhas requested a new position in the 1999-01 Proposed Budget to carry out longer-term financial planning. The position would be responsible for debt administration and General Fund financial planning, including completing and maintaining the financial forecast. The position would also be devoted to monitoring risk management practices in the Utility Funds having to do with commodity purchases and long-term sales contracts. Staff envisions that the financial forecast will include a one- to two-page summary report that can be transmitted to the Council periodically during the year. It will also serve to elucidate funding decisions when Budget Amendment Ordinances come up for approval during the fiscal year. Finally, it will be informative during the budget process to gauge the availability of funding for proposed new programs or services. Planning Issues Historic Preservation: The Planning Division, in association with the City Attorney’s Office, is completing the final draft of the Permanent Historic Preservation Ordinance (PHPO). Implementation of the Ordinance Will include the following: 1) a comprehensive public outreach effort in the form of public information/education workshops targeting specific interests (i.e., property owners, developers, and architects); 2) creation of public information tools for the dissemination of information, such as brochures, pamphlets, and improvements to the Planning Department portion of the City’s website; 3) training of Planning Department staff and other City staff; and 4) initiation of customer evaluation surveys to assist in improving processing and service to the public. Following completion of the PHPO, staff will undertake the Neighborhood Preservation Study. The PHPO is scheduled for consideration by the Council in June 1999. Tl~e 1999-01 Proposed Budget includes a placeholder of $150,000 in each year to support this program. CMR:213:99 Page 11 of 18 Development Center User Fee Study: In Summer 1999, staff intends to hire a consultant to review the fees charged at the Development Center. (The last such study was done citywide in the late 1980s.) The need for such a study became evident as staff examined cost recovery at the Development Center. Prior to implementing significant fee increases, staff wanted to better understand how similar communities address user fees at similar centers, including an analysis of: the overall level of cost recovery; the le;cel of cost recovery for different services; the costs included .in the calculation of the full cost of services; the amount of overhead included in user fees; and how overhead is allocated. Initial estimates indicate that such a study will cost under $25,000, for which funding is already available. Staff intends to take a report back to the Council in late 1999, discussing the findings and presenting options for cost recovery at the Development Center. Zoning Ordinance Update: Planning for the update of the Zoning Ordinance will begin in fiscal year 1999-00. Staff plans to request that the Council reappropriate $40,000 in funds which were originally budgeted in 1998-99 for the creation of a work plan for the update. The project was deferred due to numerous staff vacancies and workload associated with Historic Preservation issues and the PAMF/SOFA Coordinated Area Plan. The work plan will help define the steps needed to revise the Zoning Ordinance, provide an estimate of workload impacts for the Planning Department and City Attorney’s Office, and identify the amount of external assistance that will be needed. The 2000-01 Proposed Budget includes $100,000 in the Planning Department budget for the implementation of the Zoning Ordinance work plan. Additional funding may be requested in successive budget years, as needed, to complete the rewrite. PAMF/SOFA Coordinated Area Plan: The Plan is presently in its final phases. Staff has completed the required public hearing process with the ARB, Historic Resources Board and the Public Arts Commission. It is expected to be considered by the Council in Summer 1999. Currently, there is no money budgeted for implementation of the Plan. Public Safety Emergency Preparedness: In 1998-99, staff completed an evaluation of the disaster preparedness and public education elements of the City’s Emergency Plan. In addition, an assessment was made of the resources necessary to carry out the Emergency Plan and to address the areas for improvement identified following the February 1998 flooding emergency. As a result of these efforts staff revised the City’s Emergency Management Plan. In January 1999, the Council approved the revised Emergency Management Plan, funding three new positions and program costs associated with the new Plan. The 1999-01 Proposed Budget includes the first full year of funding in the Fire Department to implement the new Emergency Management Plan. In 1999-01, emergency planning efforts will include: CMR:213:99 Page 12 of 18 providing public awareness and education programs for residents and businesses to better prepare them to respond to disasters; the development of public education and training documents; the development of specific plans for the City’s response to floods, earthquakes, and other potential emergencies with the City Manager appointed Blue Ribbon task force; improving volunteer coordination; the training of City emergency response personnel in the Standardized Emergency Management System; and theimplementation of an Emergency Notification System to alert large portions of the City to impending disaster. ¯ In 1999-01, City staff will also focus efforts on the continued development of long-term flood prevention solutions. The City has joined with other jurisdictions to create the San Francisquito Creek Coordinating Committee in order to coordinate plans for regional management of the watershed. Several members of this Committee are working towards the creation of a joint powers agreement that would have the authority and resources to manage the watershed. Funding to support the joint powers agreement has been included in the proposed financing pl.an for the Storm Drainage Fund. Firefighter Safety: A new OSHA requirement to provide for improved firefighter safety has recently been enacted. The regulation requires that two firefighters must be on scene and ready to perform a rescue of firefighters before two firefighters can enter a building to extinguish a fire, when only property damage may result (exceptions are granted for life safety situations). This requirement may mean a change in the City policy from having three firefighters on an engine (a practice common to most other fire departments) to having four. The City is proceeding to change its current policy to comply with the new requirement. An evaluation of the resource impacts of this change will be conducted over the next 6 to 12 months, and staff will report to the Council during the 2000-01 budget process. Paramedic Master Plan: The provision of paramedic services in Santa Clara County is changing. Many fire departments are moving towards having paramedics on all engines to provide first response paramedic service. Staff is currently reviewing the Paramedic Master Plan, and will analyze delivery of paramedic service in Palo Alto and the implications of moving to a system of paramedic first response on all engines. Staff will report to Council during the 2000-01 budget process with a recommendation and resource impacts. Communications Dispatch Staffing: The Proposed Budget includes funding of $74,000 for the addition of a Chief Dispatcher in the Police Department to support the City’s Emergency 911 dispatching services. The Communications Dispatch position is being proposed because, while the dispatch function operates 24 hours a day, seven days a week, current staffing does not provide adequate supervision. The new position will increase the level of supervision, improving oversight for this critical function and reducing potential liabilities. CMR:213:99 Page 13 of 18 Competitiveness Initiative In 1999-01, staff will undertake a new initiative to review whether certain City functions might benefit from being contracted out. The advantages of such a review include: identification of potential cost savings; ensuring the City is competitive in the delivery of services; and encouraging creativity and efficiency in the delivery of City services. In 1999- 00, the Administrative Services Department will identify ~hose functions to be evaluated for contracting out, and develop an evaluation process and standards by which in-house versus outside services will be measured. In addition, Administrative Services staff will work with the Human Resources Department to be certain that the implications of such a review for the City organization and staff are fully understood and considered. In 2000-01, the first review will be conducted. The 2000-01 Proposed Budget includes funding of $75,000 for consulting services to support this initiative. Utility Fund Priorities Storm Drain Rate Increase A Storm Drainage_Master Plan was presented to Council in 1994. The Plan was under review by the Utilities Advisory Commission (UAC) when California voters approved Proposition 218 in November 1996. Proposition 218 raised questions about the ability of the City to raise storm drainage rates without ratepayer approval, and Master Plan project planning was put on hold, pending clarification of Proposition 218. Public Works staff has since reprioritized Master Plan projects, as a result of field crews’ observations of the storm drainage system performance over the past five years. Based on a review by Public Works Engineering and Operations staff, a reprioritized 30-year infrastructure improvement plan is now recommended, at a lower cost than the original plan submitted to Council in 1994. The current storm drainage fee will not support any additional capital improvements. In order to fund new capital work, a rate increase will be needed. To comply with Proposition 218’s requirements on property-related fees (storm drainage fees qualify), any proposed rate increase must be brought to the ratepayers in a mail ballot procedure. Staff has proposed a plan to the Finance Committee that would result in an initial rate increase from the current $4.25 to $10 per household per month, effective in fiscal year 2000-01. The Finance Committee has forwarded that recommendation to Council, where it is tentatively scheduled to be discussed on May 3. In preparation for that meeting, staff is preparing additional charts and information to illuminate what staffs proposed financing plan will accomplish. The 1999-00 Proposed Budget includes a loan of $164,000 from the CMR:213:99 Page 14 of 18 Ger~eral Fund to the Storm Drainage Fund to cover revenue shortfalls, pending the proposed rat~ increase. The 2000-01 Proposed Budget assumes approval of the rate increase and includes the repayment of the General Fund loan. In 1998-99, staff intends to take advantage of current lower interest rates, and refinance the debt in the Storm Drainage Fund. Staffhad already plarmed to issue debt for the Regional Water Quality Treatment Plant, and is using that opportunity to refmance the Storm Drainage Fund debt at reduced fmancing costs because of the joint issuance. The refinancing should result in lower operating costs, by reducing the size of the debt service payments. The final savings will not be known until debt has been issued; however, the 1999-01 Proposed Budget includes reductions in debt service expenses of approximately $164,000 in 1999-00 and $127,000 in 2000-01. Utilities Risk Management Activities The national movement toward deregulated electricity sales, the increased volatility in electric and gas commodity prices, and the opportunity of customer choice has exposed the City’s Utilities to new risks. To ensure a balanced energy commodities portfolio that will allow a broad range of commodity pricing alternatives for customers, the City must create and implement a process to manage commodity risk. Staff has begun to design a risk management program, which includes internal procedures for managing exposure to risk. Staff plans to bring the policies and procedures, which will guide the City’s risk management program, to Council in Summer 1999 for review. The program will focus on ensuring proper internal controls and compliance with the City’s Municipal Code and other applicable City policies and procedures. Due to the need for professional expertise, staff is in the process of hiring a consultant and training for the specialized skills needed to run this program. Consulting services funding in the amount of. $115,000 (1999-00) and $50,000 (2000-01) is included in the Proposed Budget. In addition, funding of $32,000 (1999-00) and $20,000 (2000-01) is included for the purchase of sot~ware needed to implement the risk management program. The Proposed Budget also includes funding for a new position in the Administrative Services Department (a Senior Financial Analyst; see Long-Term Financial Plan section) that would be partially dedicated to providing oversight for this program. This position would be responsible for monitoring compliance with established risk management program policies and procedures, which would include reviewing commodity purchase and long-term customer sales contracts. The position will provide for a segregation of duties between the Utilities and Administrative Services Departments, which is critical to the program’s internal controls. CMR:213:99 Page 15 of 18 Electric Rates During the 1997-98 budget process, the Council adopted a policy regarding stranded costs for the Electric Utility. Stranded costs are capital and operating costs of generation and transmission facilities which are expected to become uneconomic in a deregulated environment. The stranded cost estimates are based on a 34-year forecast of market energy prices. The centerpiece ofPalo Alto’s strategy to recoverpotential stranded costs is to fund a stranded cost reserve (Calaveras Reserve), which will subsidize stranded costs through 2032. The current target for the Calaveras Reserve is $93 million and was approved by Council in 1997-98. However, an updated stranded cost analysis performed in 1998-99 has resulted in a reduced target. The revised target is principally a result of a recent Northern Califomia Power Agency refinancing of the Calaveras Hydroelectric Project which lowered debt service costs. Based on this updated stranded cost analysis, the Calaveras Reserve target is reduced to approximately $65 million (2002 dollars). On a net present value basis, $65 million would offset approximately 73 percent of the total Calaveras debt service obligations between 2001 and 2032. Recent projections indicate that the Calaveras Reserve will end the current fiscal year 1998- 99 with a balance in excess of $71 million. In recognition of the revised Calaveras Reserve target of $65 million and the absence of a strong justification to continue funding the reserve in excess of this target, staff plans to recommend Council approval of an overall 15 percent, or $10 million decrease in electric rates and elimination of the transition cost recovery charge (TCRC) on customer bills. In addition, staff will propose a downward revision of the Calaveras Reserve target and reserve guidelines. The application of reserve guidelines to the Calaveras Reserve will provide maximum and minimum levels each year. With such guideline levels, the Calaveras Reserve balance can be compared to its annual target and steps can be taken to maintain the balance within guidelines. The 15 percent reduction in electric rates is a system-wide average and the actual bill impact on residents and businesses will vary based on the costs of serving customers at different usage levels. The proposed bill decrease for an average residential, commercial, and industrial customer will be approximately 10 percent, 16 percent, and 15 percent respectively. The proposed effective date of this rate change is July 1, 1999; however, a delay could occur, depending on the conversion status of the new billing system. Utility Equity Transfers As part of the 1997-98 budget process, the City Council approved freezing the equity transfers from the Electric, Gas, and Water Funds to the General Fund at 1996-97 levels. CMR:213:99 Page 16 of 18 The Council determined that, while Palo Alto is recognized in the utility industry for the prudent manner in which the City is governed and the careful manner in which the equity transfers had been administered, the time had come to review the transfer policy. The advent of electric deregulation added to the urgency of this review. In Summer 1998, the scope of services for the Equity Transfer Project was reviewed by the Finance Committee and the UAC. An RFP was issued in Fall 1998, RW Beck was selected to conduct the study, and a contract was awarded in December 1998. In January 1999, RW Beck met with the UAC to receive its input, prior to undertaking the study. It is anticipated that RW Beck will present its recommendations to the UAC in late 1998-99 and, after receiving UAC feedback, RW Beck will present its recommendations to the Finance Committee. In the 1999-01 Proposed Budget, equity transfers will remain frozen at 1996-97 levels, pending Council approval of equity transfer policy changes resulting from the RW Beck study. Refuse Fund Contract Negotiations Prior to the sale of Paul Madsen’s shares of stock in PASCO to USA Waste/Waste Management in August 1998, staff was in the process of negotiating the terms of a new agreement with PASCO. Upon notification from Paul Madsen of his intent to sell his shares of PASCO to USA Waste/Waste Management, the negotiation process was put on hold. The acquisition of PASCO by USA Waste/Waste Management was finalized as of November 30, 1998. About this time, Council directed staff to negotiate a Memorandum of Understanding (MOU) with PASCO, which would definethe terms under which the City and PASCO would agree to negotiate a new refuse and recycling agreement. In February 1999, Council approved the MOU and Amendment Number 12 to the contract with PASCO, which extended the date under which the City could sunset the agreement, from June 30, 1999 to September 1, 1999. Staffhas begun the negotiation process with PASCO and anticipates bringing an agreement to Council for review prior to August 1, 1999. Because the contract negotiations are underway, no change in the level of compensation to PASCO nor any new programs will be included as part of the 1999-01 Proposed Budget. Once a new contract is in place, staff may retum to Council with recommendations for new programs, such as mixed paper recycling. At this time, staff believes it is prudent to negotiate a base level of services with PASCO and to address new service needs in the future. Even with nominal changes in service levels and compensation to PASCO, staff anticipates a refuse rate increase will be needed in 2001-02. Depending on the terms of the agreement negotiated with PASCO and new service offerings, a refuse rate increase may be needed as early as 2000-01. CMR:213:99 Page 17 of 18 Cable Co-op Franchise Agreement The 1998-99 Adopted Budget included $100,000 to begin renegotiating the City’s existing cable franchise agreement, which ends in 2001. The City Clerk’s Office is in the process of hiring a consultant to assist in the administration of the renewal process, and plans to bring a consultant contract to Council for approval in Spring 1999. The consultant will be responsible for working with a task force to assist ~n the identification of City and community needs, and to provide support for contract negotiations. The refranchising process involves public notice, identifying the future cable-related community needs and interests, and reviewing the performance of the cable operator. Support from the City Attorney’s Office will be necessary in this process. PREPARED BY: Melissa Cavallo, Assistant Director of Administrative Services Shannon Gaffney, Senior Financial Analyst DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: cc:N/A CARL YEATS, / Director of Admiriistrative Services CMR:213:99 Page 18 of 18