HomeMy WebLinkAboutStaff Report 2104City of Palo Alto (ID # 2104)
Finance Committee Staff Report
Report Type:Meeting Date: 10/18/2011
October 18, 2011 Page 1 of 4
(ID # 2104)
Summary Title: Budget Update 2012
Title: Fiscal Year 2012 Budget Update
From:City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee provide feedback or direction on how to
address the $4.3 million public safety labor group compensation concession placeholder in the
Fiscal Year 2012 Adopted Budget.
Executive Summary
Staff is returning with information as directed by the Finance Committee during the FY2012
budget hearings to provide an update on the $4.3 placeholder for the public safety labor group
compensation concession.
Background
The Fiscal Year 2012 (FY2012) Adopted Budget included a $4.3 million budget-reducing
placeholder for expected cost savings from negotiations with the City’s four public safety
unions. This placeholder helped close a projected $3.2 million gap in the General Fund as well
as provide funding for additional pension and healthcare cost increases anticipated in FY2013.
When the Finance Committee recommended approval of the FY2012 Proposed Budget, in May,
Committee members expressed uncertainty about the likelihood of obtaining the necessary
budget savings to achieve $4.3 million. The Committee directed staff to return early in the
fiscal year to update the Committee on the status of achieving the $4.3 million in savings.
Council will consider a new memorandum of agreement (MOA) with the International
Association of Fire Fighters (IAFF),Local 1319,on October 17. If Council approves the MOA it
will provide $1.1 million in salary and benefit cost savings in FY2012. This would reduce the
amount needed to close the placeholder to $3.3 million.
Discussion
FY2011 Budget Update
Staff is in the process of finalizing the year-end financial statements for FY2011. The City’s
financial statements and external audit results will be included in the comprehensive annual
financial report (CAFR), which staff will present to the Finance Committee in December.
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Although the financial statements are not finalized, staff has preliminary numbers that can be
shared at this time. Fiscal Year 2011 revenues came in higher than adjusted budget, driven by a
$0.6 million increase in the transient occupancy tax (hotel tax) that has improved as business
travel has increased some in the local area. Documentary transfer taxes (tax on real estate
transactions) are also a key driver and revenue in this category will be up $1.2 million compared
to the FY2011 adjusted budget. Modest improvements in the local economy in FY2011 resulted
in increased sales tax revenue of $1.2 million compared to FY2011 adjusted budget. Staff is
monitoring these revenues in FY2012 and may recommend changes at midyear, if warranted.
Mainly due to these results, the balance in the General Fund Budget Stabilization Reserve (BSR)
is expected to increase compared to what was presented in the FY2011 mid-year adjusted
budget (report ID#1442) and in the third quarter financial report. At the time of the FY2011
midyear, in March, 2011, staff showed a negative impact to the BSR due to midyear budget
changes that included increases to department budgets. The projected BSR balance at the
FY2011 midyear point was $26.9 million or 19.3% of FY2011 adopted expenditures.
The FY2011 year end results will change the FY2011 BSR ending balance by transferring $2.7
million to the BSR. The resulting BSR balance is estimated to be approximately $30 million or
approximately 21 percent of adopted expenditures.
FY2012 Budget Update
During the review of the FY2012 Proposed Budget the Finance Committee asked staff to
provide alternatives for reducing the public safety budget in the event that staff is unable to
reach agreement with the public safety unions to achieve savings in the amount of $4.3 million.
To do this staff first proposes to defer the $1.1 million reserved for anticipated pension and
healthcare costs in 2013, thus freeing up funds in FY2012 and reducing the placeholder to $3.2
million. If the $1.1 million in concessions from IAFF is approved, the gap is further reduced to
$2.2 million. Since the BSR would have an increase of $2.7 million from FY2011 those funds
could be used to close the budget gap. Staff will continue negotiating with the other safety
labor groups to achieve structural changes to their compensation that will help close this year’s
gap and the significant FY2013 projected gap. As the Finance Committee’s discussion on the
new figures for our retiree medical costs unfunded liability will show, the City faces new,
increased costs in FY 2012 in that area.
As outlined in Attachment A, in the Police Department, staff identified an alternative that
would eliminate 11 police officers to reach savings of $2.0 million. In the Fire Department, staff
identified a reduction of one Engine Company combined with either brown-outs or the
elimination of one Rescue Company. Either combination would provide an estimated $2.3
million in cost savings. Together, the Police and Fire department reductions would result in an
estimated $4.3 million savings necessary to achieve the place holder amount and the additional
amount for pension and healthcare costs in FY2013. As these reductions could have an impact
on service delivery, staff is also pursuing labor concessions through contract negotiations with
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the four public safety unions. It is the City Manager’s recommendation to not proceed with
these cost saving reductions at this time. These service level reduction options could still be
considered depending on how negotiations proceed.
Public Safety Negotiations Update
Staff has been actively pursuing contract negotiations with all four public safety unions. Since
negotiations with the public safety unions have not resulted in an agreement as of September,
it is unlikely that the City will realize the full $4.3 million placeholder included in the FY2012
budget. A new MOA between the City and IAFF, is scheduled to be considered by the City
Council on October 17. The MOA, if approved by Council, will provide an estimated $1.1 million
in salary and benefit cost savings in FY2012.
Three alternatives are presented for Finance Committee consideration to close the FY 2012
projected budget gap:
1)Eliminate the set aside for FY2013 pension and healthcare increases and transfer BSR
balance to cover the gap as show in Table 1 below.
This is staff’s recommendation based on the upcoming availability of funds prior to the
FY2012 midyear budget. The amount transferred will be $2.1 million if the Council
approves the new MOA for IAFF.
2)Monitor until midyear and propose changes at that time
This is a viable option that may reduce the transfer from the BSR if certain revenues
come in higher at midyear than expected.
3)Budget cuts in public safety as outlined in Attachment A
This option would take time to implement, given the current period of the fiscal year,
and thus would be difficult to achieve the full $4.3m in FY2012. A potential draw on the
BSR could be anticipated depending on the timing of implementation.
Table 1:
Staff Recommendation: Scenario if Council votes on new MOA with
IAFF
($millions)
Scenario: new MOA with IAFF
FY2012 Placeholder $4.30
Eliminate set aside for FY2013 pension and healthcare increases ($1.10)
New MOA with IAFF (pending)($1.10)
Revised FY2012 Placeholder $2.10
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Transfer from BSR $2.10
Timeline
Staff is recommending that the Finance Committee provide direction that would allow staff to
take action at the midyear timefrem at the latest.
Resource Impact
As shown in Table 1 above staff recommends a transfer from the BSR and elimination of the set
asside for anticipated FY2013 pension and healthcare increases to close the $4.3 million
placeholder. The transfer from the BSR would be $3.2 million or $2.1 million depending on the
outcome of Council’s vote on the MOA. This would result in a BSR balance of approximately
$26.8 million or 18.4 percent of adopted budget total expenditures should the transfer be $3.2
million. If the transfer is $2.1 million the BSR balance would be approximately $27.9 million or
19.1 percent of adopted budget total expenditures. These figures may change as the year-end
FY2011 financials are finalized in December.
Policy Implications
Staff’s recommendation does no impact existing Council Policy.
Attachments:
·-a:Attachment A: Public Safety Cut Alternatives Memo from Finance Committee Meeting
May 20, 2011 (PDF)
Prepared By:David Ramberg, Assistant Director
Department Head:Lalo Perez, Director
City Manager Approval: ____________________________________
James Keene, City Manager
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TO:
DATE:
SUBJECT:
CITY OF PALO ALTO
MEMORANDUM
HONORABLE FINANCE COMMITTEE
May 20,2011
lb
• Follow-up on Preliminary Reductions to Public Safety if
Compensation Concessions are not Materialized
• Office of Emergency Services Recommendations
Attached are memos for the May 24,2011 Finance Committee Meeting.
\~U)fu~ ~LA ANTIL . J.rt..J.YL • .J'-J
Assistant City Manager
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. TO:
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SUBJECT:
Background
CITY OF PALO ALTO
MEMORANDUM
James Keene, City Manager
Pamela Antil, Assistant City Manager
Lalo Perez, Director of Administrative Services
Dennis Burns, Interim Director of Public Safety
May 16,2011
FY 2012 Police Department Alternative Reduction Proposal
The ·2012 General Fund budget balancing proposal to the Finance Committee relies on
$4.3 million in concessions from Police and Fire unions which are still being negotiated
(approximately $2M from Police and $2.3M from Fire). The Finance Committee
requested information related to other cuts that could be rilade if these concessions are not
agreed upon by mid-year of FY 2012 to cover the ensuing $4.3 million gap. Although I
remain confident that concessions will be made by both unions, the following memo was
prepared to address the budget shortfall in the Police Department if they are not made in a
timely manner.
It must be noted that these options were developed fairly quickly and, as a result, should
the Finance Committee and full City Council wish to proceed with such changes, staff
would request additional time to conduct a more detailed analysis to determine final cost
savings; possible impacts related to changes in shift staffmg; and impact on service levels
in the community. Although we cannot predict to what extent, we assume that any
changes to staffing will impact service levels to the community in some way (e.g.,
response times, community outreach, enforcement activities, etc.). This would need to
be addressed through a restructuring of the department to mitigate any negative
outcomes. . Concessions from ihe employee groups are clearly preferable to undertaking
such changes immediately ..
Analysis
The Police Department command staff met on numerous occasions to examine how we
might achieve this $2.0 million reduction through the elimination ofpositions,
reorganization of the Department and/or contracting services currently provided in-house.
This exercise proved challenging as the Police Department has already eliminated 31
positions (18 non-sworn and 13 sworn positions) since FY 2002/03. Further
complicating our analysis is the fact that the Police Department has a number of positions
that are difficult to eliminate as they generate revenue or provide services to a regional
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partner pursuant to a contract (e,g., dispatch and animal services). These are typically the
services that other communities have selected to outsource to another community or
private vendor. To outsource these services in Palo Alto would necessitate a deeper
. analysis/formal study to determine if they could be done more efficiently while still
generating the same or higher level of service and revenues.
Reductions in Sttifj and Operations:
To meet the $2.0 million reduction objective the Police Department would eliminate 11
Police Officer positions, assuntip.g a fully loaded salarylbenefits cost of approximately
$183,500/swom officer position. Eliminating 11 positions would reduce our authorized
strength from the current 91 sworn officer positions to 80 sworn officer positions. 11
sworn positions would be equivalent to eliminating the entire Investigative Services
Division (Detectives) or approximately 25% of the officers assigned to the Field Services
Division (patrol). Most likely a reduction this significant would be accomplished by
eliminating a combination of patrol officer positions, detective positions and traffic
officer positions. Any significant reduction in police officers would necessitate a major
restructuring of the Patrol and Investigations Divisions. In addition, some changes may
trigger meet and confer requirements under the union agreement.
The Police Department has made every effort to identify reductions that did not severely
impact the current level of service to meet the $2 million objective and without bringing
back the recommendations from the last fiscal year which were rejected by the Finance
Committee and City Council (e.g., elimination of traffic unit, crossing guards, etc.).
Unfortunately, we are unable to suggest new cuts that do not impact patrol, traffic and
investigative services in some way.
I look forward to working with you and your staff to answer any questions about the
Police Department's staff reduction options.
Respectfully submitted,
Dennis Burns
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Date: May 19, 2011
CITY OF PALO ALTO
MEMORANDUM
To: James Keene, City Manager
Pamela Antil, Assistant City.Manager
Lalo Perez, ASD Director
From: Dennis Burns, Interim Director of Public Safety
Subject: FY 2012 Fire Department Alternative Reduction Proposal
Background
The 2012 General Fund budget balancing proposal to the Finance Committee relies on
$4.3 million in concessions from Police and Fire unions which are still being negotiated
(approximately $2M from Police and $2.3M from Fire). The Finance Committee
requested information related to other cuts that could be made if these concessions are not
agreed upon by mid~year of FY 2012 to cover the ensuing $4.3 million gap. The
following memo was prepared to address the budget shortfall if they are not made in a
timely manner.
It must be noted that these options were developed fairly quickly and, as a result, should
the Finance Committee and full City Council wish to proceed with such changes, staff
would request additional time to conduct a more detailed analysis to determine fInal cost
savings; possible impacts related to the Stanford contract; and impact on service levels in
the conununity. Although we cannot predict to what extent, we assume that any changes
to staffing will impact service levels to the community in some way (e.g., response times,
community outreach, etc.). This would need to be addressed through a restructming of
the department to mitigate any negative outcomes. Concessions from the employee
groups are clearly preferable to undertaking such changes immediately.
Analysis
Outsourcing:
A consideration of outsourcing for the Department's Fire Prevention Bureau was briefly looked at
by staff but would need more time to be fully vetted to determine if such an arrangement is
possible in Palo Alto. Staff also reviewed the 2011 RFP for Fire and Emergency Services that the
City of San Carlos recently completed. However, as with outsourcing fire prevention, further
analysis would be required to make comparisons between that process and the services and the
current environment in Palo Alto.
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ReductlollS In Staff and OperatJolIS:
Staff identified the following options to achieve about $2.3 million cost savings objective placed
upon the Fire Department. These options took into consideration a number of factors including a
combination of call volume, response times and provisions in the current contract with Stanford.
Descriptions of the potential service impacts or other implications are included with each option:
Option 1 (Shut down One Engine Company and Brown-outs):
To meet the savings objective the Fire Department would reduce staffing by 9 FTB
through elimination of one Engine Company and implementing a sequential fire station
brown out system. Daily line staffing would be reduced to 26 personnel from the current
29. Browning out :fire stations would begin when staffing for a given day falls to 25
personnel. In this model, the City of Palo Alto would reduce our authorized strength
from the current 108 to 99 sworn shift personnel and overtime due to staffing would
average one 12 hour person for the medic van per day, resulting in approximately 213 less
overtime per year.
The fully 1OI14ed salarylbenefrts cost reduction would be approximately $4.5 million.
,This option would result in a reduction in Stanford reimbursement of approximately $l.4
. million. leaving a total proposed budget savings of $3.1 million.
Option 2 (Shut down One Engine Company and One Rescue Company):
To meet the savings objective the Fire Department would reduce staffing by 18 FTE
through elimination of one Engine Company and one Rescue Company. Daily line
staffing would be reduced to 23 personnel from the current 29. Eliminating 18 positions
would reduce our authorized personnel from the current 108 positions to 90. The
reduction would eliminate the hazardous materials response capabilities and could affect
the current Stanford-Palo Alto contract. The current practice of staffing the 12 hour
medic unit with overtime would remain the same.
The fully loaded salary /benefits cost reduction would be approximately $3.5 million. This
option would result in a reduction in Stanford reimbursement of approximately $1.07
million leaving a total proposed budget savings of approximately $2.4 million.
It should be noted that all submission options above would require further discussion and are
likely subject to the meet and confer requirements of the union agreement. Fire Department
Management has been meeting with Local 1319 (IAFF) to explore alternative sta:lfmg models that
could provide other cost reductions to the City if adopted.
I remain optimistic that the anticipated labor concessions will be achieved to balance the FY 2012
budget. I am available to meet with you and your staff to answer any questions in this reduction
proposal.
Respectfully submitted,
DennisBmns
Interim Director of Public Safety
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