HomeMy WebLinkAboutStaff Report 375-06City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
ATTN:FINANCE COMMITTEE
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:OCTOBER 17, 2006 CMR: 375:06
SUBJECT:OPTIONS FOR ENHANCING REVENUES AND DECREASING
EXPENSES IN THE GENERAL FUND WITH THE DESIRED
OUTCOME OF INCREASING FUNDING FOR
INFRASTRUCTURE AND OTHER CITY PRIORITIES
RECOMMENDATION
Staff recommends that the Finance Committee direct staff to pursue the "best bets" options
included in this report for increasing funding for infrastructure and other City priorities so that
staff can move forward with planning for the short- and medium-term options and incorporate
them into the Long Range Financial Plan (LRFP) and the 2007-09 budget.
BACKGROUND
In April 2006, the City Council approved the milestones .for the "Top 3" priority, Increase
Infrastructure Funding (CMR: 191:06). The milestones included-reviewing options to increase
long-term Infrastructure Management Plan (IMP) funding by $3 million a year through a
combination of expenditure reductions and revenue enhancements. In addition, staff has
identified other challenges that require long-term funding consideration, such as the retiree
medical liability and the potential loss of utility users’ tax (UUT) revenues.
The Infrastructure Reserve (IR) was created in 2001 to provide funding for projects in the IMP.
In 2004, $36 million was transferred from the General Fund Infrastructure Reserve funds to the
Capital Fund for IMP projects. The annual interest income generated from the IR (approximately
$1 million), combined with an additional $1 million from General Fund year-end surpluses,
when available, is intended to contribute approximately $2 million to the IR annually. Along
with a base transfer from the General Fund of $3.6 million for project expenses, the total
contribution to the IR is intended to be $5.6 million annually.
While maintaining the base transfer of $3.6 million to the IR, the expense base in the General
Fund operating budget has been reduced by approximately $20 million over the past four years
as part of budget reduction strategies. Over this same period, capital spending has ramped up to
$14 million from $7 million. The increase in spending has not been sufficient to cover the
growth in infrastructure project costs, which have been impacted by inflation, changes in scope,
CMR:375:06 Page 1 of 3
and an increase in the cost of construction materials. To maintain an adequate IR balance to fund
the City’s long-term infrastructure needs, while covering increased construction costs, the
contribution to the IR should be between $7 million and $10 million per fiscal year, representing
approximately $3 million in additional funding over current levels.
In addition, staff has identified an additional $3-5 million of long-term funding needs related to
retiree medical costs and the potential loss of UUT revenues. The combined amount needed to
address these needs is $6-8 million over the long-term.
DISCUSSION
The Finance Committee held an initial discussion of options on May 23 and directed staff to
return to the City Council for further discussion. A study session with the City Council was held
on July 31 where the "best bets" were discussed. This report presents the options for further
direction.
The attached list of options (Attachment 1) for enhancing revenues and reducing expenses to
achieve an additional $3 million for the IMP and other priorities is organized into short- and
medium-term alternatives. The short-term options would be implemented with the 2007-08
budget; the medium-term options would be implemented with the 2007-09 budget and later. The
attached list of options shows a summary of the "best bets" (most doable) for moving forward.
These options are intended to provide the necessary annual contribution to the IR required to
keep the reserve balance at adequate levels to maintain the IMP program to maintain the City’s
infrastructure, while also addressing other long-term funding issues, such as retiree medical and
the potential of lost UUT revenue.
Among the revenue enhancement options listed for consideration is an alternative approach to
how the City funds non-emergency sidewalk repair. The history of the City’s sidewalk
repair/replacement program along with alternatives is discussed in Attachment 2.
With Finance Committee direction on the list of options, staff would incorporate changes into the
Long Range Financial Plan (LRFP) and then the 2007-09 budget process. The LRFP is expected
to be presented to the City Council in December 2006.
RESOURCE IMPACT
The development of the plan for increased funding for infrastructure will be accomplished with
existing resources in the Administrative Services Department budget and no additional funding is
needed.
POLICY IMPLICATIONS
These recommendations are consistent with existing City policies.
ENVIRONMENTAL REVIEW
Adoption of the budget does not represent a project under California Environmental Quality Act
(CEQA).
CMR:375:06 Page 2 of 3
PREPARED BY:
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
ATTACHMENTS
DAVID RAMBERG
Budget Manager
CAR~ATS
Directc~ of Administrative Services
EMILY HARRISON
Assistant City Manager
Attachment 1 :
Attachment 2:
Options for Increasing Funding for Infrastructure and City Priorities
City Sidewalk Repair/Replacement Program History and Alternatives
CMR:375:06 Page 3 of 3
Attachment 1
Options for Increasing Funding for Infrastructure and City Priorities
Best Bets
Short Term 2006-07
!Implement Roadway Impact Fees (audit recommendation)
2 Review cost recovery level for Adult Education Classes
and Non-Resident Fee IRecommendation from upcoming audit)
3 Continue restructuring and streamlining efforts
4 Review all service delivery/contracting options (1)
a Public/Private Partnerships
1 Junior Museum and Zoo
2 Family Resources (2007-08 target date)
b Contracting Out Service Delivery
1 Golf Course (conduct management study)
2 Parks maintenance (audit recommendation)
5 Charge Palo Alto property owners for non-emergency
sidewalk repairs
6 Increase "rOT from current 10% to 12%
7 Eliminate/reduce low priority services (1)
8 Create Innovations Fund with initial investment of $100,000
a Technology Improvements
b Self-help Services
a Energy Efficiences
Sub Total
Medium Term July 2008 and beyond
1 Institute a Library parcel tax
2 Increase Sales Tax revenue generated by Stanford
Shopping Center
3 Attract a new medium size hotel to Palo Alto
Sub Total
Grand Total
(1) Indicates that the item requIres meet and confer
(2) Does not include net revenue generated by the Library parcel tax or
net cost savings generated through the Innovations Fund
Revenue/Expense
Revenue enhancement
Revenue enhancement
Expense reduction
Expense reduction
Expense reduction
Expense reduction
Expense reduction
Revenue enhancement
Revenue enhancement
Expense reduction
Expense reduction
Expense reduction
Expense reduction
Revenue enhancement
Revenue enhancement
Revenue enhancement
Amount
$15o,ooo
250,000
300,000
unknown
85,000
unknown
350,000
450,000
900,000
500,000
2,985,000
2~00,000
250,000
2,250,000
5,235,000 (2)
ATTACHMENT 2
CITY SIDEWALK REPAIR/REPLACEMENT PROGRAM
HISTORY & ALTERNATIVES
This report details the history of the sidewalk maintenance program in Palo Alto since the 1970’s
and discusses alternatives to current funding of the sidewalk replacement program. The
following timeline chronicles the history of the sidewalk repair/replacement program in Palo
Alto since 1970.
1970-1973:
1973:
1975:
1983:
1985-1986:
1988:
1991:
Approximately 60,000 square feet of sidewalk was replaced annually. In-
house staff completed 80 percent of all sidewalk replacement and the
remaining 20 percent was done by contract. Homeowners shared 50
percent of the cost of sidewalk replacement.
City took 100 percent responsibility for sidewalk replacement.
Sidewalk repair criteria were relaxed and a reduction in the budget was
approved. This extended an estimated six-year backlog of needed repairs
to 18 years.
Public Works staff initiated an inventory of all sidewalk deficiencies. As
a result of the survey, one of the alternatives to alleviate the deficiencies
was to have 100 percent of replacement cost paid by property owners.
Council added funds to the Public Works Department budget to
supplement in-house sidewalk replacement programs.
Public Works staff resurveyed the City sidewalks to determine the effect
of the additional funding. Staff met with the Finance and Public Works
Committee to provide the results of the survey and to review the criteria
used for sidewalk replacement. Staff determined that the sidewalk repair
backlog had not improved and in fact, had become worse and a significant
increase in funding would be required to offset the exponentially
increasing backlog. At that time, staff broached the subject of 50/50 cost
sharing for sidewalk replacement was a way to relieve pressure on the
budget. Staff was instead directed to pursue an alternative of using
general obligation bonds to fund additional work.
Utility Users’ Tax was passed and additional funds were added to the
Public Works Sidewalk Replacement budget. These funds, along with the
funds already in the Operating Budget, provided $1,050,000 for both FY
1988 and FY 1989.
The fUnding was reduced leaving only $550,000 for annual contract
sidewalk replacement.
1992:Funding for sidewalk replacement was increased to $650,000
1999:The Infrastructure Management Plan (IMP) was instituted and funding for
the sidewalk replacement program was increased to $1.8 million.
2005:$800,000 for the in-house sidewalk repair program was transferred to the
Capital Improvement Program as a way to alleviate the strain on the
General Fund Budget. This left $1 million for contract sidewalk
replacement. Also staff reintroduced the idea of a 50/50 resident cost -
sharing program for sidewalk replacement and presented a matrix of
sidewalk maintenance responsibilities in 14 surrounding communities
(Exhibit A), of which, nine had homeowners bearing some cost for
sidewalk replacement.
Actual Costs
The following table shows the actual costs for contract sidewalk replacement and in-house
sidewalk maintenance costs for the last eight years. Attached is a map of the sidewalk
replacement "districts" that have been completed by contract and an estimated timeline for future
completion (Exhibit B). Some districts were split over several fiscal years for completion. It is
anticipated that the sidewalk replacement backlog that was identified in 1985 will be complete
by FY 2013-14.
Year
FY 1986
FY 1989
FY 1990
FY 1993
FY 1995
FY 1997
FY 1998
FY 1999
FY 2000
$728,053
816,136
1,407,030
ACTUAL SIDEWALK MAINTENANCE COSTS FY 1998-2006
In House District Completed
CIP Total Total Grand Total (Exhibit B)
27
2%
26
28
31
24
$423,791 $1,151,844 22,23
426 409 1,242,545 22
465 278 1,872,308 22
FY20011,346,486
FY 20021,512,681
FY 20032,146,670
FY 20041,644,491
FY 20051,670,767
FY20062,026,597
FY 20072,056,370
FY 20081,870,000
FY20091,870,000
FY 20101,870;000
FY2011 1,870,000
FY2012 1,870,000
FY 2013 1,870,000
467 148
488 286
563 214
406 716
499,023
1,813,634 21,22
2,000,967 23
2,709,884 21
2,051,207 16
2,169,790 17,30
2,026,597 11
2,056,370 12
1,870,000 13
1,870,000 14
1,870,000 15
1,870,000 33
1,870,000 34,35
1,870,000 25,36
Sidewalk Repair Programs in Other Cities
Exhibit A provides a survey of the nature and extent of sidewalk repair programs as administered
by other South Bay and Peninsula cities. As can be seen, the programs vary widely from some
who pay 100% to others requiring the property owner to be responsible. The real issue in
comparing our program to other cities is not just in who pays (wherein there are some other cities
that pay 100%), but also and perhaps more importantly how much those cities budget each year.
The other cities that say they pay 100% budget only a few hundred thousand dollars per year
each on a first-come basis. No other city provides the three way combination of city funded "hot
spot" safety hazard repairs done by staff, a contract for permanent repairs done at 100% city
expense, and a funding level for those permanent repairs of $1.2 million per year. Palo Alto’s
per Capita spending of approximately $40.00 is at least twice that of any other city surveyed, and
is ten times as much as most.
This is another example of a program where Palo Alto’s services are far and away in excess of
those provided in other cities. From the overall perspective of City resources and priorities, it is
a legitimate question as to whether that level of funding should continue to take precedence over
other City needs.
Alternatives to Current Fundin~ Method
At Council’s direction, staff has been working on alternatives to the current method of funding
sidewalk replacement in an effort to raise funds necessary for other infrastructure repairs. Listed
below are some alternatives to the current method of funding the sidewalk repair and
replacement program.
1.No change: All funding for the sidewalk repair and replacement program is from the
Infrastructure Reserve and is budgeted at $2,056,370 for FY 2006-’07. Of that amount,
contract services for construction costs are $1,184,576 million for FY 2006-’07. In-
house crews and the costs to administer the construction contract services are about
$900,000 each year. In FY 2007-’08, contract services for sidewalk construction will be
$972,053, bringing all future years total budgeted amount at $1,870,000. Alternative one
suggests no change to the current level of funding and as a result, no savings to the
General Fund or change in replacement backlog as previously identified.
2. Keep the current In-house hot spot repair and replacement program and reduce annual
contract construction fundin~ incrementally: This alternative would reduce sidewalk
replacement funding for contract construction incrementally each year. For example,
$100,000 Could be reduced each year, which would extend the current replacement
backlog by 3 years time. Reducing contract construction by $200,000 each year would
extend the backlog 11 years.
3. Keep the current In-house hot spot repair and replacement proram and share costs 50/50
with property owner: In this alternative, any sidewalk work requested that is outside of
the district being worked on would require property owners to share cost with City 50/50.
A set dollar amount (for example $250,000) would be set aside for this program from the
current budget of $1 million and would be set up on a first come, first served basis. With
this alternative, there is no acceleration of the replacement backlog and there would be a
$250,000 savings to the General Fund that could be re-invested in the Infrastructure
Reserve to fund additional infrastructure projects.
4.City pays only for sidewalk damage caused by tree roots: This alternative suggests that
the City would only fund sidewalk replacement caused by City trees. All other repairs
would be the responsibility of the property owner. Staff has estimated that 75 percent of
sidewalk damage in the City is caused by City trees, with the remaining 25 percent a
result of age or other factors. Alternative four would be a savings to the General Fund to
$250,000 and result in no reduction to the current replacement backlog.
5. City only provides hot spot repairs: In this final alternative, the City would only repair
hot spots and all sidewalk replacement would be funded by the property owner. This
would result in a $1 million savings to the General Fund that could be then be reinvested
in the Infrastructure Reserve to fund additional infrastructure proj ects.
A related issue of the cost of the sidewalk program is the liability to the City for injuries to
pedestrians for trip and fall accidents due to damaged sidewalks. The City Attorney’s Office will
be providing a subsequent analysis of both the options available under State law and the risk of
the City of any proposed changes in the program.
ATTACHMENTS
Exhibit A:Survey of Sidewalk Programs in Neighboring Cities
Exhibit B:Map of the sidewalk replacement "districts" that have been completed by
contract and estimated timeline
EXHIBIT A
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City of P alo Alto BRAWING NO,
TO:HONORABLE CITY COUNCIL
ATTN:FINANCE COMMITTEE
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:OCTOBER 17, 2006 CMR: 375:06
SUBJECT:OPTIONS FOR ENHANCING REVENUES AND DECREASING
EXPENSES IN THE GENERAL FUND WITH THE DESIRED
OUTCOME OF INCREASING FUNDING FOR
INFRASTRUCTURE AND OTHER CITY PRIORITIES
RECOMMENDATION
Staff recommends that the Finance Committee direct staff to pursue the "best bets" options
included in this report for increasing funding for infrastructure and other City priorities so that
staff can move forward with planning for the short- and medium-term options and incorporate
them into the Long Range Financial Plan (LRFP) and the 2007-09 budget.
BACKGROUND
In April 2006, the City Council approved the milestones for the "Top 3" priority, Increase
Infrastructure Funding (CMR: 191:06). The milestones included reviewing options to increase
long-term Infrastructure Management Plan (IMP) funding by $3 million a year through a
combination of expenditure reductions and revenue enhancements. In addition, staff has
identified other challenges that require long-term funding consideration, such as the retiree
medical liability and the potential loss of utility users’ tax (UUT) revenues.
The Infrastructure Reserve (IR) was created in 2001 to provide funding for projects in the IMP.
In 2004, $36 million was transferred from the General Fund Infrastructure Reserve funds to the
Capital Fund for IMP projects. The annual interest income generated from the IR (approximately
$1 million), combined with an additional $1 million from General Fund year-end surpluses,
when available, is intended to contribute approximately $2 million to the IR annually. Along
with a base transfer from the General Fund of $3.6 million for project expenses, the total
contribution to the IR is intended to be $5.6 million annually.
While maintaining the base transfer of $3.6 million to the IR, the expense base in the General
Fund operating budget has been reduced by approximately $20 million over the past four years
as part of budget reduction strategies. Over this same period, capital spending has ramped up to
$14 million from $7 million. The increase in spending has not been sufficient to cover the
growth in infrastructure project costs, which have been impacted by inflation, changes in scope,
CMR:375:06 Page 1 of 3
and an increase in the cost of construction materials. To maintain an adequate IR balance to fund
the City’s long-term infrastructure needs, while covering increased construction costs, the
contribution to the IR should be between $7 million and $10 million per fiscal year, representing
approximately $3 million in additional funding over current levels.
In addition, staff has identified an additional $3-5 million of long-term funding needs related to
retiree medical costs and the potential loss of UUT revenues. The combined amount needed to
address these needs is $6-8 million over the long-term.
DISCUSSION
The Finance Committee held an initial discussion of options on May 23 and directed staff to
return to the City Council for further discussion. A study session with the City Council was held
on July 31 where the "best bets" were discussed. This report presents the options for further
direction.
The attached list of options (Attachment 1) for enhancing revenues and reducing expenses to
achieve an additional $3 million for the IMP and other priorities is organized into short- and
medium-term alternatives. The short-term options would be implemented with the 2007-08
budget; the medium-term options would be implemented with the 2007-09 budget and later. The
attached list of options shows a summary of the "best bets" (most doable) for moving forward.
These options are intended to provide the necessary annual contribution to the IR required to
keep the reserve balance at adequate levels to maintain the IMP program to maintain the City’s
infrastructure, while also addressing other long-term funding issues, such as retiree medical and
the potential of lost UUT revenue.
Among the revenue enhancement options listed for consideration is an alternative approach to
how the City funds non-emergency sidewalk repair. The history of the City’s sidewalk
repair/replacement program along with alternatives is discussed in Attachment 2.
With Finance Committee direction on the list of options, staff would incorporate changes into the
Long Range Financial Plan (LRFP) and then the 2007-09 budget process. The LRFP is expected
to be presented to the City Council in December 2006.
RESOURCE IMPACT
The development of the plan for increased funding for infrastructure will be accomplished with
existing resources in the Administrative Services Department budget and no additional funding is
needed.
POLICY IMPLICATIONS
These recommendations are consistent with existing City policies.
ENVIRONMENTAL REVIEW
Adoption of the budget does not represent a project under California Environmental Quality Act
(CEQA).
CMR:375:06 Page 2 of 3
PREPARED BY:
DAVID RAMBERG
Budget Manager
DEPARTMENT HEAD APPROVAL:
CARL YEATS
Director of Administrative Services
CITY MANAGER APPROVAL:
EMILY HARRISON
Assistant City Manager
ATTACHMENTS
Attachment 1:
Attachment 2:
Options for Increasing Funding for Infrastructure and City Priorities
City Sidewalk Repair/Replacement Program History and Alternatives
CMR:375:06 Page 3 of 3