Loading...
HomeMy WebLinkAbout2021-05-04 Finance Committee Agenda PacketFinance Committee 1 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION ON THE CITY’S WEBSITE Tuesday, May 4, 2021 Special Meeting 2:00 PM ***BY VIRTUAL TELECONFERENCE ONLY*** Click to Join Zoom Meeting ID: 992-2730-7235 Phone: 1(669)900-6833 Pursuant to the provisions of California Governor’s Executive Order N-29-20, issued on March 17, 2020, to prevent the spread of Covid-19, this meeting will be held by virtual teleconference only, with no physical location. The meeting will be broadcast on Midpen Media Center at https://midpenmedia.org. Members of the public who wish to participate by computer or phone can find the instructions at the end of this agenda. PUBLIC COMMENT Members of the public may speak to agendized items. If you wish to address the Committee on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers/Community Meeting Room, and deliver it to the Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Committee, but it is very helpful. Public comment may be addressed to the full Finance Committee via email at City.Council@cityofpaloalto.org. Call to Order Oral Communications Members of the public may speak to any item NOT on the agenda. Action Items 1.Review and Recommend to the City Council an Adjusted Operating Plan for the Junior Museum and Zoo, Including an Opening Date andTicket fee Structure 2.Discuss and Accept the Stanford University Medical Fund Current and Planned Commitments Report as Referred by the City Council 3.Review and Discuss the Fiscal Year (FY) 2021-2022 Proposed Operating and Capital Budgets Future Meetings and Agendas Adjournment AMERICANS WITH DISABILITY ACT (ADA): Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. Public CommentPresentation Public Comment Presentation Public Comment Presentation FY 2022 Transmittal Letter FY 2022 Proposed Operating Budget FY 2022 Proposed Capital Budget 2 May 4, 2021 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION ON THE CITY’S WEBSITE Public Comment Instructions Members of the Public may provide public comments to virtual meetings via teleconference or by phone. 1. Spoken public comments using a computer will be accepted through the teleconference meeting. To address the Committee, click on the link below to access a Zoom-based meeting. Please read the following instructions carefully. A. You may download the Zoom client or connect to the meeting in- browser. If using your browser, make sure you are using a current, up-to-date browser: Chrome 30+, Firefox 27+, Microsoft Edge 12+, Safari 7+. Certain functionality may be disabled in older browsers including Internet Explorer. B. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. C. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. D. When called, please limit your remarks to the time limit allotted. E. A timer will be shown on the computer to help keep track of your comments. 2. Spoken public comments using a smart phone will be accepted through the teleconference meeting. To address the Committee, download the Zoom application onto your phone from the Apple App Store or Google Play Store and enter the Meeting ID below. Please follow the instructions B-E above. 3. Spoken public comments using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Committee. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. https://zoom.us/join CLICK HERE TO JOIN Meeting ID: 992-2730-7235 Phone No: 1 (669) 900-6833 City of Palo Alto (ID # 12050) Finance Committee Staff Report Report Type: Action Items Meeting Date: 5/4/2021 City of Palo Alto Page 1 Summary Title: JMZ Adjusted Operating Plan Title: Review and Recommend to the City Council an Adjusted Operating Plan for the Junior Museum and Zoo, Including an Opening Date and Ticket fee Structure From: City Manager Lead Department: Community Services Recommendation Staff recommends that the Finance Committee review and recommend to City Council an adjusted operating plan for the Junior Museum and Zoo, including an opening date and ticket fee structure. Executive Summary This memo outlines several scenarios for an adjusted operating plan, including potential opening dates and cost recovery levels associated with the re-opening of the Junior Museum and Zoo (JMZ). The JMZ was intended to reopen in October 2020 as a larger facility with more animals and exhibits, however; due to the ongoing pandemic the opening has been delayed. As we continue to navigate the public health emergency and the City’s loss of revenue to the General Fund, we have evaluated a new opening date of October 2021 and several different ticket price options for opening the JMZ, ranging from $10 per ticket to $18 per ticket, with additional dynamic pricing models to consider. CSD continues to evaluate new revenue opportunities at the JMZ as well and has outlined estimates in this memo, though staff continue to refine these projections. Ultimately, staff is seeking Finance Committee’s review and discussion of these adjustments and direction on how to proceed. Any necessary budget adjustments will be brought forward for approval in the appropriate budget cycle. Background Founded in 1934, the Palo Alto Junior Museum & Zoo (JMZ) is dedicated to enriching the lives of children, ages 0 to 11, through hands-on exploration of the world. Specifically, the mission is to engage a child’s curiosity for science and nature. This mission is furthered through a variety of exhibits, a diverse community of live animals, and educational programs for children, families and schools. City of Palo Alto Page 2 The JMZ’s permanent location and facility was established in 1941, when the JMZ building was built, and in 1969, when the zoo was added. About a decade ago, the Friends of the Junior Museum and Zoo (Friends) launched the JMZ Initiative – a $25 million campaign to rebuild the outdated JMZ facility in recognition that the existing structures were not adequately sized nor designed to 1) accommodate the JMZ’s vibrant exhibits, expanded educational programs, current accessibility and seismic code requirements, and 2) to meet best-practices in modern animal care and collection management. By January 31, 2017, the Friends successfully met this campaign goal, thanks to a $15 million matching grant from the Peery Family and $10 million in other private donations from local donors. These donations have enabled the City and the Friends to build a new JMZ, which will improve the visitor experience by combining experiential exhibits, with an expanded and optimized space to make science programming scalable and able to meet the increased needs of future generations. The JMZ has served families for more than eighty years and the new facility will ensure the same exceptional quality of early science education for children for many years to come. The JMZ construction project began in the summer of 2018 and is expected to conclude in the spring of 2021. Details of the rebuilding process can be found in Council Memo 8851 from February 5, 2018 and Council Memo 9245 from May 29, 2018. The JMZ will reopen as a state- of-the-art museum and zoo built with a focus on inclusion, accessibility, and the highest standards in animal care. As leaders in early childhood education, the Junior Museum & Zoo engages infants, toddlers and children through play to think critically and creatively. The experience that guests will have in the zoo has been reimagined and rebuilt. The experience is called Loose-in-the-Zoo because children will lead the experience and many of the animals will be loose within the zoo (but under a protective net.) It is place where children will lead their families to find animals where they would in nature; on a pond, in a log, in a tree stump, underground, underwater, and in the trees. Animal care takers will introduce children to animals in the Wildlife Circle, including the many birds that are loose in the zoo, such as ibises, flamingos, spoonbills and many more. In 2022, the JMZ will also open a permanent exhibit about the dinosaurs that lived in California. It will include live cretaceous-era plants, turtles, geologic specimens, a fossil dig, and life-size models of several types of dinosaurs from California. The new JMZ experience has been designed to accommodate people of all abilities. The interactive science exhibits were developed by City exhibit staff who designed, prototyped, and tested exhibits under the watchful eyes of an accessibility advisory committee made up of people representing a variety of disabilities. This process helped find solutions to difficult challenges and assured that every exhibit can be enjoyed by all. For example, in the zoo there will be life-sized, detailed bronze sculptures representing the species of live animals on display, so that everyone can use their sense of touch to learn more about their forms. City of Palo Alto Page 3 Outside the JMZ there will be several enhancements including a redesigned parking lot with enhanced pathways for bicyclists and pedestrians, and improvements in the connecting spaces around the Lucie Stern Community Center, the Lou Henry Hoover Girl Scout House, the JMZ and Rinconada Park. There will be new picnic areas, a new playground, and new exhibits along the promenade that connects Middlefield Road to Rinconada Park. Children can hop on boulders through a bioswale, play alongside animal sculptures under a tree, or explore a 10-billionth scale model of our solar system. The new facility will enhance the JMZ’s ability to deliver their award-winning educational programs that deliver hands-on science lessons to more than 18,000 students in 60 schools including many Title 1 schools in East Palo Alto and Santa Clara County. Recent Actions On March 3, 2020, the Finance Committee reviewed and recommended to City Council a proposed operating plan for the Junior Museum and Zoo (Staff Report 11093), including a recommended staffing complement and estimated cost recovery levels. Due to uncertainty about the economy, construction delays due to County Health Orders and limits on public gatherings due to the COVID-19 pandemic, staff presented an updated operating plan to City Council on May 12, 2020 that increased the JMZ’s cost recovery goals through increased ticket prices and memberships, which was approved by Council (Staff Report 11222 and May 12, 2020 Memo). At that time, opening of the JMZ was tentatively planned for March 2021. Staff has since worked closely with the Friends of the Junior Museum and Zoo (Friends) to re- evaluate the opening date, ticket prices and membership rates to ensure a successful opening. Discussion At the March 3, 2020 Finance Committee meeting, the Committee reviewed staff report 11093: Review and Recommend to Council the Preliminary Operating Plan and New Municipal Fees for the Junior Museum and Zoo, transmitted by the Community Services Department and unanimously approved the report for City Council consideration. This report assumed an opening date of October 2020 and proposed new entrance and membership fees (see table below). The proposed operating also increased personnel and non-personnel expenses. TICKET PRICING AS PRESENTED TO FINANCE COMMITTEE ON MARCH 3, 2020 DAILY ENTRANCE TICKET $10 ($0 – 1 and younger) DISCOUNTED TICKET FEE $0 - $2 ANNUAL FAMILY MEMBERSHIP – RESIDENT $110 ANNUAL FAMILY MEMBERSHIP – NON-RESIDENT $145 ANNUAL FAMILY PLUS MEMBERSHIP – RESIDENT $185 ANNUAL FAMILY PLUS MEMBERSHIP – NON-RESIDENT $245 At the May 12, 2020 City Council meeting, staff presented adjustments to the original operating model to minimize reliance on the General Fund and to evaluate public confidence around museum and zoo visitation (CMR 11222 and Memo). These adjustments were made in City of Palo Alto Page 4 response to the COVID-19 pandemic and shelter in place orders, which resulted in construction delays, delays in acquiring animals for the zoo and uncertainty about the City’s financial stability. The adjusted operating model delayed the opening date to March 2021 and increased cost recovery levels through increased ticket prices (see table below). Personnel and non- personnel costs were not reduced ongoing because of the costs and effort associated with animal care, construction of exhibits, and program development, however; the delayed opening reduced expenses on a one-time basis by $214,000. The adjusted operating model presented to Council on May 12th increased cost recovery from 50% to 85%. TICKET PRICING AS PRESENTED TO CITY COUNCIL ON MAY 12, 2020 DAILY ENTRANCE TICKET $18 ($0 – 2 and younger) DISCOUNTED TICKET FEE $2 ANNUAL FAMILY MEMBERSHIP – RESIDENT $150 ANNUAL FAMILY MEMBERSHIP – NON-RESIDENT $216 ANNUAL FAMILY PLUS MEMBERSHIP – RESIDENT $300 ANNUAL FAMILY PLUS MEMBERSHIP – NON-RESIDENT $430 Staff and the Friends have since re-evaluated the operating model approved by City Council on May 12th, including the opening date and ticket and membership fees and are presenting a range of pricing models for Finance Committee’s consideration. Opening date With delays in construction and animal acquisition, as well as the continuing uncertainty around the COVID-19 pandemic and timeframe for rolling out a vaccine to the public, both staff and the Friends agree that a October 2021 opening is recommended. Both staff and the Friends envision a successful opening to welcome the community to the new facility and celebrate families being able to gather in an exciting and vibrant place once again. Staff looked at a July 2021 opening but due to continued public uncertainty with the pandemic such as the timing of “herd immunity”, parents may not be prepared to visit an intimate high-touch children’s museum and zoo by July. Before the JMZ can open, there is a four to six month launch period that includes preparing exhibits and animals, hiring and training staff, and marketing to the JMZ’s old and new audiences. Based on guidance from marketing experts, CSD expects that when there is enough early indication of safety and enough of the population has received vaccines, there will be a significant wave of interest in the JMZ. That interest, combined with a strategically planned marketing campaign and grand opening experience, will ultimately lead to a successful opening later in the year. Ticket fees The newly constructed JMZ will shift from a historically free entrance model to a fee-based ticketing system. In March 2020, staff and the Friends of the JMZ were in agreement on a $10 per person daily entrance fee. A variety of membership fees were also presented that offered a City of Palo Alto Page 5 discount to residents and steep discounts for low-income families. When it became clear that the City’s financial position was changing due to COVID-19, staff re-examined this fee and proposed a new entrance fee of $18 per ticket, as well as increased membership prices in response to the economic impacts of COVID-19. This resulted in a cost recovery increase from 50% (at $10/ticket) to 85% (at $18/ticket). Since that time staff have met with the Friends of the JMZ several times to discuss whether the $18 ticket price is realistic, and if it would in fact hurt attendance and revenue by outpricing many visitors who might instead choose to visit one of the Bay Area’s other children’s museums or zoos. The Friends also expressed concern that the higher ticket prices would no longer make visiting the JMZ accessible to all as many would not qualify for the discounted ticket fee for low-income visitors yet may not be able to pay the higher price. Staff have developed several pricing models and corresponding cost recovery levels that include assumptions for visitor attendance, number of memberships sold, class and camp revenue and rental revenue. There are also options for dynamic pricing that would assign a higher ticket price during peak times. Additionally, the discounted ticket fee has been raised from $2 to $3 in these scenarios. It is worth noting that the Friends are in favor of a $10 daily ticket price. PROPOSED TO FINANCE COMMITTEE ON 3/3/20 ADOPTED BY CITY COUNCIL ON 5/12/20 ADDITIONAL PRICING MODELS EVALUATED DAILY ENTRANCE TICKET $10 ($0 – 1 and younger) $18 ($0 – 2 and younger) $12 or $14($0 – 2 and younger) DISCOUNTED TICKET FEE $2 $2 $3 ANNUAL FAMILY MEMBERSHIP – RESIDENT $110 $150 $130 - 151 ANNUAL FAMILY MEMBERSHIP – NON- RESIDENT $145 $216 $144 - $168 ANNUAL FAMILY PLUS MEMBERSHIP – RESIDENT $185 $300 $216 - $252 ANNUAL FAMILY PLUS MEMBERSHIP – NON- RESIDENT $245 $430 $240 - $280 Pricing Comparisons The JMZ’s original pricing model of $10 per ticket was slightly below the typical ticket fee for other nearby attractions. Resident membership pricing was also slightly below other nearby attractions and non-resident membership fees were set at approximately the median in this group. Staff set the fees to be priced slightly below other comparable attractions in consideration of the adjustment that visitors to the old JMZ will need to make in moving from free to ticketed entry. A $12 to $14 ticket fee would align with the low to middle price range of City of Palo Alto Page 6 nearby attractions, with a $16 and $18 fee on the higher end of, or exceeding the range. Membership fees are on the higher end when compared to nearby museums and zoos. Other local attractions have pricing models as follows: Ticket Membership (Basic Family) Features Children's Discovery Museum - San Jose $15 $175 STEM and creativity exhibits, art studio, theatre Happy Hollow Park & Zoo - San Jose $14.25 $160 Zoo, park, amusement park rides Curiodyssey- San Mateo $15.95 Adult / $12.95 Child $145 Science museum and zoo, hands-on STEM exhibits Children's Creativity Museum – San Francisco $15 $119 Hands-on, multimedia arts and technology experiences Children's Fairyland - Oakland $12 $119 Storybook sets, rides, some animals (mostly farm) Lindsay Wildlife Experience – Walnut Creek $12 Adult / $10 Child and Seniors $90 Outdoor public programs, exhibit hall, animal interactions, wildlife hospital Resource Impact Staff projected revenues and expenses for an October 2021 opening based on different ticket prices and a number of other updated assumptions including an annual attendance of 185,000, with 75% of total attendance attributed to ticketed entries rather than members. Original projections presented to Finance Committee and Council were based on a 65% ticketed attendance model, however staff have reevaluated that figure based on recommendations from a marketing consultant. This change increases overall ticketed revenue in each scenario.Revenue from membership sales has also been reevaluated and updated to assume most membership sales will be the Annual Family Membership – Non-resident option. Staff and the Friends have revised membership prices based on the varying ticket price models. Staff also propose a 15% increase to class and camp fees at the JMZ in order to maintain desired cost recovery levels. This increase in revenue is included in total revenue figures below. Additionally, the adopted operating model included a $2 discount ticket option, which has been raised to $3 in these scenarios. Finally, staff also evaluated operating expenses and have included a proposal as part of the FY 2022 budget cycle to reduce marketing expenses by $100,000. The City of Palo Alto Page 7 table below summarizes these updates and shows revenue and expense information for Fiscal Year 2022. City of Palo Alto Page 8 FY 2022 Current: Full Year of Operations FY 2022 Updated: October 2021 Opening Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Ticket Price $18 $18 $14 $12 $10 Attendance 185,000 138,780 138,780 138,780 138,780 Membership Price ranges $150 - $430 $194 - $360 $151 - $180 $130 - $240 $108 - $200 # of memberships sold 2,000 2,000 2,000 2,000 2,000 Total Revenue $3,199,000 $3,171,000 $2,678,000 $2,431,000 $2,185,000 Staffing Expense $2,413,000 $2,413,000 $2,413,000 $2,413,000 $2,413,000 Non- personnel Expense* $503,000 $403,000 $403,000 $403,000 $403,000 Allocated Charges $900,000 $900,000 $900,000 $900,000 $900,000 Total Expense $3,816,000 $3,716,000 $3,716,000 $3,716,000 $3,716,000 Net General Fund Impact** $617,000 $545,000 $1,038,000 $1,285,000 $1,531,000 Cost Recovery 84% 85% 72% 65% 59% * Staff have included a proposal as part of the FY 2022 budget cycle to reduce marketing expenses by $100,000. **A negative number in Net General Fund Impact indicates that this scenario would contribute financially to the General Fund City of Palo Alto Page 9 Beginning in Fiscal Year 2023 which would be the first full year of operations, it is estimated that cost recovery levels for a $14, $12, and $10 ticket fee will increase to 78%, 71%, and 63% respectively. Staff anticipate that the new JMZ will be a premier rental facility for events and are working on modelling different rental packages, including corporate rentals and birthday parties, which would bring in additional revenue. Initial estimates range from $100,000 - $150,000 annually in the first year, and upwards of $300,000 in year three of opening as the facility continues to attract visitors and word of mouth spreads. Staff continue to refine these numbers and are exploring other creative revenue opportunities such as an “Adopt an Animal” program or private animal interactions. Other Models for Consideration Staff explored various dynamic pricing models that would assign a higher ticket price during peak days including weekends and holiday breaks, and lower prices during non-peak days or weekdays. All other assumptions remain the same. These models are shown in the table below: FY2022 DYNAMIC PRICING MODELS Scenario 6 Scenario 7 Scenario 8 Ticket Price Non- Peak/Weekdays $14 $12 $10 Mid/Weekends $16 $14 $12 Peak times/Holiday breaks $18 $16 $14 Revenue $2,809,000 $2,563,000 $2,316,000 General Fund Impact $907,000 $1,153,000 $1,400,000 Cost Recovery 76% 69% 62% In the first full year of operations, cost recovery levels for dynamic pricing scenarios 6, 7, and 8 will increase to 82%, 74%, and 67% respectively. Another set of scenarios could be considered that would delay the opening for another full year, to FY 2023. Council might consider this if there is uncertainty about the success of opening the JMZ before most of the population is vaccinated for COVID-19. Ideal months to open are spring, summer and the winter holiday season. This would delay some expenses, but there will still be personnel and non-personnel expenses associated with caring for animals, and class, camp and school programming, and would eliminate most revenue that would otherwise be gained through ticket and annual membership sales. The recommendations in this report will have an impact on citywide resource allocation and the financial assumptions being used to develop the Fiscal Year (FY) 2022 Proposed Budget. The scenarios in this report may represent an increase in FY 2022 General Fund support for the annual operations of the New Junior Museum and Zoo depending on which model is chosen. City of Palo Alto Page 10 For example, adjusting full-price tickets from $18 to $14 is estimated to increase the impact to the General Fund by $555,000 in a full year of operations, which would adjust the parameters of Scenario B from a $6.8 million to a $7.4 million gap. This loss of revenue may be partially offset by other adjustments such as increases in the fees for classes and camps. Should the committee and City Council choose to change the current business plan assumptions as outlined in this report, the additional General Fund gap is recommended to be addressed through the FY 2022 budget development process. Policy Implications The recommended operating model outlined in this report advance many important policy objectives related to the City Comprehensive Plan Policy Goal C-1: Deliver community services effectively and efficiently. These include: • Policy C-1.4 Promote City parks, open spaces, recreational facilities, libraries, classes and cultural activities for community members recognizing that these facilities and services build and strengthen community. • Policy C-1.16 Provide arts, science and recreational activities that foster healthy children, youth and teen development. • Policy C-1.20 Leverage available funding to support the development of, and improved access to, programs that address all types of developmental disabilities, including physical, sensory, cognitive or social/emotional needs. Stakeholder Engagement City staff and the Friends of the JMZ have kept community members updated on the JMZ’s construction process, temporary relocation, and reopening throughout the process. Updates have come from both the City’s website and the Friends of the JMZ website as well as printed brochures, flyers, and catalogs from the JMZ. One key component of the recommended operating proposal is funding for marketing and outreach as the JMZ gets ready to reopen. Staff will begin a robust marketing plan several months in advance of the opening to ensure that City residents, current JMZ visitors, and neighboring communities are aware of the JMZ’s reopening. Community Services Department staff have developed the proposed operating model in careful coordination with other City departments including Human Resources and the Office of Management and Budget. has worked closely with the Friends of the JMZ to further refine these scenarios and expectations. Environmental Review The City Council adopted a resolution approving a mitigated negative declaration and mitigation monitoring and reporting program in accordance with CEQA for the JMZ project on December 4, 2017 (staff report and action minutes). City of Palo Alto (ID # 12233) Finance Committee Staff Report Report Type: Action Items Meeting Date: 5/4/2021 City of Palo Alto Page 1 Summary Title: Stanford University Medical Fund Title: Discuss and Accept the Stanford University Medical Fund Report of Current and Planned Commitments, in Preparation for the Committee's Review of the FY 2022 Budget From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff recommends that the Finance Committee review the uses of the Stanford University Medical Fund and accept this report. EXECUTIVE SUMMARY This item provides an update on the uses, planned uses, and available funding remaining in the Stanford University Medical Center (SUMC) Fund, which was created and funded through a development agreement with Stanford to mitigate a variety of impacts from the medical center redevelopment projects. The City Council requested and referred a review of these funds to the Finance Committee at its January 30, 2021 retreat. This is an informational report and has been scheduled in order to proactively equip the Committee with the necessary information to have informed and productive FY 2022 Budget discussions where adjustments may be made in the context of the many competing priorities the City is faced with in its allocation of scarce resources. As a one‐time source of funding, clear principles of spend should follow the important budgeting guiding principle that funds only be spent and invested in one‐time costs. Staff recommends that the Finance Committee review this status report and defer any formal allocation of funds to the FY 2022 budget process with the Committee which is scheduled to being subsequent to this item and occur on May 11th, 12th, and 25th, 2021. BACKGROUND In 2011, the City of Palo Alto entered into a Development Agreement between the City of Palo Alto and the Stanford University Medical Center Parties (SUMC). Funds received in Fiscal Year 2012 as part of this agreement were used in Fiscal Years 2013, 2014, and beyond as outlined in the agreement and approved by the City Council. In Fiscal Year 2018, City of Palo Alto Page 2 the City received the final payment of $11.8 million, for a total principal amount of $44.3 million over the course of the development agreement. The funds received per the development agreement are allocated for specific purposes, which include funding for the 2014 City Council-approved Infrastructure Plan. As outlined in the agreement, expenses and revenues for each category must be accounted for separately. The full text of the agreement and significant background information can be found in the following documents: − City Council adoption of the final SUMC Development Agreement (June 6, 2011, Staff Report 1339, Action Minutes) − Ordinance of the Council of the City of Palo Alto Approving a Development Agreement Between the City of Palo Alto and Stanford Hospital and Clinics; Lucille Salter Packard Children's Hospital at Stanford; and the Board of Trustees of the Leland Stanford Junior University (Ordinance 5124) − The Planning and Development Services Department, formerly the Planning and Community Environment Department, periodically issues a report of activities during the prior period for Council review to ensure compliance with the agreement. The annual report for the 2016‐2017 period is included in CMR 8999, June 11, 2018. Historically, the City Council and Committees have provided direction to staff on the authorization process for use of SUMC funds, including guiding principles for their expenditure. At a high level, use of these funds should be consistent with 1) City Council priorities, 2) used for impactful and long‐lasting projects, and 3) primarily focused on infrastructure. The development agreement contains provisions for certain expenditures that have been programmed in prior years, including Project Safety Net and emergency vehicle traffic signal preemption. The authorization to use SUMC funds: − For new projects (excluding Health and Safety) is completed as part of the annual budget process. − Funding for Health and Safety is to be reviewed and recommended by the Policy & Services Committee to the City Council for approval. In prior years a joint Stanford/City Committee was created to advise Community Health and Safety programs. At the May 15, 2019 Budget Hearing, the Finance Committee requested additional information regarding the definitions, restrictions, and current status of the SUMC development agreement funds. Staff provided follow up to this request during the May 28, 2019 Budget Hearing via an At Places Memorandum. As result of this discussion, the Finance Committee requested that staff provide additional information related to the City of Palo Alto Page 3 uncommitted balances in the SUMC Fund, assuming that FY 2020 ‐ 2024 Capital projects are expended as planned. This information was provided in Staff Report 10419. As part of the FY 2020 budget process, staff and the Finance Committee agreed to return to the Finance Committee in the fall to strategize the use of uncommitted funds from the Stanford University Medical Center (SUMC) development agreement (Staff Report 10643). This report provide historical context as well as future plans as of this date. DISCUSSION At the close of FY 2020, a total of $20.5 million remains of the $44.3 million in direct payments (plus nearly $4.2 million in interest) with $15.3 million programed for various capital investments and $6.1 million remaining in unspent and unallocated funds. Below is a summary table of the different expenditure categories outlined in the development agreement and the current status of each of those categories. Following the table is a summary of the expenses to date as well as the planned expenses. In light of the continuing competing priorities, staff recommends that any recommended changes or current allocations and future allocations are discussed and executed as part of the FY 2022 annual budget process. As a one‐time source of funding, clear principles of spend should follow the important budgeting principle that funds only be spent and invested in one‐time costs. The Finance Committee may review the planned expenses and the uncommitted balances during the FY 2022 budget hearings, provide feedback on priorities and goals for future spend within the parameters of the development agreement, and recommend to the City Council any changes in allocation of these funds in the context of reviewing the FY 2022 budget in the days following this review. Stanford University Medical Center (SUMC) Current Fund Status Summary (millions): Development Agreement Expenditure Category PRINCIPAL FUNDING FY 2021 Beginning Balance FY 2021 Interest (EST) Planned Commitments FY 2021 Planned Commitments FY 2022-26 NOT Committed Community Health and Safety 4.0 2.9 0.04 0.5 - 2.44 Expansion Cost Mitigation 2.4 3.0 0.03 0.7 0.5 1.83 Intermodal Transit 2.3 1.3 0.02 - 1.5 (0.18) Quarry Road Impv. "Linkages" 0.4 - - - - - Infrastructure and Affordable Housing 23.2 10.4 0.14 0.8 8.9 0.84 Climate Change and Sustainable Communities 12.0 2.9 0.03 0.4 2.0 0.53 $44.3 $20.5 $0.26 $2.4 $12.9 $5.46 City of Palo Alto Page 4 Details on usage of these funds can be found in the prior staff report as noted above. Below is a brief description of the planned projects included in FY 2021 through FY 2026 by category. Community Health and Safety: Funds in this category are intended for use on community‐based health and wellness programs that benefit residents of the City. - A transfer from the Stanford University Center Medical Fund of $500,000 was completed as part of the City Council Community and Economic Recovery workplan to increase the Building Systems Improvements capital project (PF-01003) for COVID-19 mitigation measures at City Facilities. Expansion Cost Mitigation: Funds in this category are intended for mitigating unexpected project impact costs and ensure cost neutrality of the development. - A transfer from the Stanford University Center Medical Fund of $150,000 was completed as part of the City Council Community and Economic Recovery workplan to establish the University Avenue Streetscape Update capital project to cover the costs of work on University Avenue. - Funding of $1.0 million is programmed for Railroad Grade Separation (PL-17001) work associated with the Caltrain crossing and planning in FY 2021 and FY 2022. Intermodal Transit: Funds in this category are intended to enhance pedestrian and bicycle connection from the Transit Center to the El Camino/Quarry Road intersection. - Funding of $1.5 million is programmed to be expended on the Quarry Road Improvement and Transit Center Access project (PL‐16000) in FY 2024 Quarry Road Improvements: These funds are to be used for improvements to the right‐of‐way for pedestrian and bicycle connection in the Quarry Road area, such as improvements to the right‐of‐way to enhance pedestrian and bicycle connection from west side of El Camino to Welch Road along Quarry Road. As of FY 2019, all of the original $0.4 million allocation have been spent on design and construction of the temporary bicycle and pedestrian Transit Center Pathway that was completed in summer 2017 (PL-16000). Infrastructure and Affordable Housing: Funds are to be used in connection with infrastructure, sustainable neighborhoods and communities, and affordable housing. - Funding of $8.9 million is programmed to be expended on the Fire Station 4 Replacement (PE-18004) in FY 2022, FY 2024, and FY 2025. This funding was previously allocated to the Downtown Parking Garage (PE-15007), however, funding was realigned between City Council approved 2014 Capital Infrastructure Plan as part of the City Council approved FY 2021 Adopted CIP due to the significant financial constraints the COVID-19 pandemic induced. - Funding of $800,000 is programmed to be expended on the New Public Safety Building (PE-15001) in FY 2021 of which preliminary construction work is underway. Climate Change and Sustainable Communities: Funds are to be used for projects and programs City of Palo Alto Page 5 for a sustainable community, including programs identified in the City’s Climate Action Plan. - Funding of $2.4 million is programed to be used for the Bicycle and Pedestrian Transportation Pan Implementation (PL‐04010) capital plan, approved as part of the City Council approved 2014 Infrastructure Plan in FY 2021 and FY 2022. Unallocated Funding The unallocated funding of approximately $5.5 million is primarily in the Community Health and Safety and the Expansion Cost Mitigation allocations. Likely areas for use, though not an exclusive or comprehensive list are noted below in general terms: • Assessment and assistance to community groups and non-profits that support community health and wellness; • Capital improvement projects supporting the mitigation of the expansion of the hospital • Support for City Council unfunded priorities such as City Council’s Sustainability and Climate Action Plan As mentioned earlier, as a one‐time source of funding, clear principles of spend should follow the important budgeting principle that funds only be spent and invested in one‐time costs. In addition, based on feedback and recommendations from the Committee as part of the budget process, staff will evaluate in the context of the terms in the development agreement to ensure compliance. STAKEHOLDER ENGAGEMENT Current allocations have been discussed as part of the public annual budget process both the community, City Council, and standing Finance Committee. Depending on changes to the allocation of funding staff or allocation of remaining funds, will review to ensure alignment with requirements under the development agreement for eligibility and required coordination with appropriate groups. RESOURCE IMPACT The action recommended does not have a resource impact, however, realignment of funding and recommended adjustments may have an impact that requires further evaluation. ENVIRONMENTAL IMPACT The action recommended is not a project for the purposes of the California Environmental Quality Act. City of Palo Alto (ID # 12250) Finance Committee Staff Report Report Type: Action Items Meeting Date: 5/4/2021 City of Palo Alto Page 1 Summary Title: FY 2021-2022 Proposed Operating and Capital Budgets Title: Review and Discuss the Fiscal Year (FY) 2021-2022 Proposed Operating and Capital Budgets From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the Finance Committee review and discuss the FY 2021-2022 Proposed Operating and Capital Budgets. Discussion Annually the City Manager issues a proposed operating and a proposed capital improvement budget and five-year capital improvement plan. These documents are expected to be released April 30, 2021. This initial agenda item with the Finance Committee is intended to review these documents via a verbal presentation with the Finance Committee in preparation for the scheduled deliberations with the Committee on May 11, 2021 and May 12, 2021.