HomeMy WebLinkAboutStaff Report 479-09TO:
FROM:
DATE:
SUBJECT:
City of Palo Alto
City Manager's Report
HONORABLE CITY COUNCIL 28
CITY MANAGER
DECEMBER 14, 2009
DEPARTMENT: ADMINISTRA TIVE
SERVICES
CMR: 479:09
Approval of the Finance Committee Recommendation to Approve a
Budget Amendment Ordinance (BAO) to Transfer $809,000 from the
General Fund Budget Stabilization Reserve (BSR) to the Technology
Fund in Fiscal Year 2010
RECOMMENDATION
Staffcrecommends that the City Council:
1. Approve the attached BAO to transfer from the General Fund Budget BSR to the
Technology Fund in the amount of $809,000, which represents the General Fund's Fiscal
Year 2009 year end surplus.
2. Allow for the BSR to temporarily drop below the Council approved minimum) 5 percent
of General Fund expenditures.
BACKGROUND
On December I, 2009, staff presented the Finance Committee with a preview of the 2009 Fiscal
Year-end financial results for the General Fund (GF} The FY 2009 General Fund Budget
included a mid-year budget savings and reduction plan of $8 million. The December 1 Finance
Committee Report focused on our failure to achieve $4.8 million of targeted savings in salary
and benefits during the second half of the year (of the $8 million plan) because of a staff error in
accurately tracking those targeted savings. That said, the error masked the fact that the City
could not have achieved those savings and would have had to make future cuts or budget
reductions. The error was not discovered until after the close of the fiscal year and as staffbegan
work on the year end closing in preparation for the audit. The effect of this error was a year end
shortfall of$4.8 million in the General Fund.
Since the City is required to have both a balanced General Fund budget and balanced budget by
department at year end, staff recommended deferring the 2009 General Fund transfer to the
Technology Fund, which also was $4.8 million. This action resulted in a balanced budget at
year-end closing. By the time of the final closing, the net shortfall was reduced to $4.0 million
due to final year-end audit adjustments that came after the deferral of transfers from the
CMR:479:09 Page I of4
Technology Fund. Consequently, a positive $809,000 balance was left in the General Fund
(Attachment A: CMR:434:09). As a solution to cover the shortfall and balance the Fiscal Year
FY 2009 budget, staff proposed the postponement of a budgeted $4.8 million GF cost allocation
transfer to the Technology Fund (TF). These adjustments are currently reflected in the FY 2009
Comprehensive Annual Financial Report (CAFR).
DISCUSSION
At the December I, 2009 Finance Committee meeting ASD staff presented a recommendation
for the year-end closing to resolve the savings shortfall that led to the $4.8 million deficit. The
recommendation was to forgo a $4.8 million cost allocation transfer from the General Fund to
the Technology Fund for fiscal year 2009. The transfer was not made in order to cover the
unrealized salary and benefit savings and to ensure that any final audit adjusting entries could be
made. An alternative could have been to draw down the General Fund's Budget Stabilization
Reserve (BSR) by $4.8 million. The primary reason for staffs recommendation to forgo the cost
allocation transfer from the General Fund is to maintain a healthy BSR. It will also help with
reserve levels that will factor into the upcoming issuance of debt for the Library Bonds. By
making the adjustment to the budget, rather than drawing on reserves, staff was able to maintain
a healthy reserve level in the BSR. This demonstrates to the rating agencies that we are able to
maintain strong reserves in the face of continuing fiscal uncertainty now and in the future. The
importance of this is to reaffirm the City's AAA rating, resulting in a better interest rate and
savings in rate costs.
The Finance Committee expressed disappointment that staff did not inform them earlier in the
process, or before the finalization of the external CAFR audit, to allow for discretion in the
decision to draw down the BSR or forgo the Technology Fund transfer. In addition, the Finance
Committee expressed a desire to return the General Fund's FY 2009 surplus of $809,000 to the
Technology Fund, adjusting the ending reserve balance to $860,000 instead of the $51,000 that
would have remained.
Fiscal Year 2010 Budget (Current Year)
The BAO action recommended by the Finance Committee amends the current FY 201 0 budget.
At the December 1 Finance Committee meeting ASD, staff recommended to replenish the $4.8
million over a four year period in increments of $1.2 million beginning this year, FY 2010. The
Finance Committee made a motion to approve staffs recommendation to close out the 2009
Fiscal Year by eliminating the transfer to the Technology Fund and to recommend to the full
Council a Budget Amendment Ordinance in the FY 2010 Budget to fund the Technology Fund
with the $809,000 excess from FY 2009, plus any amount necessary to fund all of the technology
expenditures planned for FY 2010. This motion was passed unanimously by the Finance
Committee.
Funding for the planned and budgeted Technology Fund CIP projects will not be disrupted since
the General Fund is making its full budgeted contribution of $5.1 million in FY 2010 (current
year) and therefore addresses the Finance Committee's concern to maintain the 2010 capital
projects at the adopted level. Technically the $809,000 million transfer from the General Fund is
not needed to ensure adequate funding in 2010. However, it can be used to replenish the
Technology Fund reserve. The Council may want to consider adding funding of $416,000
CMR:479:09 Page 20f4
million with the midyear budget to reach the amount of $1.2 million to be consistent with the
four-year plan to replenish the Technology Fund.
The $809,000 million draw from the BSR will drop the balance to $21.2 million or 14.9 percent
of the 2010 adopted budget expenditure budget. The Council BSR policy calls for a minimum of
15 percent, so staff requests Council approval to temporarily reduce the BSR below the Council
approved policy. The FY 2009 fiscal closing BAO will be presented to the City Council in
January 2010 and will increase the BSR by $2.6 million, resulting in a 16.7 percent reserve level
and well within the Council approved guidelines of a minimum of 15 percent and maximum of
20 percent.
'.
The projects listed below are from the Technology Fund)s FY 2010 Capital Improvement Plan
(CIP). This can be found in the Capital Improvement Fund Financial Summary of the FY 2010
Adopted Capital Budget. Staff will discuss and seek approval from the Finance Committee and
the Council for any adjustments to project funding or to schedule it in the future. The $5.1
million the General Fund will transfer to the Technology Fund covers operating costs plus capital
costs. The budgeted CIP for 2010 is as follows:
_P_r_o,,-~e_c_t _N_o_. ____ D_escription
PRJ TE-02015 Citywide GIS Data
PRJ TE-05000 Radio Infrastructure
PRJ TE-07000 Enterprise Application Infr Upgrade
PRJ TE-08002 Electronic Patient Care Report
PRJ TE-l 0000 Collections Software
PRJ TE-I000l Utilities Billing Improvement
Total FY2010 Adopted
Other Revenue Sources
Tech Fund Contribution
FY2010
Adopted Budget
258,632
200,000
135,000
20,000
79,800
250,000
943,432
(588,616)
354,816
During the December 1, 2009 Finance Committee meeting, the ASD director mentioned that
several projects were being delayed as a result of the foregoing of the transfer to the Technology
Fund. The projects mentioned included the Library RFID and Radio Infrastructure. As a
clarification, none of the 2010 Technology projects were requested to be deferred. Those
projects mentioned were for future years.
RESOURCE IMPACT
Approval of the attached Budget Amendment Ordinance will transfer $809,000 from the General
Fund Budget Stabilization Reserve to the Internal Service Fund-Technology Fund Reserve. As a
result of this change) the Budget Stabilization Reserve will be reduced from $22 million to $21.2
million.
ENVIRONMENTAL REVIEW
This is not a project for the purposes of the California Environmental Quality Act.
CMR:479:09 Page 3 of4
PREPARED BY:
Director
CITY MANAGER APPROVAL:
ATTACHMENTS
Attachment A: CMR:434:09 Fiscal Year 2009 General Fund Discussion and Fiscal Year 2010
Financial Results as of November 20,2009
Attachment B: Budget Amendment Ordinance
CMR:477:09 Page 4 of 4
TO:
ATTENTION:
FROM:
DATE:
SUBJECT:
ATTACHMENT A
HONORABLE CITY COUNCIL
FINANCE COMMITTEE
CITY MANAGER
DECEMBER 1,2009
DEPARTMENT: ADMINISTRATIVE
SERVICES
CMR: 434:09
Fiscal Year 2009 General Fund Discussion and Fiscal Year 2010
Financial Results as of November 20, 2009
RECOMMENDATION
Staff recommends:
1. That the Finance Committee review and provide input on the General Fund financial
results for FY 2009 and preliminary results for FY 2010, including staff's proposed
financial plans for each of the two fiscal years.
2. After Finance Committee review, direct staff to present this report to the full Council in
January 2010.
BACKGROUND
Staff is providing the 2009 fiscal year-end financial results for the General Fund (GF) earlier
than usual due to the severe downturn in the economy and the impacts it has caused to the City's
financial position. Because of a higher than anticipated budget gap in Fiscal Year (FY) 2009,
staff is presenting year-end results in this report and will provide the final audited financial
statements to the Finance Committee December 15.
Looking at the current fiscal year, the continuing economic downturn requires revisiting revenue
and expense performance and potential options to close a higher than expected year-end budget
gap. In the FY 2010 budget process, a $10 million General Fund deficit was identified. This gap
was closed with a three pronged approach that relied on one-time reductions, program cuts, and
reductions in employee benefits and salaries. The latter was achieved through reductions in
benefits to SEIU and management employees and a postponement of a police union salary
increase. Unfortunately, these reductions of approximately $10 million have proven insufficient
to stem the tide of declining revenues and the City is facing an additional $5.4 million deficit.
This deficit could continue to grow if revenues do not remain stable in the second half of this
fiscal year.
CMR:434:09 Page 1 of 13
The City· of Palo Alto is not alone in facing this disturbing situation. The cities of San Francisco
and Oakland have already pared their budget several times and are likely to face additional future
drops in property taxes. Jurisdictions up and down the Peninsula are facing fluid, if disruptive
revenue environments in which multiple budget adjustments are needed. Moreover, the size and
nature of the revenue shortfalls, such as shifts in consumer spending patterns, likely require long-
term structural expense changes. An updated Long Range Financial Forecast (Attachment A) is
provided to show the projected deficits the City faces in FY 2010 and beyond.
DISCUSSION
Fiscal Year 2009 General Fund Results
The drop in key revenue sources in FY 2009 required midyear budget adjustments to OF
revenues and expenditures. Early in the year, staff estimated the FY 2009 budget deficit to be $8
million and a plan was implemented to close this gap. The adjustments made to revenues at
midyear were close to projections. Unfortunately, however, the adjusted expense budget
underestimated expenditures at year end and resulted in a OF deficit of $4.8 million (in addition
to the $8 million projection). This additional shortfall was mentioned briefly during the October
5, 2009 Council meeting, but since staff did not have the specific data reviewed by the outside
auditor at that time, it has not been discussed in detail until this report. The components of the
shortfall are outlined in the following table and explained below.
Table 1
FY 2009 General Fund Deficit Summary
~S~a_Ia_n_'e_s __________ ~($-2~,1_0Q~,0-0~0)~--~
Overtime
Police ($ 650,000)
Fire $ 250,000)
($1,800,000)
$4,800,000)
Salaries
The salary line item was over budget due to a miscalculation in the amount of expected salary
savings. The adopted operating budget includes an annual factor for salary savings. These
savings result from 1) an expected vacancy rate or the number of positions that are not filled at
any given time throughout the fiscal year; and 2) a salary expense "cushion" resulting from
salaries being budgeted at the top step compared to actual salaries that are, for many employees
lower (e.g., new hires). During the midyear budget process, staff included a second round of
salary savings that did not materialize. The miscalculation was not recognized in time to make
additional expense adjustments. Staff has implemented monthly variance reports, as well as other
controls, to avoid such occurrences in the future.
CMR:434:09 Page 2 of 13
Overtime
Overtime costs in the Police and Fire departments exceed the budget every year due to vacancies,
disabilities, minimum staffing requirements, and staffing of Station 8 for fire protection in the
summer and emergencies. In a typical year, these overages are covered by salary savings
citywide or in the public safety departments. With the salary savings factor overestimated,
however, the savings were not there to absorb the overtime excess. Therefore, the $900,000 in
excess overtime 'for these two departments contributed to the FY 2()09 deficit. It should be noted
that Stanford University reimburses 30.3 percent of all operating expenditures including
overtime and the State of California provided reimbursements for Fire Strike Team activities.
The $900,000 is not offset by these reimbursements. The City will receive these reimbursements
in FY 2011.
Benefits
The City has a General Benefit Fund (GBF) from which it pays its benefit expenses such as
medical and workers compensation costs. This fund, like other Internal Service Funds (e.g.,
Technology, Vehicle), typically carries a positive balance in the form of retained earnings which
covers operations and project or capital needs. In the past, the balance in retained earnings in the
General Benefits Fund helped cushion against year-end benefit expense adjustments.
Specifically, workers compensation and general liability costs, which reflect yearend actuarial
adjustments (based on incurred but not reported expenditures) can fluctuate considerably but are
not known until year end as they are ~ased on the volume and severity of claims. In most years,
the OBF and the Fund's retained earnings are sufficient to cover unexpected liabilities as well as
any overages in other benefit categories such as medical premium expenses.
Anticipating that retained earnings in the GBF were sufficient to cover benefit expenses in FY
2009, General Fund benefit expenses were held constant from FY 2008 to FY 2009. This
practice has been implemented in past budget years in an effort to keep a reasonable balance
between retained earnings balances in the GBF and what expenses are budgeted in and allocated
to OF departments each year. Disappointingly, benefit expenses at the end of FY 2009 came in
$1.8 million over budget due to higher than anticipated claims.
Establishing an annual budget depends on a number of variables that can be difficult to predict
and are subject to change. In high performing years, the City has enjoyed considerable cushion
in its budget that has allowed midyear adjustments with negligible impact on the bottom line. In
times of sustained economic downturn, cushions such as higher than anticipated revenues, are no
longer present. Margins that are extremely tight due to falling revenues, low Internal Service
Fund reserve balances, and prior expense reductions have become tighter and more difficult to
maintain. Of the $4.8 million FY 2009 deficit shown in Table 1, only the $2.1 million in
underestimated salary expenses could have been foreseen at midyear (midyear report was
presented to the Finance Committee on March 10) and later. The remaining expenditures, on the
other hand, are finalized at year-end and thus sufficient data is not available for earlier
adj ustments.
CMR:434:09 Page 3 of 13
Budget Balancing Plan for Fiscal Year 2009
In order to solve the $4.8 million deficit for FY 2009, staff proposes postponing a budgeted $4.8
million transfer to the Technology Fund. This will have the effect of lowering GF expense and
eliminating the General Fund deficit. This one-time deferral will reduce the Technology Fund's
retained earnings to $51,000 net of encumbrances and re-appropriations. The $4.8 million
transfer will result in planned technology projects such as radio infrastructure improvements and
library RFID implementation being delayed. In addition, technology infrastructure replacement
schedules will need to be revisited and adjusted accordingly. As a consequence of this action,
the Technology Fund is at an exceptionally low balance and will need to be replenished via
future transfers from the GF so as to not severely impact technology operations. Currently,
repayment over a four year period is being contemplated. The only other immediately available
option to solve the deficit would be to draw down the General Fund Budget Stabilization
Reserve, but since the City is experiencing extremely volatile economic conditions which have
implications for FY 2010 a reserve drawdown in FY 2009 is not recommended.
Fiscal Year 2010 Financial Results To Date
On September 8 and October 5 (CMR: 394:09 and CMR 358:09 in Attachment B), staff
informed Council of potential further deterioration in General Fund revenues and the possible
need for budget adjustments in excess of the $10 million in reductions already incorporated in
the Adopted FY 2010 Budget. Due to the extended recession, City revenues will fall
significantly below budget in FY 2010. Since FY 2008, sales, transient occupancy,
documentary, and interest income have fallen by a combined $8.2 million. In addition, permit,
golf course fee, and traffic fine revenue also have dropped by $1.1 million since FY 2008 due to
the economic environment. Cumulatively, this represents a $9.3 million downward swing in GF
resources over two years and it has caused an additional budget deficit for FY 2010 which is
estimated now at $5.4 million. Attachment C shows the performance of revenues through
November 20, 2009 relative to the budget. Due to the timing of payments (e.g., sales and
property taxes) and seasonal factors, these results must be viewed cautiously.
Revenue Performance in FY 2010
Sales Tax
Sales Tax revenue is the General Fund's third highest revenue equaling 14 percent of its
resources. In recent years sales tax has become a highly volatile and fragile source of City
income. Whereas FY 2008 actual revenues were $22.6 million; it now appears the City will
realize $17.7 million in FY 2010. This represents a $5 million or 22 percent decline in a very
short period of time. To place it in perspective, this $5 million drop equals 77% of the FY 2010
Library budget.
The projected $17.7 million in sales tax revenue is $2.0 million below the FY 2010 Adopted
Budget. The primary cause for the decline is economic and the secondary cause is a dramatic
decrease in the amount remitted by the State in its semi-annual "triple flip" payments for FY
2010. With the exception of one economic segment (electronic equipment), all sales tax
segments -autos, department stores, miscellaneous retail, furniture/appliance had dreadful
results in the second quarter. In fact, all of these areas had the lowest "benchmark year"
performance in this quarter compared to 8 prior "benchmark year" quarters (a benchmark year is
the current quarter reporting period plus the prior 3 quarters). New auto sales fell to $1.1 million
CMR:434:09 Page 4 ofl3
compared to $1.8 million in the second quarter of 2007. For the same periods, department store
sales have fallen from $2.7 million to $2.2 million, while miscellaneous retail sales dropped from
$1. 9 million to $1.5 million. Even the normally resilient restaurant sector has turned downward.
The City'S outside sales tax consultant believes that sales taxes may fall as much as 15 percent in
the upcoming third quarter compared to the prior third quarter. This would be consistent with
the prior 2 quarters and would not bode well for the critical fourth quarter holiday sales season.
Furthermore, on October 14, the State notified jurisdictions of lower "triple flip" payments.
Whereas the State advanced the City $5.7 million in FY 2009, in FY 2010 its payment dropped
to $4.3 million, a 24.6 percent reduction. While there is a solid rationale for reducing the City's
"triple flip" payment given the economy and statewide sales tax receipts dropping by 20.8% in
the second quarter, the State seems to have underestimated what the City will realize in sales
taxes at year end by around $0.4 million. The State eventually will reconcile its payments to
actual results for FY 2010, but not until the following fiscal year.
In contrast, the State's "triple flip" payment to the City for FY 2009 was higher than justified by
actual results. Since the State reconciles its payments to actual results in the following fiscal
year, consequently the "true up" for FY 2009 will result in a $0.8 million reduction in payment
for FY 2010. By adopting the "triple flip" payment system to solve its budget dilemmas, the
State has further complicated sales tax projections.
Transient Occupancy Tax (TOT)
City TOT revenues have been soft. Revenues from January through June 2009 were 29 percent
below those of the prior year. In July 2009, revenues were below July 2008 by 21.3 percent.
The Senior Games did have a salutary impact in that August revenues were only 8.7 percent
below the previous August; but September's results resumed this sector's weak trend line being
21 percent below September 2008. Based on performance to date, a downward adjustment of
around $0.2 million will be recommended at midyear.
With the Federal Open Market Committee (FOMC) keeping interest rates low for a longer than
expected period, the City'S interest income has declined. Although short-term interest rates on
Treasury instruments are close to zero percent, the City is earning nearly 4 percent on its
portfolio. This rate of return is a consequence of earlier, long-term investments that have not yet
matured. This rate will decrease and staff believes a downward adjustment in inc,ome of $0.2
million is necessary.
Property and Documentary Transfer Taxes
Property taxes are tracking close to budget and are expected to be on target at year end. Despite
a weak housing market, property values in Palo Alto have remained relatively stable. There are
indications from the County, however, that a large number of commercial properties throughout
the County are filing for reassessments which will lower future property tax receipts. No hard
numbers are available at this time, but an impact on this revenue category can be expected in the
next few years.
Although the transfer tax has fallen from $5.4 million in FY 2008 to $3.1 million in FY 2009,
receipts from July through October are only slightly lower compared to the same period of the
CMR:434:09 Page 5 of 13
prior year. This may indicate that the bottom of this revenue source has been reached and will
hold steady until year end. At this time, the budget of $2.8 million in FY 2010 for the transfer
tax appears realistic and will likely be increased to $2.9 million at midyear.
Utility Users Tax
Results to date indicate the telephone tax will exceed estimates, while utility related revenues
will be lower than anticipated. The net result is that this revenue source will likely be adjusted
upward at midyear by around $0.2 million.
Parking Violation Revenue
The City has collected$OA million or 20 percent of the $2.0 million budgeted in Parking
Violations to date. The number of first quarter citations issued is 29 percent lower than previous
first quarter results, while, due to a decline in downtown occupancy and the slowdown of retail
spending, the number of vehicles monitored has decreased 16 percent. Based on the 16 percent
checked for compliance, year end Parking Violation revenue is projected to be $1.5 million, or
$0.5 million short of budget. Staff will be reevaluating the cost recovery levels of the program
and make recommendations to balance revenues and expenses.
Permits
Permit processing has declined approximately 14 percent or $0.6 million. Although the
valuation of projects submitted for permit issuance is higher than the prior year, stricter lending
qualifications and conservative spending practices have lengthened the time applicants require to
finalize their projects. While some permit fees are collected at the beginning, most are
recognized when the permit is finally issued. Projects that do not go to completion do not pay
the costs of processing their permits part way. This collection system should be reevaluated to
ensure that the program is covering its costs throughout the permit process.
Plan Checking Fees
Fees for the processing of applications have declined approximately 14 percent due to the
recession. This line item is expected to be decreased at midyear by $0.3 million.
Golf Course Revenue
The economic environment has affected the number of golf rounds played in Palo Alto and
throughout the industry. The projection for FY 2010 of 76,000 rounds at the course is being
revised downward to 72,000 rounds, thus reducing revenues by an estimated $0.2 million. CSD
is examining ways to keep the golf course competitive with other nearby municipal golf courses.
It will be important to develop a long-term plan for the golf course (which is in need of
additional maintenance and upgrades) given the significant drop in rounds and as the associated
costs of running and maintaining the course continue to increase. It is important to note that the
Golf Course suffered a $0.3 million loss in FY 2009. Staff will return during the fiscal year with
further recommendations on how to address the golf course deficits and a long-term plan.
Class Registration Fees
The Community Services Department (CSD) experienced a 6 percent decline in program and
camp registrations this summer, demonstrating that the recession has had an impact on class and
program activity. CSD fee revenue will be adjusted downward at midyear by approximately
CMR:434:09 Page 6 of 13
$0.4 million. The department is working with class producers to look at new programs and
revamp old ones by using evaluation information from participants. CSD will look at new
methods of marketing (including banners through the city, school flyers and e-mail blasts from
Friends groups).
Cost recovery levels will need to be reviewed and difficult policy decisions made regarding
programs that may not be recovering their costs or are being duplicated by surrounding
competition. The City is likely at a point where it will no longer be able to sustain the number of
Community Services programs offered, and a prioritization of programs will be needed with
input from all stakeholders.
Other Revenues
This revenue source includes facility rentals, special events fees, and other miscellaneous
revenues. It will be decreased by approximately $0.3 million, due to an economy related
decrease in demand for these services.
Attachment D shows, in considerable detail, GF revisions to revenue projections for FY 2010
and FY 2011 based on the discussion above.
Expense Performance in FY 2010
With the exception of overtime, regular salary expenses are in line with their budgeted levels.
This is supported by the discussion below on the salary savings expected in FY 2010 due to
vacanCIes. These savings represent one of the proposed steps for solving the expected year-end
deficit.
Overtime Expenditures Compared to Adjusted Budget
General Fund Overtime Analysis:
The following chart shows total overtime expenditures reaching 73 percent of the adjusted
budget on a citywide basis while straight line usage would indicate 39 percent usage through
November 20. The table below shows that Fire, Police, and Public Works Departments are the
principal departments exceeding their budget.
CMR:434:09 Page 7 of 13
Table 2: FY 2010 General Fund Overtime As of November 20
CITY OF PALO ALTO
FISCAL YEAR 2010 MIDYEAR FINANCIAL REPORT
AS OF NOVEMBER 20, 2009
GENERAL FUND OVERTIME
(In thousands of dollars)
I Adopted I Adjusted % of
Categories Budget Budget Actual Adj Budget
City Attorney
City Auditor
City Clerk 7 7
City Council
City Manager 3 3
Administrative Services 45 45 12 27%
Community Services 105 105 42 40%
Library 58 58 22 38%
Fire 1,018 1,018 1,041 102%
Human Resources 4 4
Planning and Community Environment 67 67 18 27%
Police 1,000 1,000 568 57%
Public Works 113 113 75 66%
Total Overtime 2,420 2,4201 1,7781 73%
• The Fire Department has used 102 percent of its annual overtime budget through
November 20, 2009. This is due to Station #8 staffing ($0.2 million) and Medic-l
staffing ($0.1 million), with the remaining amount of $0.7 million resulting from backfill
for minimum staffing requirements due to sick leave, vacations, and workers'
compensation light duty assignments.
• The Police Department's has used 57 percent of its annual overtime budget. The
customary work of busy shifts, case writing, investigations, and court appearances on off
days as well as an increase in the 9-1-1 dispatch center as more senior Police Dispatchers
train newer employees are the cause of Police exceeding budget to date. Traffic control
services at Stanford football games and other events are partially offset by
reimbursements from the university and organizations.
• The Public Works department has used 66 percent of its overtime budget. The
department has had limited staffing in custodial and maintenance areas and has used
overtime to maintain minimum service levels. The department is currently using limited
hourly personnel to assist with custodial and maintenance services. Overtime costs are
expected to rise further as the temporary salary budget is exhausted. This department's
OT budget is small in comparison to the Fire and Police departments.
CMR:434:09 Page 8 of 13
For historical and more detailed information on public safety overtime costs see Attachment E.
Budget Balancing Plan for Fiscal Year 2010
Although department expense budgets, as a whole, are within their expected target range, the
dramatic fall in revenues requires immediate action to achieve a balanced budget. The following
table shows the revenue adjustments discussed above and the actions recommended to close the
expected $5.4 million gap. These actions are explained below ..
Table 3: FY 2010 Proposed Budget Balancing Plan
Revenue Impacts -OOOs-
Sales Taxes -2,005
Parking Violations -460
Fees/Permits -1,551
Return on Investments -238
r----otherRevenue -186
Increases in Specific Revenues 144
Total Revenue Impacts -4,296
Expense Impact -1,131
Total GF Impact -5,427
Expense Offsets -Proposed
Salary savings -hiring freeze 1,500
Public Safety Building 2,700
Budget Stabilization Reserve 1,279
Repayment of the IT Loan -1,225
Non-Salary Savings 1,000
$3 Million Solution Salary and Benefit
Ga p to Offset 173
Total Proposed Offsets 5,427
Net Change 0
Salary Savings
Staff is now monitoring salary savings due to vacant positions on a monthly basis. The General
Fund's has 622.51 Full-Time Equivalents (FTE) of which there are currently 45 vacant FTE.
Should the City maintain this vacancy rate, an estimated $4.1 million in savings can be realized
by year end. Of the 45 FTE, however, 10 positions are considered critical for public health and
safety and operations will be filled. This will reduce the vacancy savings by approximately $1.0
million. In addition and because of overtime costs annually exceeding budget, anticipated salary
CMR:434:09 Page 9 of 13
savings must be further reduced by $1.6 million. The net anticipated vacancy or salary savings
at year end is anticipated to equal $1.5 million at year end. Attachment F shows these savings by
department.
Public Safety Building
It is proposed that the remaining encumbrance for the public safety building capital project be
reduced by $2.7 million. These funds were designated for completing design work and since this
project has been postponed and there is no land currently identified for the building, it is
recommended they be returned to the original source of funding the General Fund's Budget
Stabilization Reserve. This project will then retain $0.3 million to allow for evaluation of
alternative facilities.
Budget Stabilization Reserve
The extraordinary economic conditions, precipitous fall in revenues, and time required for
implementing further expense reductions, cause staff to reluctantly recommend a one-time draw
on the General Fund Budget Stabilization Reserve (BSR) of $1.3 million. With the City's
participation in the California Securitization Program (CMR 413:09), the $2.5 million property
tax "loan" by the State (cited in CMR: 394:09) that would have required a draw on the Budget
Stabilization Reserve has been neutralized. The City will now receive bond proceeds through
the Program at the time property taxes are deducted from the State, thereby keeping the GF
whole.
The one-time $1.3 million drawdown will reduce the BSR to $24.6 million or 17.4 percent of
budgeted expenditures. City policy requires that the BSR remain at a minimum of 15% of
expenditures. If the reserve falls below this level the policy will need to be amended or an
exception will need to be approved by the Council. Having a healthy level of reserves is critical
for emergencies or severe economic dislocations such as the one we are enduring. Therefore, it
is appropriate to use it in FY 2010. In future years, however, additional expenditure reductions
or revenue enhancements will be required to avoid drawing down the BSR below required
minimum levels (see Attachment A -the Long Range Financial Forecast).
Additional FY 201 0 Budget Reductions and Expenses
To minimize the draw on the BSR, staff will attempt this fiscal year to find $1.2 million in non-
salary and other savings. Contracts, travel and training, and materials and services will be
scrutinized to achieve this before year end. Staffhad hoped to find such savings in FY 2009 (to
offset the $1.131 million expense impact cited in Table 3 above), but was unable to identify
them. Without these reductions, an additional draw on the BSR may be needed. This will be a
challenging but necessary exercise to close the anticipated gap.
Because of the $4.8 million drawdown on the Technology Fund in FY 2009, it is important to
replenish the Technology Fund. To do so requires a $1.2 million annual payback over four
years. This payment is reflected in the Table 3 above.
FY 20 I 0 and Future Fiscal Year Challenges
Although staff believes that if all of the above budget solutions are implemented and revenues do
not further decline, a balanced budget would result at year end, the tenuousness of the economy
and uncontrollable expenses such as general liability losses and workers compensation could
CMR:434:09 Page 10 of 13
further adversely impact the budget. The City has already made repeated and painful expense
reductions to balance its budget beginning with the dot.com bust and earlier and there are only
more painful reductions left. Meanwhile, the City faces sizeable, new expense challenges.
The Long Range Financial Forecast (LRFF) presented to Council on October 5, 2009 (CMR:
394:09) has been updated based on recent revenue and expense data. The Net Operating Surplus
(Deficit) line in the forecast for FY 2010 shows a deficit of $5.4 million in FY 2010. Below this
line are the recommended solutions (discussed above) to solve the projected deficit. Even with
the solutions proposed for FY 2010, the General Fund still shows continuing Net Operating
Deficits in Fiscal Years 2011 through 2020.
Compounding these deficits are additional costs and liabilities the City will face in the near
future. These "below the line" liabilities and costs cause the City'S deficit to equal $5.6 million
in FY 2011 and to grow considerably until 2020. These include:
1) CalPERS will increase retirement contributions from participating jurisdictions starting in
FY 2012 due to significant losses in its investment portfolio. The City of Palo Alto
estimated increases will rise from an additional $1.0 million in FY 2012 to $5.4 million
in FY 2015.
2) The annual contribution towards the citywide employee retiree medical liability will rise
by $1.4 million per year with the General Fund's share at $0.7 million
3) The new library and community center expansions and rehabilitations require
approximately $1.0 million in incremental annual operating expenses beginning in FY
2013.
4) The current rate of funding from the General Fund and Infrastructure Reserve, which is
around $9 million per year, is about $6 million less than what is required to fund the $302
million infrastructure backlog or liability. Moreover, the Infrastructure Reserve balance
currently stands at $6.4 million and is expected to decline to $2.7 million in FY 2011.
New revenues or a reallocation of expenses are necessary to fund needed infrastructure
work.
Offsetting these deficits, but not included in the LRFF, are the savings from certain benefit
changes implemented for SEIU and management employees. These include a second tier
retirement plan (2 percent at 60) for new employees and an employee contribution to medical
expenses that is to take effect in FY 2011. Similarly, the City will need to seek salary and
benefit savings from Fire and Police whose costs represent 39 percent of the GF's budget.
It should be noted that the CalPERS Board recently adopted a plan to share excess reserves in the
preferred provider organization health plan with local agencies by providing a two month
"premium holiday." This results in a savings to the General Benefit Fund of approximately $0.7
million citywide in FY 2010. Given the minimal balance in the GBF, staff proposes that these
savings be used to bolster the Fund's balance in preparation for any year end unanticipated
liability expenses.
CMR:434:09 Page II of 13
The recommendations to balance the FY 2010 budget primarily consist of one-time adjustments
(e.g. draw on reserves, vacancy savings) to get us through the current fiscal year. During this
time, the Council, community, and staff will need to address the long-term deficits the City
faces. In addition to further contributions by employees" expense reductions will be necessary
and must involve prioritizing City programs. Also, additional revenues must be explored.
During the FY 2010 budgeting process, the Finance Committee discussed what has come to be
known as "Tier Two" reductions (Attachment G). These reductions were placed in abeyance
until such time as a clearer revenue picture emerged in FY 2010 and need now to be revisited. In
addition, and because of the magnitude of the City's financial challenges, a list of near, medium,
and long-term alternatives are presented to foster further discussion of how to balance the
General Fund's budget (Attachment H). It is important to note that many of these options have
significant policy ramifications and/or legal or other obstacles. They are being introduced at this
time, however, as examples of issues to discuss and with the expectation that they will generate
other related solutions. The Executive Leadership Team (ELT) has scheduled a retreat to take a
comprehensive look at these initial recommendations and it is expected that this list will undergo
further refinement before it is presented to the full Council.
EL T will examine the best practices identified in a recent League of California Cities publication
("Municipal Fiscal-Health Contingency Planning," Western City, pp. 18-23) to plan for the
difficult cost reduction process ahead and for proposals to Council. General strategies
recommended include, for example:
o Proposing reductions that reflect the fewest service impacts to the community
o Describe service impacts and make process transparent to all involved parties
o Crafting operating expenditure reductions that are real and feasible
o Reductions must be ongoing and net of any related revenues, fees or grants
o Maintain essential facilities, infrastructure and equipment at reasonable levels
Once EL T develops a process and identifies possible reductions, staff will propose these to
Council.
Conclusion
Critical revenues sources have declined by a total of $9.3 million since FY 2008. The recovery
in these revenues is expected to take multiple years, and it is entirely possible that some revenue
sources never regain the levels reached in peak years. Beginning in FY 2010 the City has taken
proactive measures to begin paring back its expenses. By establishing a two-tier retirement
structure and requiring employees to contribute to medical expenses (still to be negotiated with
Fire and Police unions), the City has taken a major step toward addressing its unsustainable
expense structure. But there is considerable work ahead. Even with the current year deficit
closed, expenses will outpace revenues in each future year. The City must decide how to cut
those expenses back -which programs and services are lowest priority. This is likely a multi-
year process.
CMR:434:09 Page 12 of 13
RESOURCE IMPACT
The discussion in this report and the financial results depicted in the LRFF indicate impacts to
the City's General Fund.
ENVIRONMENTAL REVIEW
This is not a project for the purposes of the California Environmental Quality Act.
PREPARED BY:
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
ATTACHMENTS
Assistant Director of Administrative Services
~
LALOPEREZ
Director of Administrative Services
JAMES KEENE
City Manager
Attachment A: Long Range Financial Forecast
Attachment B: CMR:394:09 Fiscal Year 2010 Budget Update
CMR:358:09 Review of Preliminary FY 2009 Revenue Analysis
Attachment C: Fiscal Year 2010 General Fund Financial Report as of November 20
Attachment D: General Fund Revenue Changes for FY 2010 and 2011
Attachment E: Police and Fire Departments Public Safety Overtime Analysis for Fiscal Years
2005 through 2009, with Fiscal Year 2010 Data through November 20,2009
Attachment F: FY 2010 Salary Savings by Department
Attachment G: Tier 2 Reductions
Attachment H: Budget Reduction Options
CMR:434:09 Page 13 of 13
CITY OF PALO ALTO LONG RANGE FINANCIAL FORECAST General Fund ($000)
Attachment A
/rom Other Funds
I Ne;:lotialed Savings from Mgmt.iProf.
Subtotal: Salaries and Benefits
Contract Services
Supplies & Materials
General Expense
Rents, leases, & Equipment
Allocated Expenses
Other Activities
Additional Retirement Contribution Increase 1'1
Retiree Medical Cost Increase
library Operaling Cost Increase
Infrastructure Contribution Increase
Technology Fund Repayment
Public Safety Bldg. Budget Savings
Non-salary RedUCtIOns to be Determined
Salary & Benefit Reductions 10 be Negotiated
Vacant Posilions Salary Savings
Drawdown on Budget Stabilizalion Reserve
FY2009 FY2010 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Actual
20,089 $ 19,650 $ 17,645
25,445
11,030
7,111
5,440
7,796
2,008
17,246
11,483
25,752
11,250
7,000
5,633
7,857
1,900
15,352
10,643
25,778
11.417
6,850
5,274
7,857
1,662
15,235
10,PM
17,982
26,379
12,513
6,987
5,390
8,166
1,646
15,484
10,799
18,430 $ 18,983 $ 19,647 $ 20,434 $ 21,200 $ 21,941 $ 22,599 $ 23,051 $ 23,588
27,325 28,379 29,689 31,136 32,735 34,337 35,936 36,804 37,879
13,156 13,676 13,973 14,703 15,486 16,328 17,200 18,071 18,966
7,140 7,344 7,656 8,019 8,420 8,799 9,085 9,344 9,631
5,510 5,656 5,828 6,016 6,187 6,338 6,418 6,484 6,592
8,529
1,676
15,764
11,078
8,940
1,724
13,977
11,392
9,356
1,785
14,330
11,785
9,818
1,852
14,695
12,260
10,306
1,923
15,070
12,755
10,820
2,002
15,456
13,274
11,360
2,053
15,854
13,815
11,932
2,095
16,264
14,382
12,533
2,163
16,686
14,930
141,472 142,138 137.840 140,631 145,600 147.939 153,127 159,569 166,341 173,248 180,037 186,061 192,523
62,104 63,512 63,512 64,007 66,074 67,309 69,271 72,002 74,841 77,792 80,860 84,049 87,365
(3,000)
29,477
91,581
10,100
3,023
9,008
1,014
10,287
32,205
92,717
9,076
3,547
10,193
1,212
14,316
(794)
(1,222)
(806)
32,205
92,895
10,Q76
3,547
10,193
1,212
14,316
(1,225)
2,700
1,000
173
1.500
1,279
(1,222)
(806)
32,935
94,914
9,604
3,480
9,870
1,213
14,613
(735)
(1,225)
967
(1,246)
(822)
34,713
98,718
9,951
3,532
10,121
1,231
14,832
(1,031)
(735)
(250)
(1,000)
(1,225)
986
(1.271)
(839)
36,772
101,971
10,120
3,592
10,385
1,252
15,084
(2,774)
(735)
(1,000)
(2,000)
(1,225)
1,006
(1,310)
(864)
38,715
105,813
10,373
3,682
10,681
1,283
15,462
(4,963)
(735)
(1,000)
(2,000)
1.036
(1.362)
(898)
40,769
110,511
10,684
3,793
11,002
1,322
15,925
(5,389)
(735)
(1,000)
(2,000)
1,078
(1,416)
(934)
42,943
115,433
11,005
3,906
11,330
1,362
16,403
(5,756)
(735) .
(1,000)
(2,000)
1,121
(1,473)
(972J
45,243
120,590
11,335
4,023
11,670
1,402
16,895
(6,140)
(735)
(1,000)
(2,000)
1,166
(1,532)
(1,010)
47,668
125,986
11.675
4,144
12,020
1,445
17,402
(6,542)
(735)
(1,000)
(2,000)
1,212
(1,593)
(1,051)
50,245
131,650
12,025
4,269
12,381
1,488
17,924
(6,963)
(735)
(1,000)
(2,000)
1,261
(1,657)
(1,093)
52,963
137,578
12,386
4,397
12,665
1,532
18,462
(6,963)
(735)
(1,000)
(2,000)
1,311
--------------------------------------------------------------------------~
Subtotal· Other Activities
GRAND NET SURPLUS (DEFICIT)
) In FY 2010, $2.8 million In budgeted salary savings realized. an additional $185 thousand in savings still needs to be achieved
Police union (PAPOA) deferred their FY 2010 negotiated salary Increase of $0.8 million to FY 2011
Based on current 2.7% @ 55 fonnula
Assumption of no salary Increase for SEIU and MgmtJProf.ln FY 2010 and FY 2011 and no salary increase for Firefighters (IAFF) in FY 2011
Attachment A
CITY OF PALO ALTO LONG RANGE FINANCIAL PLAN
General Fund ($000)
, '
, PERCENTAGE CHANGES IN FORECAST FOR REVENUES AND EXPENSES
0<, ' " '"
FY 2009 FY 2010 ABFY 2010 PB FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
% % % % % % % % %
% Change % Change % Change Change Change Change Change Change Change Change Change Change % Change
trom Ulher Funds
(11.20%)
10.23%
7.24%
(10.85%)
(30.88%)
(3.79%)
(5.43%)
12.40%
(10.04%)
(4.36%)
1.32%
(2.86%)
2.24%
(2.26%)
Salaries ~ 2.77%
& Benefit Reductions to .NegOtiated (1)
Salary Increase Deferral 2)
Savings from SHU
2009.x1s Exhibits 1-3
(4.54%)
0.30%
7.37%
(0.10%)
(1.83%)
(10.58%)
(30.39%)
(43.21%)
46.73%
(9.96%)
(0.01%)
115.38%
(39.58%)
(2.19%) (12.17%)
1.21% 1.31%
1.99% 3.51%
(lo56%) (3.67%)
3.55% (3.05%)
0.25%
7.57%
0.78%
(3.11%)
(2.44%)
0.78%
1.91%
2.33%
9.60%
2.00%
2.20%
3.42%
4.82%
3.93%
(5.38%)
(10.98%)
(7.32"1.)
(17.23%) (0.96%)
(11.66%) 1.63%
(7.31%) 1.46%
2.49%
3.59%
5.14%
2.19%
2.23%
3.34%
7.38%
4.45%
3.00%
3.86%
3.95%
2.86%
2.65%
3.46%
1.87%
4.82%
1.82% 2.86%
1.81% (11.34%)
2.58% 2.83%
3.50%
4.62"k
2.17%
4.25%
3.04%
3.72%
2.91%
4.65%
3.54%
2.53%
3.45%
4.01%
4.87%
5.22%
4.74%
3.23%
4.58%
3.94%
4.94%
3.75%
2.55%
4.03%
3.75%
5:14%
5.33%
5.00%
2.84%
4.63%
3.94%
4.97%
3.83%
2.55%
4.04%
3.50%' 3.00%
4.89% 4.66%
5.44% 5.34%
4.50",(, 3.25%
2.44% 1.26%
4.42%
3.95%
4.99%
4.11%
2.56%
4.07%
3.98%
3.94%
4.99%
2.55%
2.58',(,
4.08%
2.00%
2.42%
5.06%
2.85%
1.03%
2.76%
4.29%
5.04%
2.05%
2.59%
4.10%
(1.12%) (4.59%) 3.17% 3.68% 1.42% 3.51% 4.23% 4.28% 4.17% 3.89% 3.23%
11.64% 11.64% (4.86%) 2.58% 2.83% 3.46% 4.03% 4.04% 4.06% 4.08% 4.10%
0.47% (2.57%) 2.02% 3.53% 1.61% 3.51% 4.21% 4.24% 4.15% 3.92% 3.35%
2.27% 0.99% 2.06% 3.23% 1.87% 2.91% 3.94% 3.94% 3.94% 3.94% 3.94%
N/A N/A
N/A
N/A
N/A
9.25% 9.25% 2.27% 5.40% 5.93% 5.28% 5.31% 5.33% 5.36% 5.36% 5.41%
1.24%
(10.14%)
17.33%
13.15%
19.53%
39.17%
4.84%
(40.56%)
(12.49%)
0.38%
(50.00%)
0.90%
1.43% 2.17%
(0.24%) (2.70%)
17.33% (1.B9%)
13.15% (3.17%)
19.49% 0.12%
39.17% 2.07%
4.010/.
1.50%
1.50%
2.55%
1.50",(,
1.50"1.
3.29%
1.70%
1.70%
2.61%
1.70%
1.70%
3.77%
2.50%
2.50%
2.85%
2.50%
2.50%
4.44%
3.00%
3.00%
3.00%
3.00%
3.00%
4.45%
3.00%
3.00%
2.99%
3.00%
3.00%
4.47%
3.00%
3.00'k
3.00%
3.00'k
3.00'k
4.47%
3.00%
a.OO'k
3.00',(,
3.00',(,
3.00'k
4.50%
3.00%
3.00',(,
3.00'k
3.00%
3.00'k
5.78% 1.25% 3.36% 2.90% 3.43% 4.03% 4.05% 4.06% 4.07% 4.09%
(40.56%) 37.55% 4.04% 4.15% 4.26%
(12.49%) (53.04%) (6.36%) 3.00'1. 2.97%
0.36% (0.54%) (13.99%) (19.07%) (0.40%)
(50.00'k) 0.00% 4.00% 4.00'k 4.00',(,
4.38% 4.48%
2.94% 2.91%
0.68% (0.31%)
4.00'k 4.00%
4.60%
2.94%
0.15%
0.00%
4.70%
2.91%
(0.10',(,)
O.OO'k
4.8O'k
2.88',4,
0.31%
0.00%
1.73% 1.39% 3.15% 2.84% 3.46% 4.03% 4.04% 4.06% 4.08% 4.11%
2.33%
3.81%
3.42%
3.81%
3.47%
3.95%
5.41%
4.50%
3.00r-
3.00%
2.3O'k
3.00'k
3.00'k
4.05%
4.90%
3.00%
(69.04%)
0.00%
3.81%
Attachment A
Budget Stabilization Reserve
Beginning Balance
To/(From) Reserves
CAFR adjustments
One-time Only Increases/(Decreases)
Ending Balance
% of Total Expenditures
LRFP 2009.xls Exhibits 1-3 with IR
CITY OF PALO ALTO LONG RANGE FINANCIAL PLAN
General Fund ($000)
, GENERAL FUND RESERVE SUMMARY ($000) ,
Adopted Projected
FY 2009 FY 2010 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
$ 26,102 $ 24,637 $ 24,637 $ 24,637 $ 19,012 $ 11,519 $ (1,369) $ (15,333) $ (29,660) $ (44,243) $ (59,272) $ (75,192) $ (93,134)
645 49 0 (5,625) (7,493) (12,887) (13,964) (14,327) (14,583) (15,029) (15,919) (17,942) (18,842)
1,581 0 0 0 0 0 0 0 0 0 0 0 0
(3,691) 0 0 0 0 0 0 0 0 0 0 0 0
$ 24,637 $ 24,686 $ 24,637 $ 19,012 $ 11,519 $ (1,369) $ (15,333) $ (29,660) $ (44,243) $ (59,272) $ (75,192) $ (93,134) $(111,976)
17,5% 17.4% 17.2% 13.1% 7.7% (0.9%) (9.6%) (17.9%) (25.6%) (33.0%) (40.2%) (47.9%) (55.4%)
11/25/200910:16 AM
TO: CITY COUNCIL
FROM: CITY MANAGER
DATE: OCTOBER 5, 2009
ATTACHMENTB
DEPARTMENT: ADMINISTRATIVE
SERVICES
CMR: 394:09
SUBJECT: Fiscal Year 2010 Budget Update
RECOMMENDATION
Staff recommends that Council review and provide input on the FY 2010 1 st Quarter Update and
structural budget issues identified in this City Manager Report (CMR).
BACKGROUND
As a consequence of the "Great Recession" and the decline in economically sensitive revenues
such as sales and transient occupancy taxes (TOT), budget deficits were identified for FY 2009
and FY 2010. In the FY 2010 Operating Budget process, the City identified a General Fund $10
million budget gap. This projected deficit would have risen to $12 million had the City
incorporated a pay raise for management and SEm employees. Hence, the budget proposal
assumed zero increases for these groups. To solve the $10 million deficit, the City implemented
$3.1 million in savings from department and service reductions (this included the elimination of
20.3 Full Time Equivalents based on vacancies and retirements); a $1.4 million revenue
enhancement; $2.2 million in temporary reductions in transfers to the Capital Improvement and
Retiree Medical Liability Funds; and $3.0 miHion in employee compensation and benefit
reductions. The latter category savings was dependent on the City negotiating compensation
andlor benefit concessions from management and City unions.
The City is still in the process of negotiating with SEIU, discussing btmefit changes with
management, and finalizing a salary deferral with the Police union (approximately $800,000).
The Fire union has decided to take its contracted salary increase this fiscal year. The
Management and Professional Group has already made a contribution in the variable
management compensation program CVMC) totaling $657,000 for the General Fund. The City's
latest proposal to SEIU is available on the City"s website at
http://www.cityofpaloalto.org/labornegotlations
In the City Manager's FY 2010 Operating Budget transmittal letter, the possible need to revisit
deeper service cuts and savings strategies was discussed. These deeper service cuts were
described as the "Tier 2" list (Attachment C) and they included, for example: eliminating the
disaster preparedness program; eliminating the Police traffic team; and contracting out golf and
parks maintenance work. Layoffs could result with these recommendations, which the City has
CMR:394:09 Page 1 of7
sectors, a permanent change in consumer spending would have a substantial effect on the City's
General Fund finances.
Results to date for the transient occupancy and documentary transfer taxes have not changed
since the September 8 report. TOT receipts from January to June in FY 2009 were -30 percent
lower compared to the prior year period and July 2009 revenues were w21.3 percent under those
in July 2008. As with sales tax-, if receipts do not improve, midyear adjustments of between $0.2
and $0.5 million may be needed. Documentary transfer taxes, which feIJ from $5.4 million in
FY 2008 to $3.1 million in FY 2009, continue to show weakness. Revenues through September
2009 were -36 percent below the same prior year period. At this time, however, staff does not
foresee adjustments to the $2.8 million to be collected in this category for FY 2010.
Attachinent B shows actual revenue receipts through the middle of September in comparison to
the FY 2010 Adopted Budget. As mentioned, it is too early to draw firm conclusions from this
information, but in addition to the areas cited above, those that bear further scrutiny and close
monitoring are parking violations, plan checking fees, and building permits. These areas had
especially weak results in FY 2009 which may continue into FY 2010. Property taxes, the
General.Funds· highest single revenue source, is expected to be close to budget at year end based
on recent County projections.
FY 20 I 0 Expenses
As with revenues, it is too early in the year to detect important expense variances. With the
exception of overtime in the Police and Fire departments, which typically exceed their budgets
due to minimal staffing requirements, there is no discernable expense trend causing concern at
this time. Ifthe City cannot achieve the $3 million in salary and benefit savings discussed above
and incorporated into the FY 2010 budget, a deficit would result.
"Tier 2" Items and Action
Should revenues not perform as forecast or salary 01' benefit concessions. by the unions and
management not be realized, the City will be forced to utilize "Tier 2" expenditure reductions.
During the FY 2010 Finance Committee budget hearings, these reductions were discussed at
length and they were called to the attention of the full Council at budget adoption. Again,
Attachment C lists these items and provides a description of the potential cuts. These include,
for example:
o Eliminating the current Disaster Preparedness program
o Eliminating the City's shuttle service
o Contracting out parks and golf maintenance work
o Eliminating Police traffic control services
Tier 2 reductions will impact services to the community and will result in position reductions.
Structural or Systemic Budget Issues
To substantiate the position that the City faces structural budget issues, staff has modified the
Long Range Financial Forecast (LRFF) presented in the FY 2010 Adopted Budget. Based on
new data and known liabilities, the Net Surplus (Deficit) line in the forecast has been adjusted
CMR:394:09 Page 3 of7
The current rate of funding from the General Fund and Infrastructure Reserve, which is
around $9 million per year, is inadequate to meet the annual $15 million needed to offset
the $302 million liability in any predictable or reliable way. The Infrastructure Reserve
balance currently stands at $5.2 million and is expected to decline to $1.6 million next
fiscal year. Without replenishment from General Fund surpluses over the next few years,
which will not occur, the ability to sustain $9-$10 million of annual General Fund
.infrastructure work is unlikely. New revenues are necessary.
5. Although one-time in nature and supposedly to be repaid in 3 years, the City faces a $2.5
million property tax takeaway· by the State to solve its budget deficit. This cut will
decrease the General Fund's Budget Stabilization Reserve, impact the City's cash flow
and interest earnings (the City currently earns around 4 percent on its investments and
the State has proposed repaying the principal with a 2 percent interest rate), and reduce
flexibility in dealing with unforeseen needs. The City, with the League of California
Cities is exploring our options. Even with statutory protections against State takeaways
of locall'evenues, the State can withhold revenues in fiscal emergencies and the State's
record on coping with such emergencies is well-documented. Having solid and
~ubstantial reserves protects the City from the State risk.
In addition to the structural issues cited above, the City faces additional threats on the revenue
side. Outlined each year in the Long Range Financial Forecast, City revenues and the services
they fund face an array of risks. These can include, for example, risks to sales tax and the TOT
through: community opposition to new business and hotel development (e.g., the loss of Hyatt
Rickey's); the potential exodus of automobile dealerships; surrounding big box stores that cause
leakage of local spending and sales tax to surrounding jurisdictions; loss of sales tax to Internet
sales; and, most recently, the threat of consumers spending less in retail areas such as the
downtown and. Stanford Shopping Center. It is important to note that nearly 50 percent of the
General Fund's roughly $20 million in annual sales tax is generated by 25 businesses. The loss
of one of these enterprises can have a substantial impact on continuing services as we know them
today. .
Additionally, the impact of Statewide initiatives and legislation such as Proposition 13 (property
tax); Proposition 218 (revenue thresholds); and required super majority (2/3) approval for
General Obligation bond funding limit the City's revenue raising options. And of course, the
financial markets crisis and impact on lending as well as the dysfunction of State government all
impact the City.
Conclusions
Actual revenue and expenditure data to date do not definitively indicate new downward budget
adjustments at this moment. As additional revenue and expenditure data materializes, however,
further adjustments at midyear may be necessary.
As indicated in a prior report (October 2007) on maintaining a Sustainable Budget (CMR:
387:07). the City may be faced with determining its long~term service priorities. It must be
recognized that the City provides a wide and high level of service and dedicates sizeable annual
resources in such areas as the school district ($6.6 million in FY 2009 for the Covenant Not to
Develop as well as additional expenditures on field maintenance and outreach programs) and to
CMR:394:09 Page 5 of7
PREPARED BY:
ty Dlrector of Administrative Services
DEPARTMENT HEAD APPROVAL: u~~ijE~:::=-=----
CITY MANAGER APPROVAL: ~-~+--.L....----++--______ .-,;..e.~_
CMR:394:09 Page 7 of?
ATTACHMENT A City of Palo Alto
City Manager's Report
TO: FINANCE COMMITTEE
FROM: CITY MANAGER
DATE: SEPTEMBER 8, 2009
DEPARTMENT: ADMINISTRATIVE
SERVICES
CMR: 358:09
SUBJECT: Review of Preliminary FY 2009 Revenue Analysis
RECOMMENDATION
Staff recommends that the Finance Committee review and discuss preliminary General Fund
revenue perfo~ance for FY 2009. .
BACKGROUND
As a result of the current recession and consequent decline of key General Fund revenue sources,
the Finance Committee requested a late summer assessment of FY 2009 revenue perfonnance.
This assessment was to include a comparison of actual revenue receipts to the FY 2009 Adjusted
Budget and to prior year results. The variance analysis could lead to necessary mid year budget
aQjustments and allow the City to be proactive in resolving unforeseen budget gaps.
It is critical to note that the FY 2009 numbers presented in this report are unaudited and that
there are potential accruals that may result in subsequent changes. Staff is not presenting a year
end expense analysis at this time. Since accruals and incurred, but not reported, expenses in such
areas as workers' compensation and general liability have not been fully booked and allocated to
departments, staff believes an expense report is premature and could be potentially misleading.
In addition, the Committee requested an earlier review of FY 2010 quarterly 'revenue and
expense results. Staff anticipates presenting a full analysis in late October 2009, but offers the
following insights into preJiminary trends in this report.
DISCUSSION
The crucial backdrop to the results jn this report is the dismal state of the economy. hi what has
come to be called the "Great Recession," the City's key and economically sensitive revenue
sources have declined significantly since FY 2007-08. Rising unemployment rates, tightening
credit markets, deteriorating residential and commercial property markets, and diving consumer
confidence have driven down public revenue streams across the country. The City of Palo Alto
has not been immune from the recession.
CMR:358:09 Page 1 of 5
Documentary Transfer Tax
This important revenue source, which is based on the number and value of commercial and
residential property sales, has moved down sharply during the recession. Rising to the mid $5
million level for the past 5 years, it retreated to $3.1 million in FY 2009. While close to the
adjusted budget, this result was 42.5 percent or $2.3 million below FY 2008 results. The poor
performance is a consequence of the commercial and residential markets coming to a virtual
standstill. Commercial transactions decreased due to low occupancy rates and residential
transactions were minimal due to sellers hoJding onto their homes' during a period of market
softness. In addition, credit conditions were abysmal due to the collapsing credit markets for
commercial and jumbo home loans.
As with sales tax and TOT, documentary transfer tax revenue estimates for 2010 may require a
midyear adjustment. Results for the month of July 2009 were nearly 40 percent under those for
July 2008. Cun'ently, the adopted budget for FY ·2010 projects $2.8 million in transfer taxes,
$0.3 million below actual FY 2009 revenues. With credit markets slowly returning to more
normal activity, staff hopes this revenue source will rebound and obviate the need for a midyear
adjustment. .
Fines & Penalties
This revenue category consists primarily of parking violations and library fines. Revenues are'
below the FY 2009 Adjusted Budget by 16.6 percent or $0.5 million, and 4.7 percent or $0.1
mi1lion below prior year results. The negative variance is primarily due to parking violations,
which came in 28 percent or $0.6 million below the adjusted budget. The combination of
industrial injuries to Community Service Officers and fewer cars in violation of parking
regulations have led to this drop. Should vacancies cqntinue, an adjustment to adopted budget
revenues may be necessary .
Permits & Licenses
The downturn in the economy has heavily and negatively impacted building related fees. Permit
and license fees were 16.5 percent or $0.9 million below the adjusted budget and 17.4 percent or
$0.9 million below the prior year. Compared to the budget, new construction permit fees are
down 13.7 percent or $0.4 million while plan check fees were down $0.1 million.
In the new fiscal year, July 2009 building fee revenues are up by $0.1 million in comparison to
July 2008. This may signal an upturn in this revenue category. which would preclude a midyear
adjustment.
Return on Investment
Interest income came in higher than the adjusted budget for 2009, but was under prior year
results by 6.9 percent or $0.2 million. With the Federal Reserve keeping interest rates low to
stimulate the economy, the City's portfo1io yield has declined to the low 4 percent range over the
past two years. It is expected that yields will continue to decline as higher yielding instruments
mature and the City continues to buy securities in the 3 to 4 percent range. An adjustment at
midyear may be necessary if interest rates do not trend upward.
CMR:3S8:09 Page 3 of 5
PREPARED BY:
~,-S#tRON~t·.e': -
Budget Manager. Administrative Se
DEPARTMENT HEAD APPROVAL: -;-:;-;-;::~~;;--r--.:::::::;:;:""--=--
Director of Administrative Services
~.
CITY MANAGER APPROV AL: --__ ---:7'<:..f-L~~~-+----A----
JAMES
CityM
CMR:358:09 Page 5 of5
Attachment B
CITY OF PALO ALTO
REVENUE AND EXPENSE RESULTS THROUGH MID·SEPTEMBER
COMPARED TO THE ADOPTED FY 2009 BUDGET
GENERAL FUND.
(In thousands of dollars)
I Adopted I Adjusted
Categories Budget Budget
Pre Adjusted I I I
%of
Encumbr Encumbr Actual Budget
Revenues & Other Sources
Sales Tax
Property Tax
Transient Occupancy Tax
Utility Users Tax
Other Taxes and Fines
Charges for Services
Permits & Licenses
Return on Investment
Rental Income
From Other Agencies
Charges To Other Funds
Other ...... , .......... ,..
Exeenditures & Other Uses
City Attorney
City Auditor
City Clerk
City Council
City Manager
Administrative Services
Community Services
Fire
Human Resources
Library
Planning and Community Environment
Police
Public Works
19,650
25,752
7,000
11,250
5,633
20,238
5,056
1,900
13,655
92
10,643
1
2,569
999
1,512
296
2,395
6,761
21,876
25,166
2,837
6,385
9,858
29,998
13,484
925
3,343
1,143
1,524
309
2,646
6,910
22,770
25,546
2,970
6,66B
10,603
30,239
14,177
778
* Excludes encumbrances, reappropriation and Infrastructure reserve
21 667
246
17
35
33 61
5 187
203 2,839
99 495
126
164
658
385
934
......•. '
1,682
77
578
2,357
1,204
2,613
943
5
2,450
15
539
152
4B6
70
4B7
1,296
4,173
4,BOO
501
1,169
1,940
5,433
2,443
1953
"'."
Attachment C
\
City of Palo Alto
Internal Budget Hearings -FY 2010 Summary
Tier 2 Items
General Fund
DE'ltJartment " QthElrQ~tions Revenue Expense FTE
FIR
CSD
CSD
PLA
POL
POL
POL
POL
PWD
PWD
Eliminate Disaster Preparedness Div
Park Maintenance -Contract out net expense
Golf Course Maint -Contract out net expense
Eliminate Shuttle
Traffic Team .,.
School Res Officer Prg
Pol Record Specialist -Front Desk Records
Program ASst I -Crime Analysis
Eliminate Tree Trimming Contract
Contract out Tree Trimming
Subtotal
Additional Finance Committee 'Parking Lot" Recommendations
(33,400)
(100,000)
(133.400)
FIR Evaluate future organization of OES ConsolidationlCOordination
FIR Regionalization options for Fire Services
Police Regionalization options for Police Services
(442.826)
(122,957)
(176,352)
(256,000)
(1.00) OccupieCl
(5.00) Occupied
(7.00) 7 Occupied
(626.433) (4.00) Occupied
(161,772) (1.00) Occupied
(82,773) (1.00) Occupied
(94.037) (1.00) Occupied
(379.000) .
(46,737) (1.00) Vacant
(2,388,887) (21,.00)
Police Reduce the Police Department Budget by $500,000 -Police Chief to identify reductions
Police Reduce the Police Department Budget by $492,000 -Finance Committee recommended reductions
Add back 0.5 Fte Volunteer Coordinator (Salary & Benefrts)
Reduce the Traffic Team by one-half (instead of elimination)
1.0 FTE Police Officer (salary & benefits)
1.0 FTE Police Agent (salary & benefits)
Add back revenue
Reduce poSitions listed below by one-half instead of elimination
School Resource Officer (0.5 FTE Pofice Agent)
Crime Analyst Program (0.5 FTE Crime Analyst)
Police Outreach (0.5 FTE Program Assistant I)
$ 52,000
(154,000)
(158.000)
50,000
(79.000)
(56,000)
(47,000)
Planning & Community Environment -$ 256,000
Eliminate the City's shuttle service. There are not City PTE associated with this program
and its termination would result in $256,000 in annual savings. Eliminating the shuttle
program would reduce mobility and transportation alternatives within the City.
Police Department -$ 865,015
Eliminating the Traffic Team would result in the reduction of $626,000 in expenditures
and $100,000 in revenue. Included is the reduction of four PTE. The duties normally
assigned to the Traffic Team would be assumed by patrol units.
Eliminating the School Resource Officer (SRO) Program: During the FY 2010 budget
hearings, one vacant SRO position was eliminated. The Tier 2 reduction would eliminate
the remaining SRO position which is currently filled. The expenditure reduction is
estimated at $162,000.
Elimination of the Crime Analysis Program. This would result in the reduction of one
PTE with an estimated expenditure reduction of $94,000.
Elimination of Community Policing/Outreach program. This would result in the
reduction of one PTE with an estimated expenditure reduction of $83,000.
The Finance Committee also discussed the possibility of evaluating the future of
regionalization options for the Police Department. Staff has not reviewed the costlbenefit
strips to property owners. It would require a change to policy and to the Municipal Code.
It would not impact Utilities line or emergency tree trimming clearing.
The other alternative for the Public· Works Department is the contracting out of Tree
Trimming. This would result in the elimination of 1 FfE and a net expenditure reduction
of $46,000.
The Public Works Department is recommending either/or for these options, not both.
Attachment C
CITY OF PALO ALTO
FY 2010 FINANCIAL REPORT as of 11-20-09
GENERAL FUND
(in thousands of dollars)
Categories I Adopted I Adjusted
Budget Budget I I I
%of
Pre Adjusted
Encumbr Encumbr Actual Budget
Revenues & Other Sources
Sales Tax 19,650 19,650 5,510 28%
Property Tax 25,752 25,752 3,140 12%
Transient Occupancy Tax 7,000 7,000 1,781 25%
Utility Users Tax 11,250 11,250 4,360 39%
Other Taxes and Fines 5,633 5,633 2,092 37%
Charges for Services 20,238 20,238 ·6,209 31%
Permits & Licenses 5,056 5,056 1,455 29%
Return on Investment 1,900 1,900 633 33%
Rental Income 13,655 13,655 4,780 35%
From Other Agencies 92 92 62 67%
Charges To Other Funds 10,643 10,643 3,540 33%
Other Revenues 1,605 1,605 959
Total Revenues 122,474 122,474
Operating Transfers-I n 19,664 19,664
Encumbrances and Reappropriation -6,564
Total Sources of Funds 142,138 148,702
Exeenditures & Other Uses
City Attorney 2,569 3,343 8 601 970 47%
City Auditor 999 1,143 229 296 46%
City Clerk 1,512 1,524 16 655 44%
City Council 296 309 31 107 45%
City Manager 2,395 2,646 6 62 814 33%
Administrative Services 6,761 6,910 156 2,267 35%
Community Services 21,876 22,770 86 2,308 7,993 46%
Fire 25,166 25,546 10 648 9,156 38%
Human Resources 2,837 2,970 5 104 911 34%
Library 6,385 6,668 48 145 2,110 35%
Planning and Community Environment 9,858 10,603 158 953 3,331 42%
Police 29,998 30,239 337 319 9,877 35%
Public Works 13,484 14,177 104 936 4,510 39%
Non-Departmental 6,925 8,778 19 772
Total Expenditures 131,061 137,624
Operating Transfers-Out 11,028 11,028
Total Uses of Funds 142,089 148,653
Net Surplus (Deficit) 49 49
Beginning Reserves 22,176 22,176
Projected Ending Reserves 22,225 22,225
* Excludes encumbrances, reappropriation and infrastructure reserve
Attachment D
City of Palo Alto
General Fund Revenue Changes for FY 2010 and FY 2011 -Detail
($000)
Detail
Sales Taxes
Property Taxes
Transient Occupancy Tax
Utility User's Tax
City Utilities 8,180 7,966 (214) 9,218
Telephone 3,070 3,451 381
SUb-total-Utility User's Tax 11,250 11,417 167
Other Taxes and Fines
Vehicle In-Lieu
Documentary Transfer 100
Parking Violations (460)
General (Fines, Forfeitures & Penalties) 1
Sub-total-Other Taxes and Fines
Total Taxes and Fines
Charges for Services
Stanford Fire/Police Service Reimbursement 7,832 7,832 8,166
Golf Related Fees 3,153 2,919 (234) 3,153
Class Program Fees 3,087 2,727 (360) 3,087
Paramedic Fees 1,754 1,754 1,753
Plan Checking Fees 1,763 1,460 (303) 1,788
Cable Franchise 600 600 600
Other Fees 2,050 1,841 050
SUb-total-Charges for Services 20,238 19,134 20,596
Permits and Licenses
Street Cut Fee 553 703 150 553
Permits 4,431 3,835 (596) 4,506
Licenses 73 73 73
Sub-total -Permits and Licenses 5,056 4,611 (446) 5;131
Charges to Other Funds
Cost Plan -Admin. Support to Other Funds ?:. 8,233 8,233
Communication -Utility Reimb. for 911 Support . 512 512
Public Works Admin. Support to Ent. Funds 563 563
Other Reimbursements 1,335 1,252
SUb-total-Charges to Other Funds 10,643 10,560
Rental Income
Utilities Facility Charges 10,311 10,311 10,311
Property Rental -Cubberley Tenants 1,719 1,801 82 1,719
Use of City Facilities 1,518 1,440 (78) 1,518
Other 106 81 106
Sub-total-Rental Income 13,655 13,633 (21) 13,655
From Other Agencies 92 92 92
Return on Investments (Interest Income) 1,900 1,662 (238) 1,900
Unrealized Gain/Loss on Investment
Other Revenue
Total Revenues (Prior to Oper. T'fers-In)
Operating Transfers-In
Equity & Utility Transfers
Parking Districts
Other
SUb-total -Operating Transfers-In
Total Source of Funds
(225)
434
209
8,166
2,900 (253)
2,800 (287)
1,678 (75)
1,600 (188)
600
050
19,
703
4,100
73
4,876
10,462 150
1,719
1,518
106
13,805 150
92
1,646 (254)
1,502
$121922 $
Attachment E
Police and Fire Departments
Overtime Analysis for Fiscal Years 2005 through 2009
With Fiscal Year 2010 Data Through November 20,2009
Fiscal Year Ending June 30
2005 2006
POLICE DEPARTMENT
Overtime Expense
Original Budget $974,426 $981,862
Current Budget 1,028,337 1,009,705
Net Overtime Cost -see below 1,096,077 780,647
Remaining Budget ($67,740) $229,058
Overtime Net Cost
Actual Expense $1,229,851 $1,405,155
Less Reimbursements
Stanford Communications 30,941 30,937
Utilities Communications Reimbursement 17,404 17,402
Local Agencies (A) 32,617 34,565
Federal Grants
State Grants (8) 8,135 65,835
Police Service Fees 37,188 49,185
Other 7,489
Total Reimbursements 133,774 197,924
Less Department Vacancies 375,515 426,584
Net Overtime Cost $1,096,077 $780,647
Department Vacancies (number of days) 1,642 1,733
FIRE DEPARTMENT
Overtime Expense
Original Budget $982,674 $959,389
Current Budget 982,674 959,389
Net Overtime Cost -see below 877,892 637,310
Remaining Budget $104,782 $322,079
Overtime Net Cost
Actual Expense $1,956,529 $1,582,858
Less Reimbursements
Stanford Fire Services (D) 592,828 479,606
Cal-Fire/FEMA (Strike Teams) 66,269
State Homeland Security
Grant Program (SHSGP) (C) 17,203 72,254
Urban Area Security Initiative (UASI) 26,782
Department of Homeland Security (E)
Total Reimbursements 610,031 644,911
Less Department Vacancies 468,606 300,637
Net Overtime Cost $877,892 $637,310
Department Vacancies (number of days) 1,980 1,230
NOTES:
(A) Includes Animal Services contract with Los Altos, Mountain View and Los Altos Hills.
(8) State Office of Traffic Safety and ABC grants.
(e) Included in the SHSGP and UASI reimbursements is a small amount of per diem reimbursement.
(0) Stanford reimburses 30.3% of Fire expenditures.
2007 2008
$1,015,620 $1,036,815
1,074,399 1,071,005
1,025,718 1,096,894
$48,681 ($25,889)
$1,785,657 $2,009,542
39,342 65,079
22,130 36,607
36,457 41,770
63,344 4,672
43,218 67,390
12,447 18,157
216,938 233,675
543,001 678,973
$1,025,718 $1,096,894
2,280 2,766
$1,032,674 $892,674
1,032,674 996,674
737,768 863,442
$294,906 $133,232
$1,860,757 $1,744,076
563,809 528,455
85,531 140,224
40,897 10,164
1,150
690,237 679,993
432,752 200,641
$737,768 $863,442
1,740 810
(E) Reimbursement from U.S. Department of Homeland Security for HazMat Continuing Challenge Training Conference (Sep 2009)
unaudited thru 11120
2009 2010
$999,900 $999,900
1,016,900 999,900
886,568 215,550
$130,332 $784,350
$1,665,842 $567,870
42,160 17,468
23,715 9,826
37,413 13,413
10,998
53,812 48,035
15,982
184,080 88,742
595,194 263,578
$886,568 $215,550
2,402 508
$1,017,674 $1,017,674
1,353,058 1,017,674
416,610 513,685
$936,448 $503,989
$1,591,261 $1,040,777
482,152 315,355
453,619 43,000
4,342
5,800
940,113 358,355
234,538 168,737
$416,610 $513,685
780 636
11/25/2009
Attachment F
FY 2010 Salary Savings by Department
City Attorney 1.374 124 124
City Auditor 487 25 25
City Clerk 593 67 67
City Council 65 5 5
City Manager 1,302 151 151
Administrative Services 3.709 147 147
Community Services 8.707 276 (137) 139
Library 3.297 156 156
Fire 14,182 1.539 (679) 860
Human Resources 1.544 193 193
Planning and Community Environment 4,531 390 (37) 353
Police 16.706 1.891 (691 ) 1.200
Public Works 4,831 337 (51) 286
Non-departmental (1.313) (2,206) (2,206)
Total 60,015 3,095 (1,595) 1,500
ATTACHMENT G
"Tier Two" Reductions
Dept. Other Options Revenue-Expense FTE
Eliminate Disaster Preparedness
FIR Div (33,400) (442,826) (1.00)
Park Maintenance -Contract
CSD out net expense (122,957) (5.00)
Golf Course Maint -Contract out
CSD net expense (176,352) (7.00)
PLA Elim inate Shuttle (256,000)
I POL Traffic Team (100,000) (626,433) (4.00)
School Resource Officer
i POL Program (161,772) (1.00)
Program Asst I -Police Outreach
POL Program (94,037) (1.00)
Crime Analyst -Crime Analysis
POL Program (111,353) (1.00)
Eliminate Tree Trimming
PWD Contract (379,000)
PWD Contract out Tree Trimming (46,737) (1.00)
Subtotal (133,400) . (2,417,467) (21.00)
Near-Term Cost Savings
Attachment H
Budget Reduction Options
1. Institute a hiring freeze except for positions absolutely required for public health
and safety. The City will look at reorganization around vacant positions (short-
term within departments and long-term among departments), but it must be noted
that significant staff reductions and efficiencies have been implemented since the
"dot-com" bust
2. Freeze or cut all travel and meeting budgets unless critical to immediate public
health and safety issues
3. Institute furloughs
4. Review all consultant contracts, particularly those just starting, to determine if
needed
5. Defer any Capital Improvement Projects (CIPs) that are not absolutely essential
6. Close public safety building design CIP and return funds to reserves
7. Evaluate need for temporary positions including retirees who have been hired
back to work
8. Review staffing levels in departments where fee, fine or permit revenue has
dropped, e.g., CSD classes, parking violations, and in development center.
Design flexible budgets for these areas
9. Consider instituting a 2.5% reduction for small departments and 5% for remaining
departments
10. Institute full cost recovery for programs that provide unique and limited service to
small populations
11. Institute full cost recovery for adult classes. Revisit the non-resident fees and
examine all programs where non-residents are not paying fees for use of City
facilities.
12. Use the Budget Stabilization Reserve to balance the budget along with other
initiatives in 2010. The goal would be to make longer term decisions during the
fiscal year 2010 timeframe. The drawdown should not take the reserve lower than
15 percent of General Fund adopted budget expenditures
Medium Term
1. Institute a 5.0-7.5% equity transfer on dark fiber fund
2. Enhance and expand the Economic Develop Plan
3. Negotiate away minimum staffing levels in Fire Department
4. Have fire department use newest employees for OT work rather than most senior
staff; same for police (i.e., staff according to reverse seniority)
5. Have Fire department complete an evaluation (funds have been budgeted) on need
for current levels and configurations of fire service based on predominant number
of calls for paramedic service
6. Institute a two-tier retirement plan for public safety personnel
7. Contracting out services such as parks and golf
8. Decrease rental subsidies at Cubberley or restart negotiations with Foothill
College
9. Review all support to PAUSD to determine what the City can continue to provide
10. Review the Cubberley Lease and the Covenant Not To Develop agreement with
PAUSD to determine affordability and course of action going forward.
11. Revisit all HSRAP services to non-Palo Alto institutions with new budget cycle
and focus resources on needy seniors, children, and teens in trouble.
12. Revisit residents and businesses paying for cost for sidewalk work at 10% per
year and cap at 50% in year 5
13. Revisit policy on property rental rates to be at or close to cost recovery as
agreements come up for renewal.
14. Move all employee groups toward assuming greater share of PERs "employee"
contribution and all groups contribute towards the cost of health care.
15. Consider assessment districts -parks, sidewalks, fire and/or public safety.
16. Begin GF service priority setting process with Council and community
Long-Term
17. Revisit new conference hotel in Palo Alto
18. Develop LA TP site as a source of rent or sell the land to Enterprise Funds
19. Negotiate away no minimum staffing requirement for Police
20. Review all police services for efficiencies and potential reduction in least
essential services
21. Contract out, with reasonable response time specifications, paramedic service to
outside agencies e.g., AMR
22. Begin discussion with neighboring cities e.g., Mountain View on sharing public
safety services e.g. dispatch center, SWAT, white collar units, border fire
response
23. Explore and implement new revenue opportunities
24. Revisit land use policies to provide the most benefit to the community
ATTACHMENT B
ORDINANCE NO.XXXX
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE BUDGET FOR FISCAL YEAR 2010 TO REINSTATE A
$809,000 TRANSFER FROM THE GENERAL FUND BUDGET
STABILIZATION RESERVE TO THE TECHNOLOGY FUND.
The Council of the City of Palo Alto does ORDAIN as follows:
SECTION 1. The Council of the City of Palo Alto finds and
determines as follows:
A. Pursuant to the provisions of Section 12 of Article III
of the Charter of the City of Palo Alto, the Council on June 15,
2009 did adopt a budget for Fiscal Year 2010; and
B. On December I, 2009, s f reported to the Finance
Committee a one-time budget change to solve a $4.8 million
deficit for the Fiscal Year 2009i and
C. The one-time budget change deferred a $4.8 million cost
allocation transfer from the General Fund to the Internal Service
Fund-Technology Fund in FY 2009i and
D. Pursuant to discussions with the Finance Committee, a
motion was passed to approve staff's recommendation to close out
the 2009 Fiscal Year by deferring the $4.8 million transfer to
the Technology Fundi and
E. The Finance Committee also passed a motion recommending
staff submit a Budget Amendment Ordinance to Council amending the
FY 2010 Technology Fund Budget in the amount of $800,000, which
was the excess from FY 2009 year end close, plus any amount
necessary to fund all of the Tech expenditures that had
planned for FY 2010; and
F. City Council authorization is needed to transfer
$809,000 from the General Fund to the Internal Service Fund-
Technology Fund.
SECTION 2.
A. The Budget Stabilization Reserve is hereby decreased by
the sum of Eight Hundred Nine Thousand ($809,000). As a result of
this change the Budget Stabilization Reserve will be reduced from
Twenty Two Million Twenty Two Thousand Three Hundred Sixty
One($22,022,361) to Twenty One Million Two Hundred Thirteen Thousand
Three Hundred Sixty One ($21,213,361).
B. The Internal Service-Technology Fund is hereby increased
by the sum of ght Hundred Nine Thousand ($809,000). As a result
this change the Internal Service-Technology Fund Reserve will be
increased. from Fifty One Thousand Four Hundred ($51,400) to Eight
Hundred Sixty Thousand Four Hundred ($860,400).
SECTION 3.
As specified in Section 2.28.080(a) of the Palo Alto Municipal
Code, a two-thirds vote of the ty Council is required to adopt
this ordinance
SECTION 4. The Council of City of Palo Alto hereby finds
that this is not a project under the California Environmental
Quality Act and, therefore, no environmental impact assessment is
necessary.
SECTION 5. As provided in Section 2.04.350 the Palo Alto
Municipal Code, this ordinance shall become effective upon adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
City Clerk
APPROVED AS TO, FORM:
City Attorney
APPROVED:
Mayor
City Manager
Director
Services
of Administrative