HomeMy WebLinkAboutStaff Report 11872
City of Palo Alto (ID # 11872)
City Council Staff Report
Report Type: Action Items Meeting Date: 3/1/2021
City of Palo Alto Page 1
Summary Title: FY 2021 Mid -Year Budget Review, Rental Assistance and
Preliminary Q2 Financial Status Report
Title: Review the FY2021 Mid -Year Budget Review and Approve Budget
Amendments in Various Funds; Provide Direction on (a) Potential Rent
Forgiveness Programs for City Tenants and (b) Waiver of the Business
Registry Certificate and Downtown Business Improvement District Fees
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff recommends that the City Council review, discuss and act on the following items for
consideration:
1) Amend the Fiscal Year 2021 Budget Appropriation for various funds and various capital
projects, as identified in Attachment A, Exhibits 1 and 2 (requires a super majority, 2/3
approval);
2) Review priorities for use of the $744,000 COVID-19 Council Reserve, set aside during the
FY 2021 Adopted Budget and provide direction on usage as appropriate;
3) Review capital projects expected to begin construction by fiscal year end;
4) Approve the creation of a rent forgiveness program to qualified City tenants (non-profit
and/or for-profit) and authorize the City Manager to execute amendments to all leases
in accordance with the City Council established program (Attachment B);
5) Direct staff to return with the necessary documents to waive the business registration
fee (Palo Alto Municipal Code Chapter 4.60) due and payable in calendar year 2021 and
the assessments typically levied for the Downtown Business Improvement District (BID)
for FY21; and
6) Direction to eliminate the equivalent of 83 full-time and 107 part-time positions (76.50
FTE and 26.18 FTE respectively) that were frozen and defunded as part of the FY 2021
Adopted Budget in the upcoming FY 2022 Budget.
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EXECUTIVE SUMMARY
Annually, staff brings forward recommendations to adjust the adopted budget as part of the
Mid-Year Budget review. Recognizing that discretionary decisions should be made through the
annual budget process in May/June, the recommended Mid-Year budget adjustments are
typically largely ministerial.
In light of the current pandemic and the impacts of COVID-19, as previously discussed with the
City Council, staff have modified this FY 2021 Mid -Year Budget Review to be a more robust, and
significant action for City Council review. Significant adjustments are recommended to realign
the FY 2021 budget with current projections and proactively address the forecasted shortfall in
revenues versus expenses in FY 2022 and beyond, as outlined in the FY 2022- 2031 Long Range
Financial Forecast (CMR 11954). The budget appropriation actions require a super majority
approval by the City Council (PAMC 2.28.080(c)(1)).
The City continues to actively manage its finances considering significant uncertainties from the
ongoing pandemic and related economic challenges. As the City and the County move through
different phases of recovery, the City adapts operations to best support and serve the
community. As a result of County Public Health Orders and State Public Health restrictions,
these changes impact both the cost of delivering City services and the revenues that pay for
them (both taxes and fees). Often, staff continues to find tension in resource availability and
demands for extreme flexibility and nimbleness in an environment that requires increased
resources to deliver the same quantity of service in modified ways to ensure the safety of the
community and employees.
In general, experts have previously believed that we reached the bottom of financial impacts
during the second quarter of 2020, when strict shelter -in-place orders restricted movement and
commerce other than core essential activities. However, the forewarned second surge that has
hit the community in November – January and its impacts remain largely unknown. As
predicted, the anticipated wave resulted in similarly severe restrictions, restricting daily
activities once again to levels seen during the second quarter of 2020. It is obvious but
important to reiterate that there remain several risks and uncertainties, including:
• The pace of vaccination rollout as well as the pace of consumer confidence in the
economic recovery, its stability and safety;
• The length of the recovery period and how fast recovery could take; this wil l significantly
impact the City’s most sensitive tax bases;
• The structural changes as a result of the societal adaptations due to COVID -19, including
impacts to daytime population, whether it be workers, students/faculty/staff at
Stanford University, or changes to the City’s resident population.
The City continues to be significantly impacted by the recessionary period and continues to be
mindful of this in its day to day business and spending in this context. Included in this report
are not only adjustments to amend the FY 2021 Adopted Operating and Capital budgets, but
also several restrictions including a freeze on hiring, travel, and additional programmatic
actions that impact services, City tenants, and businesses.
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This report contains: (a) significant adjustments that are recommended to realign the FY 2021
budget with current projections, (b) adaptations to current and new programs referred by the
City Council to staff, and (c) a preliminary 2nd Quarter Financial status. This report is organized
as follows:
• FY 2021 Mid-Year Budget Adjustments
• Current CIP Projects expected to be brought forward for construction contract award in
FY 2021
• A potential rent forgiveness program for City tenants (non-profit and/or for-profit)
• 2021 Business Registry Certificate Program and Downtown Business Improvement
District fees continued pause
• Preliminary Q2 Financial Status: Operating Budget & Capital Budget
In these sections adjustments to realign the FY 2021 Adopted Budget are recommended
working to strategically adjust revenues and expenses with actual activities and services levels,
especially in areas due to vacancies. The balancing strategy works to preserve reserves to the
extent possible. Staff has been conservative in these estimates and expects to bring forwar d a
year end budget adjustment report in June with any additional refinements to budgeted levels
based on the most current information available.
BACKGROUND
Recognizing that discretionary decisions should be made through the annual budget process in
May/June, the recommended Mid-Year budget adjustments are typically largely ministerial.
This was confirmed in 2016, as staff and the Finance Committee altered the Mid -Year budget
process and turned this report into a status update based on actual financial activities in the
prior and current fiscal year and to implement previously approved City Council direction.
This report focuses on recommended changes to the FY 202 1 Adopted Budget. Where possible,
budget change recommendations are brought forward for City Council consideration as part of
the approval of the Mid-Year Budget Report to consolidate requests and streamline changes to
budget appropriations. These adjustments are necessary as revenues and expenditures vary
from the original budget plan for many reasons, including but not limited to changes in
economic factors, project estimates and scope, and City Council policy and direction. The Mid -
Year Budget Report reflects adjustments for prior City Council approved direction, clean -up
actions based on FY 2020 actual experience or current FY 2021 actual activities.
As a reminder of the recent history of financial impacts, recognizing the severity of the public
health emergency and its impacts on the City’s financial situation, in Spring 2020 the City
Council directed staff to assume a more conservative revenue estimate reflecting a loss of $39
million in General Fund tax revenues in FY 2021 (CMR 11315) from previously projected levels
for FY 2021 prior to the onset of the pandemic. Actual FY 2020 revenues fell $16.7 million
below prior year levels of $180.4 million in FY 2019. In prior years, Sales Tax and Transient
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Occupancy Taxes (TOT) alone made up nearly 30 percent of the General Fund revenues, both of
which continue to see significant declines.
As a result of the City Council’s direction, staff returned with service reductions to prioritize
essential services and pare back discretionary services in order to align expenses with the lower
revenue estimates. More than 60 percent of the City’s General Fund budget funds the
outstanding workforce delivering the City’s services every day and staff and resource reductions
were unavoidable. The City’s General Fund workforce was reduced by 11.3 percent, as 83 full
time staffing positions (76.50 FTE) were frozen and defunded and 107 part-time positions
(26.18 FTE) being frozen and defunded as well. This is an 18 percent reduction in force able to
deliver services to the community.
Despite these reductions, the adoption of the FY 2021 budget (CMR 11330) ensured that the
City continues to proactively pay for long term liabilities and continues capital investments in its
most critical infrastructure. It also provides resources for the City to successfully adapt from
‘shelter in place’ to future service delivery models and establishes funding to support those
service delivery transitions and for this reason, a reserve of $744,000 was established for the
City Council to address ongoing or additional unforeseen impacts from COVID19. These funds
are to be allocated based on resource needs related to Community Services, ongoing COVID-19
Response, Public Safety Operations, and Shuttle Systems, or other priorities proposed by staff.
This list is a working list that can be adjusted based on needs as recommended by staff and
directed by the City Council. This report does not recommend use of these funds; however,
they may be a funding source for a potential rent forgiveness program.
Staff has provided regular updates on the City’s financial status providing opportunities to
review services and identify any changes in priorities. In addition, forecasts for FY 2022 and
beyond have been discussed with the City Council to assist in providing a longer outlook beyond
June 30, 2021 and begin work on planning for FY 2022 and the continued contraction of
available resources. Prior staff reports providing various fiscal updates for Council deliberations
are below. This does not include information items that have been distributed for quarterly
reporting such as investments.
• October 19, 2020, City Council (CMR 11596): Preliminary Q1 Fiscal Year (FY) 2021 Financial
Status Discussion and Potential Direction to Staff on Budget Revisions, Staffing Revisions,
and Next Steps in Monitoring, Modeling, and Addressing Recovery Planning Approaches
• November 30, 2020, City Council (CMR 11790, meeting video): Study Session on Community
and Economic Recovery Strategies and Engagement
• December 15, 2020, Finance Committee (CMR 11844): Review and Recommend That the
City Council Accept a Preliminary Forecast for Fiscal Year (FY) 2022 and FY 2022 Budget
Development Guidelines
• December 15, 2020, Finance Committee (CMR 11750): First Quarter FY 2021 Financial
Report
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• January 25, 2021, City Council (CMR 11808): Update on Status of Capital Improvement Fund
and Potential Direction on Prioritization of Projects for the FY 2022 Budget and 2022 -2026
Capital Improvement Plan
• February 8, 2021, City Council (CMR 11954): Review the Potential Financial Scenarios and
Direction to Staff on Development of the Fiscal Year (FY) 2022 Budget, Review and Acc ept
the FY 2022 Budget Development Guidelines, and Review and Accept the FY 2022 - 2031
Long Range Financial Forecast
As discussed with the City Council on February 8th in reviewing potential financial scenarios,
data is gathered and reviewed throughout the fiscal year. This item is intended to be a touch
point and continuation of providing new information since the in-depth City Council budget and
fiscal discussions held in May and June 2020. This report seeks Council input on several areas of
staff work ahead and also outlines next steps and timing for a series of City Council
conversations planned to focus on fiscal monitoring, community and economic recovery, and
more. Status of the City’s financial condition as of the 2nd quarter of FY 2021, based on new
information and review of key indicators in the General Fund are discussed and includes
reporting for all other funds.
DISCUSSION
Considering the current pandemic and the impacts of COVID-19, as previously discussed with
the City Council, staff have modified this FY 2021 Mid-Year Budget Review to be a more robust,
and significant action for City Council review. This item serves as a continuation of the many
touch points as the City maneuvers through these uncertain times and works to remain agile
based on the most current information available. Further strategic work continues aside from
the financial reporting discussed above, focused on a Community and Economic Recovery
Strategy. Findings and recommended adjustments in this report are based on the data
available at the time of reporting and do not reflect true 2 nd Quarter financial activity in FY
2021. Final Q2 data will not be available until the end of March 2020.
FY 2021 Mid-Year Budget Adjustments
The following is an overview of the status for the General Fund, Enterprise Funds, and other
funds including recommended budget adjustments as they pertain to the City’s FY 202 1
Operating and Capital Budgets.
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Overview of Mid-Year Balancing Strategy
This mid-year report serves to report the preliminary 2nd quarter financial status and also
proposes a number of budget adjustments to align revenues with year-to-date activity and
estimates. The General Fund net budget shortfall as of mid-year totals $5.2 million and was
driven by revenues impacted by COVID-19, including the City’s major tax revenues, department
revenues associated with cost-recovery activities, and delays in implementing Fire fee that
were part of the balancing strategy in the Adopted Budget. The following table outlines the
major drivers of the General Fund mid-year gap along with staff’s proposed balancing strategy
to offset the collective impact of these activities:
Table 1: General Fund Mid-Year Gap and Balancing Solutions
Items Contributing to Budget Gap
Department Revenue Alignment due to Economic Impact $(4.3) M
Net impact of Major Tax Revenues
(decrease in TOT, UUT, offset by increases in Property Tax, Sales Tax, and DTT)
(3.2) M
Deferred Implementation of Fire Fee Revenue (1.6) M
Delayed Opening of Junior Museum and Zoo (1.0) M
Service Alignments (0.1) M
Recognize CARES Act Funding 0.9 M
Reduce Transfer to Capital Fund; align with TOT revenue estimate 4.5 M
Total General Fund Mid-Year Gap $(4.8) M
Proposed Balancing Solutions
Department Service Reductions/Alignments (vacancy savings included) $0.9 M
Eliminate Remaining Travel Budget $0.3 M
Reduce Management Development Funding from Previous Years $0.1 M
Use Department Economically Sensitive Revenue Reserve $3.5 M
Total Proposed Balancing Solutions $4.8 M
Items Contributing to the Gap
Department Revenue Alignment due to Economic Impact: These adjustments include
reductions in parking citation revenue due to discontinuing parking enforcement;
aligning ambulance transport revenue to historical trends; and revenue and cost
alignments for the Art Center, Recreation, Children’s Theatre, and facility rental as a
result of continued discontinuation of services due to COVID-19 impacts.
Decrease in Major Tax Revenues and Reduce Transfer to Capital Fund: Overall, it is
estimated that major tax revenues will fall $3.2 million below the FY 2021 Adopted
Budget. This reflects the net impact of an approximately $11 million reduction in
Transient Occupancy Tax (TOT) and Utility User Taxes (UUT), partially offset by higher
Property Tax, Sales Tax, and Documentary Transfer (DTT) estimates. In alignment with
the City Council policy to dedicate a portion of TOT receipts to infrastructure
investments, a recommended $4.5 million reduction in the transfer to the General
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Capital Improvement Fund aligns the budgeted expense with current revenue estimates.
This adjusted level is consistent with the projections for CIP financial status in the most
recent staff reports to the City Council. Additional detail for these adjustments is
detailed in this staff report.
Deferred Implementation of Fire Fee Revenue: The FY 2021 Adopted Budget includes
$1.9 million in fee revenue for a First Responder Fee and an Ambulance Subscriptions.
Staff has retained a consultant to assist with implementation of the First Responder Fee
and is expected to begin reporting to the City Council on this item during FY 2022. Work
on the Ambulance Subscription Fee is in progress and has been presented to the
Finance Committee in December 2015. The Department is working on a revised report
to Council for March/April and anticipates an 80 percent reduction in the revenue
estimated from this fee.
Delayed Opening of Junior Museum and Zoo: The continuing community impact of
COVID-19 has necessitated the delay of the opening of the new JMZ from March 2021,
which results in revenue decreases in ticketed entry and membership sales and
cancelled activities due to health order limitations on gatherings. This action also
recognizes expense savings from the postponed opening in areas such as staff hiring
delays, marketing, accreditation-related activities, and new animal care and transport.
Proposed Balancing Solutions
Department Service Reductions or Alignments: Proposed department service reductions
and alignments of program costs total $0.9 million, of which $0.5 million are ongoing
and are anticipated to be proposed during the FY 2022 budget process. Detail for these
reductions can be found in Attachment A. This includes proactive recognition of vacancy
savings in Community Services, Public Works, and Administrative Services Departments
for position vacancies during FY 2021 that are expected to be brought forward as part of
the FY 2022 Proposed Budget.
Eliminate Remaining Travel Budget: Health orders discourage non-essential travel and
require mandatory quarantine after long distance travel into Santa Clara County. In
addition, professional organizations and other agencies have switched to virtual
meetings and conferences. Staff proposes that remaining travel expense budget be
eliminated this fiscal year as staff continue to freeze travel.
Reduce Management Development Funding from Previous Years: The Management
Training Program provides $1,000 per eligible employee (MGMT and PAPMA) to provide
employees with resources to improve and supplement their job and professional skills.
Savings from previous years of $0.1 million is proposed to be eliminated. The funding
allocation for current year remains intact.
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Department Economically Sensitive Revenue Reserve: Consistent with the direction given
by the City Council on May 4, 2020 (CMR 11315), the FY 2021 Adopted Budget includes
a $5 million reserve to offset the unknown impact of department economically sensitive
cost-recovery activities. The FY 2021 Adopted Budget was developed assuming that
shelter-in-place orders would be lifted shortly after December 2020 and normal social
and economic activities would resume. It was expected and anticipated that
departmental revenues would fall below budgeted levels, it however was unknown
exactly where depending on health orders. Therefore, funding was set aside in
anticipation of this mid-year adjustment. As departments have revenue operational
activity through December and forecast through the end of the fiscal year, $3.9 million
of this reserve is used as a balancing solution.
Other Recommended Adjustment Highlights
In addition to realigning the General Fund, other adjustments are included in this report ,
generally grouped into four types of transactions:
• Prior City Council Direction/Clean-up actions: These technical adjustment requests
adjust the current budget levels to align with anticipated year end revenue or
expenditure levels and fix inadvertent errors in the adopted budget. “Prior City Council
Direction” actions complete the technical budget adjustments in alignment with
direction that was approved by the City Council in a separate agenda item. Typically,
mid-year adjustments fall in this category.
• Reimbursements and Grants: These requests adjust grants, reimbursements, and fee
revenue and expenditure estimates to align with current year end projected levels as
appropriate. This type of request normally has a net-zero impact.
• Time-sensitive supplemental funding to reflect pending expenses: These are requests
for additional funding to address critical programs or service delivery needs. These
adjustments are being brought forward ahead of the annual budget process because the
need either cannot or should not wait until the next fiscal year.
The highlights below in addition of full details of all recommended actions can be found in more
detail in Attachment A. Major adjustments include but are not limited to:
Time-sensitive supplemental funding to reflect pending expenses:
• Library Automated Material Handling to purchase hold lockers and lending kiosks from
impact fees ($220,000)
Prior City Council Direction/Clean-up actions:
• Community and Economic Recovery Plan resource allocation, as approved by the City
Council on January 25, 2021 (CMR 11967) Including funding for Fiber to the Home
($200,000), Workplace facility adaptations ($500,000), and University Avenue
Streetscape Update ($150,000).
• Recommended transfer of impacts fees for capital investment as outlined in the Annual
Status Development Impact Fees FY 2020 report (CMR 11875)
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Reimbursements and Grants:
• Public Safety Strike Team Reimbursements: $1.0 million in revenue for reimbursements
that have been confirmed from the State of California, and a corresponding increase to
the Fire Department’s overtime budget for deployment of public safety personnel on
strike teams.
• Local Early Action Plan (LEAP) Grant: $300,000 This net-neutral action increases
appropriations for a reimbursable grant from the California Department of Housing and
Community Development (HCD) for technical assistance, preparation an d adoption of
planning documents, and process improvements to accelerate housing production and
facilitate compliance to implement regional housing needs assessment.
FY 2021 Adopted Budget Reductions
In addition to the above mid-year balancing strategies, staff also seeks the City Council’s
direction to eliminate positions that were frozen and defunded in the FY 2021 Adopted Budget
as part of the FY 2022 Proposed Budget. As discussed in the FY 2022 – 2026 Long Range
Financial Forecast (CMR 11954), the Forecast does not assume restoration of these positions
and under this assumption the City continues to forecast gaps in future years. Changes
approved as part of the FY 2021 Adopted Budget are summarized below and outlined in detail
in CMR 11330. This is a significant adjustment to services levels as the FY 2021 $40 million gap
was solved by reductions in services through defunding staffing and a reduction of General
Fund investment in capital infrastructure (both base transfer and TOT receipts) by $18.4 million
in FY 2021. Although services are outlined below, the pandemic has restricted activities via
health orders and as discussed at the February 8, 2021 City Council meeting, it is likely the
community has not felt the full impact of these reductions yet.
Public Safety: FY 2021 adjustments included an increase of $1.55 million in program revenues
and a reduction of $7.3 million in expenses in the General Fund, including 33.27 full -time and
2.28 part-time staffing freezes. These actions included suspensions of specialized police units
such as the traffic enforcement and investigation units to maintain police patrol services and
shift the priority of police services to urgent calls, lowering capacity to respond to nonurgent
calls. Limited officer training, promotional testing, uniform purchases and eliminated or
changed to full cost recovery non-essential programming such as school resource officers.
Curtailed dispatch, communication, and emergency preparedness services, as well as
emergency incident response and training and work to adopt fees to increase revenue for first
responder and ambulance subscription.
Community & Library Services: FY 2021 reductions included $0.3 million in program revenues
and $4.9 million in expenses in the General Fund, including 16.1 full-time and 21.02 part-time
staffing freezes. These actions reduced library hours at all branches, keeping neighborhood
libraries (Children’s, Downtown, and College Terrace) open three days a week and full-service
branches (Mitchell Park and Rinconada) open six days per week. This includes greater cost -
recovery through changes in service delivery, charges for services, and/or limiting operating
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hours for facilities such as the new Junior Museum and Zoo (JMZ), community centers, open
space preserves, the Children's Theatre, and the Art Center. These actions also reduced or
eliminated programming such as special events, art exhibits, human services activities, and teen
programs.
Planning, Transportation, and Infrastructure: FY 2021 reductions included $2.1 million in
program revenues and $6.1 million in expense in the General Fund, including 8.2 5 full-time and
1.44 part-time staffing freezes. Included were actions to reduce administration, code
enforcement, front counter support, and inspection services. Understanding that this could
delay services to the development community, the building inspe ction and plan review team
was reorganized to minimize the impacts to lead times for inspections, progress on the Energy
Reach Code, and the ability to meet next day inspections. The Crosstown and Embarcadero
shuttle programs were eliminated, and the delivery of this service redesigned to reduce costs.
Additionally, funding for tree trimming and vehicle replacement was reduced for one year and
rate changes in various utility enterprise funds were suspended for the coming year(s).
Internal Services & Council Appointed Officers: FY 2021 reductions included $2.9 million in
operating expenses in the General Fund, including 5.9 full-time and 0.96 part time staffing
freezes. Internal Services departments include the Information Technology, Human Resources,
and Administrative Services Departments as well as the Council and appointed officers (City
Manager, City Attorney, City Auditor and City Clerk). Reductions in these areas align with the
changes in services, increasing timeframes for assistance and review in areas such as
recruitments, procurements, performance reporting, and risk management. Technology
solutions will be constrained to only essential contracts and systems and support equipment
needs as the majority of our workforce continues to work from home. The City Council,
Innovation and Special Events, and Human Recourses contingency accounts were eliminated in
FY 2021 on a one-time basis.
Current CIP Projects Expected to be Brought Forward for Construction Contract Award by the
end of FY 2021
Below list of General Capital Improvement Fund projects that staff expects to present to the
City Council for award of construction contracts before the end of the fiscal year. Projects
expected to award in FY 2022 are not included and would be addressed during fiscal year
reappropriations.
Recognizing recent Council discussions and interest in reprioritizing projects, this information is
provided to keep the City Council informed of project status prior to the full review of capital
investments scheduled to be part of the FY 2022 Proposed Capital Budget. This interim step
prior to review of the overall CIP allows the Council, should it wish, to redirect staff efforts on
these projects.
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Table 2: Capital Projects Expected to be Brought Forward
for Construction Contract Award by the End of FY 2021
FY 2021
Adjusted
Budget
Project
Number Project Title Project Summary and Status
2,362,282 AC-18001 JMZ Renovation This project supports the City’s contributions to the
new JMZ. A contract for fabrication of exhibits is
expected to be brought to Council for approval
before the end of Fiscal Year 2021.
2,485,231 PE-08001 Rinconada Park
Improvements
This project will provide safety, site amenities,
playground facilities, irrigation, drainage and ADA
accessibility improvements. The planned new
restroom has been removed from the scope of work
to reduce cost, and a construction contract is
expected to be brought to Council for approval
before the end of Fiscal Year 2021.
8,046,137 PE-13011 Charleston/Arastrader
o Corridor Project
This project provides new landscaped median
islands, bulb outs, enhanced bike lanes, traffic signal
improvements and new street trees for the corridor.
A construction contract for the project’s third and
final phase is expected to be brought to Council for
approval before the end of Fiscal Year 2021.
667,056 PE-15020 Civic Center
Waterproofing Study
and Repairs
This project will repair the expansion joint on King
Plaza and replace the waterproof coatings on the
inside of the plaza perimeter planter boxes. A
construction contract is expected to be brought to
Council for approval before the end of Fiscal Year
2021.
950,000 PE-18004 Fire Station 4
Replacement
This project will replace Fire Station #4 at the corner
of Middlefield Road and East Meadow Drive. A
design contract is expected to be brought to Council
for approval in March.
606,314 PE-18016 Civic Center Fire Life
Safety Upgrades
This project will assess, update, and replace the
Civic Center fire alarm system. The fire alarm panels
and associated equipment need an upgrade to meet
current code requirements. A construction contract
is expected to be brought to Council for approval
before the end of Fiscal Year 2021.
314,800 PE-20002 City Facilities
Assessment and
Record Plan
Management System
This project will conduct an assessment of all City
facilities, including an electrification assessment in
support in support of the City’s “80x30”
sustainability goal. A consultant contract is
expected to be brought to Council for approval
before the end of Fiscal Year 2021.
404,050 PE-21003 Magical Bridge
Playground Rubber and
Synthetic Turf
Resurfacing
This project will replace the rubberized and
synthetic turf surfacing in the playground. A
construction contract is expected to be brought to
Council for approval before the end of Fiscal Year
2021.
11,616,43 PE-86070 Street Maintenance This project includes the annual resurfacing, micro-
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5 seal, crack seal and reconstruction of various city
streets. Contracts for the FY 2021 Streets
Preventive Maintenance Project and the FY 2021
Street Resurfacing Project are expected to be
brought to Council for approval before the end of
Fiscal Year 2021.
452,478
PF-01003* Building Systems
Improvement
This project provides electrical, mechanical,
plumbing, structural, and security upgrades for City
facilities. A construction contract for the Mitchell
Park tennis courts lighting upgrade is expected to be
approved by the City Manager before the end of
Fiscal Year 2021.
6,523,608 PF-16006 Municipal Service
Center Lighting,
Mechanical, and
Electrical
Improvements
This project will replace original MSC mechanical,
electrical, and lighting systems installed in 1966. A
design contract amendment for additional electrical
design work is expected to be brought to Council for
approval before the end of Fiscal Year 2021.
2,169,800 PF-17000 Municipal Service
Center A, B, & C Roof
Replacement
This project will replace the existing MSC roofs. A
construction contract is expected to be brought to
Council for approval before the end of Fiscal Year
2021.
209,000 PG-14000 Ramos Park
Improvements
This project includes safety and accessibility
improvements, including replacing the existing park
playground, benches, drinking fountains, and
resurfacing the basketball court playing surface, as
well as installing a new restroom (separate and
additional restroom funding is provided by the Parks
Restroom Installation CIP project). A construction
contract is expected to be brought to Council for
approval before the end of Fiscal Year 2021.
217,800 PG-
14002*
Cameron Park
Improvements
This project will upgrade and renovate safety and
accessibility features with a primary focus on the
park playground. A construction contract is
expected to be approved by the City Manager
before the end of Fiscal Year 2021.
2,726,860 PL-15002 Downtown Automated
Parking Guidance
Systems, Access
Controls & Revenue
Collection Equip.
This project includes design and installation of new
automated parking guidance systems. A
construction contract is expected to be brought to
Council for approval before the end of Fiscal Year
2021.
*projects with contract amounts anticipated to be under the $250,000 threshold requiring
Council approval
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Potential Rent Forgiveness Program for City Tenants (Non-Profit and/or For-Profit)
At the October 19, 2020 City Council meeting, staff recommended that the City Council discuss
Palo Alto’s current fiscal status and provide direction to staff on potential budget actions,
including on rental relief for City non-profit and for-profit tenants. City Council requested staff
bring back options to provide rental relief for a defined period of time for the City’s tenants.
This staff report provides a time bounded rent forgiveness program to City tenants with various
criteria to meet qualifications.
Staff recommends the City Council approve the creation of a rent forgiveness program to
qualified City tenants and authorize the City Manager to execute amendments to all leases in
accordance with the City Council established program.
Here are some options of rent forgiveness to consider:
Table 3: Rent Forgiveness Program Options for Consideration
Rent Forgiveness Options to
Consider
Estimated
Impact Cost
Estimated Impacted
Stakeholders
Time
Covered
Option A –
Rent Forgiveness for All
Active Tenants
$875,000
67 tenants –
(For-profits, Non-profits, Small
Businesses, Large Businesses)
3 months
Option B –
Rent Forgiveness for Active
and Non-Operational
Tenants
$751,000
58 tenants –
(For-profits, Non-profits, Small
Businesses)
3 months
Option C –
Rent Forgiveness for Active
and Non-Operational Non-
Profit Tenants
$203,000 19 tenants –
(Non-Profits) 3 months
Option D –
No Rent Forgiveness $0 N/A N/A
Staff recommends Council approve the following qualifications for tenants to participant in this
program:
1. The rent forgiveness program is available to those tenants that have satisfied all
responsibilities under their existing agreement, have no outstanding delinquencies for
any payments due prior to April 1, 2020, and is a current tenant as the date of the
application.
2. Tenant must cite section(s) of the County ordinance that restricted tenant’s operations.
3. Rent over $100 per month including operating expenses.
4. Tenants will be required to complete a form describing their impact from the COVID-19
pandemic and provide financial statements demonstrating the amount of reduced
business revenue.
5. The business must have had gross revenues of less than $2.5 million in 2019.
City of Palo Alto Page 14
6. The business must provide an income statement demonstrating a decline in gross
revenue during 1st half of 2020 of at least 50% from 1st half of 2019.
7. If a qualified tenant paid rent during the forgiveness period instead of deferring, it may
qualify for rent credits to be used for rent owed in the following three months after the
parties agree to an amendment.
8. Tenants that meet all qualifications will be required to enter into an amendment,
subject to City Manager approval.
Full details of this potential forgiveness program can be found in Attachment B.
2022 Business Registry Certificate Program and Downtown Business Improvement District
Fees
In FY 2020, due to COVID-19, the Council waived the $50 Business Registry Certificate Fee (BRC)
and the assessment of the Downtown Business Improvement District (BID) (CMR 11219) for
calendar year 2020. Council also approved the reimbursement of business registration fees and
BID assessments paid. Reimbursements have totaled $73,609 for BRC and $44,710 for BID.
Subsequent actions were taken in June to suspend these programs through FY 2021 it was
expected that both BRC and BID fees would resume in 2022 (CMR #11405, and #11358). As we
approach the renewal period staff is seeking Council’s direction on whether to:
1) Waive the BRC and/or BID fees again in 2022; or
2) Continue with the collection of fees for both the BRC and BID
Depending on the City Council’s direction, staff will return with the necessary actions to
implement the direction. To aid the Council this potential direction is some background on
these programs and their financial implications.
The Business Registration Program requirements in Palo Alto Municipal Code Chapter 4.60
(commonly referred to as the “Business Registry”) apply to all businesses located in Palo Alto,
with the exception of nonprofits and businesses with less tha n one full-time equivalent
employee, home-based or transitory businesses, a religious organization with no ancillary
business on-site, businesses who relocated outside of Palo Alto in the past year, and businesses
that are permanently closed. Most exempt businesses need to annually claim their exemption
through the application but do not pay the fees. The $50 business registration fee is for cost
recovery purposes and the $4 certified access specialist (CASp) fee is a State requirement
(SB1186 and AB1379) for local jurisdictions to collect a $4 fee from new or renewal applicants
for a local business license or equivalent instrument or permit. This fee is for the purposes of
increasing CASp services and compliance with construction-related accessibility requirements in
Palo Alto and cannot be waived by the City. The BRC is estimated to generate approximately
$113,000 annually based on collections during 2018 and 2019.
The Downtown Business Improvement District (BID) was established to promote the economic
revitalization and physical maintenance of the Palo Alto Downtown Business Improvement
District. The City contracts with Palo Alto Downtown Business and Professional Association
(PADBPA) to provide services to businesses in the BID. The BID assessment is levied on and paid
City of Palo Alto Page 15
by businesses in the district boundary to provide these services. The assessment ranges
between $50-$500 based on the location of the business in the BID, type of business, and
number of employees (or number of rooms for a lodging business). In June 2019, Council
adopted a resolution approving the annual levy of the BID assessments for 2020 which was
rescinded on May 4, 2020. The Downtown BID assessment is estimated to generate
approximately $76,000 annually. This funding is then used to fund programs and activities
managed by the Palo Alto Downtown Business and Professionals Association (PADBPA).
Preliminary 2nd Quarter Financial Status: Operating Budget
General Fund
Overall, the General Fund is tracking at or below adopted estimated rev enues and at adopted
expenses. Based on the continued phased reopening from the shelter -in-place orders imposed
in March 2020, consumer behaviors continue to evolve, impacting the financial forecasts. The
organization has carefully planned for the financial implications of COVID-19 on the City of Palo
Alto. Staff recommends adjustments to the revenues and expense levels to align with current
projections. However, it is critical to reiterate that e conomic trends and data continue to be
uncertain.
General Fund: Revenues
The FY 2021 Adopted Operating Budget approved a $197 million estimate for sources, of which
$67.1 million has been collected to date, or 38 percent of the adopted budgeted. This FY 2021
Adopted Budget included approximately $40 million in reduced revenues, primarily in Sales Tax
and Transient Occupancy Tax revenues followed by reduction in Charges for Services,
Documentary Transfer Tax, and Utility User Tax. As reported to the City Council on February 8th
(CMR 11954), major tax revenue estimates for FY 2021 are projected to fall $3.4 million, or 1.7
percent. This report includes review and analysis of department revenue and proposes
adjustments to the budget that continues to scale and modify revenues based on operational
impacts experienced due to COVID-19.
General Fund revenues (excluding operating transfers) for the 2nd quarter of FY 2021 totaled
$67.1, which is 19.3 percent lower than the same period of the prior year and comprises 38
percent of the current year Adopted Budget. The level of budget revenue collected through the
end of the 2nd quarter is not indicative of the annual expected receipts in FY 2021 due to timing
of major revenues received over the fiscal year. Cash receipts as expected declined in all
General Fund revenues except Documentary Transfer Tax over prior year’s 2nd quarter. The
following is a table which highlights the City’s major revenue sources for the 2nd Quarter,
compared to 2nd Quarter of the prior year. Each quarter’s revenue is expressed as a percentage
of the Adjusted Budget for each year.
City of Palo Alto Page 16
Table 4: General Fund Preliminary Revenue FY 2021 2nd Quarter
% change FY 2021 %FY 2020 %
Property Tax 6.8%52,000$ 33.7%48,634$ 33.8%
Sales Tax -18.5%20,500 44.7%34,346 32.7%
Charges for Services -23.7%25,984 36.0%30,267 40.5%
Transient Occupancy Tax -85.7%14,900 10.5%29,309 37.3%
Utility User Tax -14.4%15,100 46.8%17,581 46.9%
Permits and Licenses 2.0%8,270 36.3%8,667 34.0%
Documentary Transfer Tax 1.0%4,700 97.6%8,369 54.2%
All Other Revenue Sources -10.3%34,843 42.6%34,076 48.6%
Total Revenue -19.3%$176,297 38.1%$211,249 39.4%
City of Palo Alto
General Fund Revenue
FY 2021 2nd Quarter [PRELIMINARY]
(000's)
2nd Quarter Actuals Adjusted Budget
FY 2021 FY 2020
17,549$ 16,436$
9,159 11,239
9,343 12,247
1,569 10,944
7,060 8,246
3,005 2,947
4,586 4,539
14,860 16,562
$67,131 $83,160
As outlined in the May 2020 discussion of COVID-19 fiscal scenarios (CMR 11315), the FY 2021
Proposed Budget estimated the same major tax revenues at $145.7 million, which is nearly $40
million higher than the FY 2021 Adopted Budget of $107.2 million. The below table compares
major tax revenues estimates against pre-COVID actual revenue levels in FY 2019 and the FY
2021 projections. These estimates have assisted in informing the recommended budget
adjustments included in Attachment A recommended for City Council approval.
City of Palo Alto Page 17
Table 5: General Fund Major Tax Revenues
as of 12/31
Actual
2019
Actual
2020
Adopted
2021
Projected
2021
Revenue & Other Sources 0
Sales Taxes 36,508 30,563 20,500 25,030
Property Taxes 47,327 51,089 52,000 53,173
Transient Occupancy Tax 25,649 18,554 14,900 4,830
Documentary Transfer Tax 6,923 6,903 4,700 6,875
Utility Users Tax 16,402 16,140 15,100 14,080
Other Taxes and Fines 1,888 1,172 1,925 392
Subtotal: Taxes 134,697 124,421 109,125 104,380
Charges for Services 26,669 23,557 25,418 20,619
Permits and Licenses 9,088 8,038 8,336 8,932
Return on Investments 2,018 1,419 1,100 1,100
Rental Income 16,411 16,037 16,022 15,404
From Other Agencies 951 1,529 551 2,835
Charges to Other Funds 10,684 11,099 11,992 11,992
Other Revenue 5,084 2,848 2,572 2,412
Total: Non-Tax Revenue 70,905 64,527 65,991 63,293
Operating Transfers-In 20,154 20,568 21,359 21,251
Total Revenue $225,756 $209,516 196,475 $188,924
Property Taxes
Property tax revenue is the General Fund’s largest revenue source and represents
approximately 25 percent total revenues. The average annual property tax growth over the last
10 years has been approximately 6.6 percent. The FY 2021 secured and unsecured property tax
assessed values growth rates are 7.6 percent and 12.7 percent, respectively, an average of 7.8
percent. These higher assessed values reflect continued strength in com mercial and residential
real estate markets. Although not in decline, during a recession, property tax impact is delayed
by a year. Based on trends from the last two recessions, trends currently indicate a plateau
rather than an increase in receipts through FY 2022 as that year will be a reflection of activity in
2020.
In addition, fiscal years 2018, 2019, and 2020 included receipts of $1.4 million, $2.7 million, and
$3.9 million respectively, for excess Educational Revenue Augmentation Fund (ERAF)
distributions from the County of Santa Clara. ERAF is the fund used to collect and disburse
property taxes that are shifted to/from cities, the County, and special districts prior to their
reallocation to K-14 school agencies. When the state shifts more local property tax than
required to support schools these funds are returned and known as excess ERAF. As a result of
the volatility of ERAF, it is not considered a permanent local revenue source. In addition to the
uncertain amount of ERAF revenue the City is to receive, the State is claiming that five counties
(Marin, Napa, San Francisco, San Mateo, and Santa Clara) are calculating excess ERAF in way
that that is contrary to state law where too much property tax revenue is being shifted from
schools to other local agencies. The final resolution of this dispute, both in timing and amount,
creates further uncertainty in the current and future fiscal years.
City of Palo Alto Page 18
The FY 2021 Adopted Budget assumes $52.0 million in total property tax and is expected to
grow to $53.2 million. A $1.2 million increase to property tax revenue is included in staff’s
recommended mid-year budget adjustments (Attachment A). Revised property tax estimates
assume $3.2 million in Excess ERAF revenue will be received.
Sales Taxes
Sales tax receipts have seen significant declines as the City’s revenue base is dependent on
many high-end goods and dining options at regional destinations, such as Stanford Shopping
Center. Cash receipts for the 2nd quarter has decreased 18.5 percent, from the same period last
year, however, when reviewing economic activity through September 2020, receipts reflect a
year-over-year decline of 24.9 percent. These significant declines reflect a partial offset by
business to business sales, the one sector that outpaced other areas with 3.3 percent year-
over-year growth. Based on activity and receipts for the recent quarter close, it is estimated
that sales tax revenue will exceed the FY 2021 Adopted Budget by $4.5 million, or 22.1 percent,
and will generate a total of $25.0 million by year-end of FY 2021. This is compared to the $30.6
million received in FY 2020, and $36.5 million received in FY 2019. The FY 2021 Adopted Budget
for sales tax revenue was based on a conservative estimate and a variety of unknowns . Based
on these year-to-date trends, economic forecasts (including UCLA Anderson), and the City’s
sales tax consultant, staff recommends a $4.5 million budget increase to the sales tax revenue
budget.
Transient Occupancy Tax (TOT)
TOT continues to be the most significantly impacted, though revenues have improved slightly
above the activity seen in April and May 2020. Currently, receipts through 2nd quarter are
tracking 85.7 percent below prior year levels. These receipts reflect actual activity through
November 2020, and therefore do not yet take into consideration the second wave COVID-19
cases that occurred in December 2020. During the first five months of the fiscal year, 10 hotels
remained closed completely; one of these hotels opened in December.
The open hotels average daily room and occupancy rates, as of December 2020 were $117 per
day and 38.3 percent, respectively. For the open hotels, occupancy percentage ranges from 9.5
percent to over 76 percent, however, the higher occupancy was at the expense of a deep
decline in average room rates (declines range from 10.5 percent to 64.2 percent). Year-over-
year, daily average room rates decreased by half, from $279 per day to $117 per day, while the
occupancy rate has declined from 76.3 percent to 38.3 percent.
According to CBRE, demand for hotel rooms nationally was down by 36.8 percent year-over-
year from Q3 calendar year 2019 to 2020, and national hotel occupancy declined a
corresponding 37.9 percent year-over-year. San Francisco saw a significant 84.1 percent loss in
Revenue Per Available Room (RevPAR), the third greatest decline in the continental U.S., behind
Boston and New York. San Jose saw a loss slightly greater than 70 percent from Q3 calendar
year 2019 to 2020. As a region where business and other non-leisure travel is a driving impact,
City of Palo Alto Page 19
it is expected that until the virus is under control and both domestic and international travel
resumes, the City will continue to experience significantly reduced TOT revenue. Rapid
progression in vaccines as well as the expected opening of new hotels in Palo Alto are positive
developments that will drive recovery for this tax revenue.
Receipts are expected to fall below FY 2021 Adopted Budget estimates and represents a
decrease of 67.6 percent, or $10.1 million. Included in this report is a recommended downward
adjustment to the revenues estimate from $14.9 million to $4.8 million, partially offset by a
recommended $4.5 million reduction in the transfer to the General Capital Improvement Fund
in alignment with the City Council policy to dedicate a portion of TOT receipts to infrastructure
investments.
Documentary Transfer Tax (DTT)
In FY 2015, DTT peaked at $10.1 million. This milestone was a consequence of several large
commercial transactions on Page Mill Road and in the Stanford Research Park. Since that time,
DTT has significantly moderated, with $6.9 million earned in FY 2020. Revenue s through 2nd
Quarter FY 2021 are 1.0 percent higher than prior year receipts. Therefore, should receipts
continue to trend similar to prior years, it is expected that DDT revenues will exceed the FY
2021 Adopted Budget by 46.3 percent, or $2.2 million.
As in past years, this revenue source is challenging to forecast since it is highly dependent on
sales volume and the mix of commercial and residential sales. Although the total value of these
transactions has decreased by 4.6 percent, the number of transactions through December 2020
(365) are running significantly higher than those through December 2019 (285). A proposed
$2.2 million revenue budget increase is included in Attachment A to account for this increased
activity and estimate moderate sale activity for the remainder for the year.
Utility User Tax (UUT)
The UUT is levied on electric, gas, and water consumption, as well as on telephone usage. In
total, FY 2021 revenues were budgeted at $15.1 million, a 14.1 percent reduction from the FY
2020 adopted level of 17.6 million, or a reduction of $2.5 million. FY 2020 actual receipts were
$16.1 million and to date, revenues are 14.4 percent below prior year levels through the 2nd
quarter of FY 2021. Therefore, year over year reductions were consistent, however, the lower
FY 2020 actual receipts, staff expects collections to fall slightly below budgeted levels by the
end of the fiscal year and a recommended $1.0 million downward adjustment is included to
reflect this.
City of Palo Alto Page 20
Charges for Services & Permits and Licenses
The FY 2021 Adopted Budget assumed an estimate of $25.4 million in Charges for Services, a
14.5% reduction from the FY 2020 adopted level or $4.3 million below. The FY 2021 Adopted
Budget assumed an estimate of $8.3 million in permit and license revenue, a 29.1% reduction
from the FY 2020 adopted level or $3.4 million below. Revenues in these categories were
impacted by changes in FY 2021 such as the planned opening of the newly remodeled Junior
Museum and Zoo with a ticketed entry fee and membership program and the Fire Department
first responder fee and ambulance subscription fee.
Overall, revenues in this category are expected to end the year below budgeted levels, mainly
in Community Services Department and Fire Department receipts. Significant adjustments are
recommended in this FY 2021 Mid-Year Budget Review resulting in an overall decrease of $4.8
million from the FY 2021 Adopted Budget estimate. Below reflect highlights of these downward
adjustments.
• Reduce $1.6 million revenue estimate due to delay in the review and approval of new
Fire Fees. The Ambulance Subscription program and fees were reviewed by the Finance
Committee on December 15, 2020 and additional analysis was requested prior to
further action. The First Responder Fee is still in development.
• Reduce $1.6 million revenue estimate due to the expected delay in the opening of the
Junior Museum and Zoo to FY 2022. A corresponding decrease in some expenses in the
amount of $526,500 is also recommended to recognize this delay and partially offset
this loss.
• Reduce $2.3 million revenue estimate in recreation, theater, and arts programming and
rentals due to continued shelter in place orders restricting services that can be
provided. A corresponding decrease in estimated expenses of $835,000 is
recommended to offset this loss.
Development Services: Preliminary building application and permit revenue overall is down 14
percent compared to last year and reflects 46 percent of the anticipated building permit
revenue for FY 2021 budget. Preliminary Development Services revenue is down 30 percent
compared to prior years and is currently pacing to 38 percent of the FY 2021 revenue target.
Staff recognizes that monthly revenues may be stabilizing, but there are significant monthly
revenue fluctuations compared to prior years that limit any reliable conclusions regarding
future construction activity at this time. Staff continues to monitor revenues to determine if
recent permit activity reflects a return in confidence for the construction and building sector
due to the evolving changes in the current economic environment. Department-managed
6expenses are currently under or on pace to meet the budget. The department is monitoring
this category closely on a month to month basis. The table below articulates development
services revenues from January through December 2019 versus the same 2020 timeframe.
City of Palo Alto Page 21
Table 6:
Other Revenues
The return on investment category reflects the interest earnings on the City’s investment
portfolio. This category is a combination of past investments, new investments at current
market rates, and available investable cash which fluctuates seasonally and annually. The
revised FY 2021 interest earning forecast of $0.9 million is $0.2 million lower than the Adopted
Budgeted of $1.1 million. No adjustment is yet recommended in this Mid-Year Budget Review
as staff continues to review its investments.
The FY 2021 Adopted Budget assumed a rental income estimate of $16.1 million, a 14.1
percent reduction from the FY 2020 adopted level or $2.5 million below. Revenues in this
category primarily reflects rent paid to the General Fund from the City’s Enterprise Fu nds and
the Cubberley Community Center. During the pandemic, the City has continued to follow Santa
Clara County orders and allowed tenants to defer payment of rent, however, as the period
continues to grow longer and longer impacting the ability for tenan ts to continue their normal
business, a number of City tenants have asked for rent relief.
As directed by the City Council on October 19, 2020, staff has brough forward as part of this FY
2021 Mid-Year Budget Review, options for a potential rent forgiveness program. This can be
found in Attachment B. No program is currently assuming in this FY 2021 Mid-Year Budget
Review. Therefore, should the City Council wish to implement one of these program options,
the financial impact would need to be drawn from either the City Council’s COVID-19 Reserve
for unforeseen needs or from the Budget Stabilization Reserve.
City of Palo Alto Page 22
General Fund: Expenses
Overall General Fund expenses are currently expected to remain within the FY 2021 Adopted
budget levels of $197 million. General Fund expenses (excluding operating transfers) for 2 nd
quarter are 8.6 percent lower than prior year and are tracking at 45 percent of Adjusted Budget
(excluding encumbrances). This lower than prior year expense levels in expected due to the
significant reductions taken as part of the FY 2021 Adopted Budget which reflected an overall
decrease in expenses of 14.7 percent from FY 2020 Adopted Budget levels. The following is a
table which highlights the City’s expenses by function for the 2nd quarter, compared to 2nd
quarter of the prior year. Each quarter’s expense is expressed as a percentage of the Adjusted
Budget for each year.
Table 7: Preliminary General Fund Expenses FY 2021 2nd Quarter
FY 2021 FY 2020 % change FY 2021 %FY 2020 %
inc (dec)
Police 20,452$ 22,142$ -7.63%40,590$ 50.39%44,806$ 49.42%
Fire 17,664 18,195 -2.92%33,776 52.30%35,105 51.83%
Community Services 12,969 15,067 -13.92%30,149 43.02%32,191 46.81%
Public Works 8,324 8,168 1.91%20,185 41.24%19,797 41.26%
Planning and Development Services 7,502 8,916 -15.86%19,388 38.69%21,767 40.96%
Library 4,335 4,995 -13.21%8,573 50.57%10,532 47.43%
Administrative Services 3,652 3,993 -8.54%8,597 42.48%8,989 44.42%
All Other Departments 9,611 10,947 -12.20%26,665 36.04%30,652 35.71%
Total Expenses 84,509$ 92,423$ -8.56%187,923$ 44.97%203,839$ 45.34%
2nd Quarter Actuals Adjusted Budget
FY 2021 2nd Quarter [PRELIMINARY]
City of Palo Alto
General Fund Expenses
(000's)
As a service driven organization, the largest expenses are salaries and benefits. Total salary and
benefits expenditures through preliminary December 2020 are approximately $64.2 million, or
51.6 percent of the $124.5 million Adopted Budget, compared to $66.5 million in the same
period in the prior year. The City is facing historically low vacancy levels with the elimination of
funding for 83 full-time positions (equivalent of 76.50 FTE) and 107 part-time positions
(equivalent of 26.18 FTE). Already, assumed in the FY 2021 Adopted Budget was vacancy
savings of $2 million. This is the equivalent of approximately 10 full-time positions on average.
Currently, the City has 45 full-time vacancies in the General Fund. In addition, some marginal
costs have been incurred as planned due to the transition an implementat ion of the FY 2021
Adopted Budget actions. These transition costs reflect the separation of employees in frozen
positions, including a 30-day notice and other related costs in Q1. The FY 2021 Adopted Budget
City of Palo Alto Page 23
established a $1.1 million reserve for this purp ose, and this report recommends the allocation
of funding of $220,000 to departments.
Table 8: Public Safety Salaries and Overtime Expenses
Police and Fire
Salaries and Overtime Expense
FY 2021 2nd Quarter [PRELIMINARY]
(000's)
FY 2021 FY 2020 % change FY 2021 %FY 2020 %
Inc (Dec)
Police - Salaries 8,655$ 9,007$ -3.9%17,321$ 50.0%19,484$ 46.2%
Police - Overtime 732 1,504 -51.3%944 77.5%1,842 81.7%
Total Police 9,387 10,511 -10.7%18,265 51.4%21,326 49.3%
Fire - Salaries 7,027 7,196 -2.3%13,530 51.9%14,131 50.9%
Fire - Overtime 1,411 1,339 5.4%1,931 73.1%1,673 80.0%
Total Fire 8,438 8,535 -1.1%15,461 54.6%15,804 54.0%
Total Public Safety
Salaries & Overtime 17,825$ 19,046$ -6.4%33,726$ 52.9%37,130$ 51.3%
2nd Quarter YTD Actuals Adjusted Budget
Police overtime is 51 percent lower than the prior year due to suspension of specialized police
units such as the traffic enforcement and investigation units. Suspension of these specialized
units resulted in reduced service levels and ability to respond to non -urgent calls. The actual
Police overtime is 77.5 percent of adjusted budget. On a combined basis, salarie s and overtime
are at 51.4 percent of budget through the 2nd quarter of the fiscal year.
Fire overtime is 5.4 percent higher than FY 2020 and 73.1 percent of the adjusted budget
primarily due to strike team deployment to multiple California wildfires (Au gust Complex, Glass,
Fire, CSU, North Complex, Creek Fire and others) which will be reimbursed by the State. In
addition, the department staffed Station 8 for over 1,000 hours on red flag danger days. Fire
salaries is 51.9 percent of the adjusted budget is partially attributable to the extension of the
Fire Department’s FY 2021 staff reduction plan to March 2021. Fire expects to be able to meet
this revised attrition timeline of March 2021 and therefore no further action is required. On a
combined basis, salaries and overtime are 54.6 percent of the budget through the 2nd quarter
of the fiscal year.
Across the organization it is important to acknowledge the reprioritization of resources that are
occurring as needs change, working to be efficient and effective within authorized levels. For
example, some City facilities remain unoccupied or minimally occupied and therefore do not
City of Palo Alto Page 24
need traditional services such as janitorial services. However, those facilities that remain open
need increased services due to safety requirements complying with Public Health Orders.
Instead of seeking additional contracting authority or funds, the Public Works Department has
reallocated services within the contract, focusing on facility needs as a result of increased
services to ensure the health and safety of the workplace environment and its visitors, both
public and employee alike. Therefore, savings in janitorial services are not expected at year end,
in fact, depending on the pace of City facilities reopening, costs may rise as increased frequency
of service will likely be necessary to maintain a safe environment per the Centers for Disease
Control and Prevention (CDC)and State and County Public Health Officer guidelines will be
required at more facilities.
General Fund: Budget Stabilization Reserve
The General Fund Budget Stabilization Reserve is anticipated to be at $35.9 million. This figure
reflects the actual FY 2020 year-end financial reporting as outlined in CMR 11880
Recommendation to the City Council to Approval of the Macias Gini & O’Connell’s Audit of the
City of Palo Alto’s Financial Statements as of June 30, 2020 and the Management Letter; FY
2020 Comprehensive Annual Financial Report (CAFR); & FY 2020 Budget Amendments in Various
Funds, City Council approved BAO’s approved subsequent to the budget adoption through
December 31, 2020, and the recommended actions included in this report. This level is 18.2
percent of the FY 2021 Adopted Budget for General Fund expenses and is slightly below City
Council’s target level $36.4 million, of 18.5 percent.
Not included in this figure is $744,000 that the City Council set aside in a reserve with the usage
of that reserve to be determined later at City Council’s discretion. These funds may only be
allocated by City Council action.
Other Funds
Parking Funds
Revenue in the Parking Funds is predominantly comprised of annual parking permits for
employees and residents, daily parking permits, and in the Residential Preferential Parking
(RPP) Fund citation revenue. As expected, all revenue categories are tracking significantly below
budgeted levels due to the suspension of parking enforcement and extension of annual parking
permit expiration dates, both part of the City’s response to the community and econo mic
impacts of COVID-19. The Parking Funds are projected to remain solvent in FY 2021 based on
resumption of commercial enforcement and permit expiration in Spring 2021. Resuming
enforcement and ending permit extensions are critical to the solvency of these funds as they
are expected to drive demand for sales of annual parking permits for employees and residents,
which are the most significant revenue sources in these funds. As annual parking permit sales
are anticipated to resume in FY 2021, budgeted targets are not adjusted in this report. Other
revenue areas such as daily parking permits and violation revenue are reduced , representing
the losses incurred while commercial enforcement has been suspended.
City of Palo Alto Page 25
Internal Service Funds
Minimal exceptions are expected in various internal services funds such as the Retiree Health
Care Fund, and the Information Technology Fund. The Vehicle Maintenance & Replacement
Fund is prioritizing and pausing replacements as per the Council approved budget adjustments.
Below highlight a few areas tracking outside of expected levels.
As discussed, Workers' Compensation claims costs are trending up. In FY 2020, expenditures
increased by $1.3 million or 26 percent from $5.1 million to $6.4 million from the prior year.
The appropriation for Workers' Compensation claims expense includes an estimate for claims
incurred and reserves for current filings at an 85 percent confidence level, based on actuary
estimates. Staff will continue to monitor expenditures and more importantly trends in this type
of expense due to adjustments in regulations.
As a reminder General Liability claims costs are trending down and city-wide savings of $2.1
million are expected in this fund. Should these trends continue by year end, staff expects to
bring forward year-end adjustments to recognize this savings and recommend to appropriate
the General Fund portion in the Litigation Reserve in the General Fund in keeping with the City's
practice of proactively setting aside funds for dispute resolution.
As a reminder the General Benefits Fund staff expects to recommend at year end that one-time
retirement savings in FY 2020 are used to make an additional $2.0 million ($1.3 million General
Fund) contribution to the Pension 115 Trust Fund, in accordance with the draft pension funding
policy the Council approved, bringing total planned contributions (principal) to $34.3 million
(approximately 65 percent of the total is from General Fund).
Enterprise Funds
Mid-year actions being recommended in these funds are primarily related to the alignment of
the Utilities Department budgets with current market conditions for revenues and expenses
related to the purchase of commodities and the operation of utilities. The actio ns
recommended for FY 2021 mid-year will align revenues and expenses for the Low Carbon Fuel
Standards Program; interfund transfers for Electric Streetlights and Traffic Signals, Utilities
Equity Transfers; and Electric and Gas commodity costs.
Preliminary 2nd Quarter Financial Status: Capital Budget
Overall, most Capital Improvement projects are anticipated to remain within budgeted levels in
FY 2021. Adjustments to the City’s 2021 Capital Improvement Plan for a limited number of
projects are noted in Attachment A, Exhibit 2, with specific project adjustments described as
well. CIP changes fall into two basic categories: 1) projects that have been delayed and can have
their appropriations reduced, and 2) projects that need additional funding due to unantic ipated
costs that were not assumed as part of the FY 202 1 Adopted Capital Budget. The program costs
recommended in this report are described below and detailed in Attachment A, Exhibit 2.
City of Palo Alto Page 26
Staff is currently actively working on the development of the FY 2 022 proposed capital budget,
including review of projects expected to be brought forward by year end for further work (as
referenced above), projects which have ben delayed, and realignment of projects as discussed
with the City Council as part of recent agenda items including but not limited to the Update on
the General Capital Improvement Fund (CMR #11808).
Timeline & Next Steps
Staff expect to continue to diligently manage financials across the organization, providing City
Council updates as information becomes available. As we continue into the 2021 fiscal year,
staff is actively working on the FY 2022 budget as well as several regular reporting activities
over the coming months. Below is a list of expected reports and Council updates planned over
the next few months. The Council will continue to be updated on the financials of FY 2021
through these planned discussions with adjustments brought forward as necessary once more
information in available and known. Expected upcoming financial status, budget reporting and
Community and Economic Recovery Strategy conversations include:
March/April 2021:
• Additional review of fee studies for impacts fees (CMR 11875) and fire ambulance
subscription services fees (CMR 11710);
• Various Utility rate and financial forecast review with Utility Advisory Commission and
Finance Committee;
• Review of revised Junior Museum and Zoo opening and potential fee schedule
May 2021:
• Release of the FY 2022 Proposed Operating and Capital Budgets
• Public Budget Hearings on the Proposed Budgets with Finance Committee
June 2021:
• FY 2022 Operating and Capital Budget Adoption
• FY 2022 Municipal Fee Adoption
• FY 2022 Utility Rates adoption
STAKEHOLDER ENGAGEMENT
The Office of Management and Budget has coordinated with all departments c ity-wide, the City
Manager’s Office, and stakeholders such as City tenants and Downtown BID as appropriate, to
bring forward the changes discussed and recommended in this report.
City of Palo Alto Page 27
RESOURCE IMPACT
Approval of the attached transactions is required to amend the FY 2021 budget appropriation
ordinance. With the approval of these amendments, the projected ending balance of the
General Fund Budget Stabilization Reserve is anticipated to be $35.9 million, which is slightly
below the City Council recommended level of by $0.5 million, or 18.5 percent. The projected
changes to the fund balance for all other funds including Enterprise Funds, Internal Services
Funds, Special Revenue Funds, and Capital Funds are outlined in Attachment A and
accompanying exhibits and impacts to fund balance summarized as follows:
Table 9: Resource Impact (Non-General Fund)
Fund Amount
General Fund Public Services Donation Fund -$55,000
Capital Capital Improvement Fund -$4.3M
Enterprise Electric Fund -$0.2M
Fiber Optics Fund -$0.2M
Gas Fund +$0.3M
Utilities Administration Fund -$30,000
Internal Service General Liabilities Insurance Fund -$52,000
Information Technology Fund -$40,000
Vehicle Replacement Fund +$0.1M
Special Revenue California Avenue Fund -$0.2M
General Government Facility Impact Fee Fund -$0.6M
Library Impact Fee Fund -$0.2M
Public Safety Facility Impact Fee Fund -$0.1M
Residential Preferential Parking Avenue Fund -$0.2M
Stanford University Medical Center Fund -$0.7M
University Avenue Fund -$0.7M
Debt Service Library GO Bond Fund +$0.1M
ENVIRONMENTAL REVIEW
This is not a project under Section 21065 for purposes of the California Environmental Quality
Act (CEQA).
.
Attachments:
• Attachment A - FY 2021 Mid-Year Adjustments
• Attachment B - Rent Forgiveness
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
Administrative
Services
‐$ (210,000)$
City Auditor ‐$ 111,940$
City Manager
Salary Vacancy Savings Expense Reduction
This action recognizes salary savings anticipated to be generated by
vacant positions in the Administrative Service Department through the
end of FY 2021. Several management level position vacancies were
maintained across the Department through the first half of FY 2021. A
couple of these positions are anticipated to be filled in the second half
of FY 2021 to reduce service impacts to other City departments.
(Ongoing savings: $0)
City Auditor Services Alignment
This action reallocates existing funds and adds additional funding for
year one of the new Internal City Auditor contract with Baker Tilly US
LLP, in accordance with CMR 11624. 25% of the cost of the City Auditor
contract is allocated to the Utilities Administration Fund and the other
75% to the General Fund. In subsequent years, it is expected that the
contract services authorized will be funded similarly to the current
audit services, 75% in the General Fund and 25% in the Utilities
Enterprise Funds for a total not to exceed $750,000 annually.
Additional entry in Utilities Administration Fund to align all audit
functions across the City. (Ongoing savings: $138,570)
City Manager Temporary Housing Reduction
This action recognizes an expense reduction in the City Manager's
initial temporary housing funding. Housing funding was approved by
City Council in CMR 9461 as a temporary measure to allow the City
Manager to reside within the City limits of Palo Alto until a long‐term
residential property could be purchased. Remaining relocation funds
are no longer needed and can be returned to the General Fund as
expense savings. (Ongoing savings: $0)
‐$ (21,383)$
CITY OF PALO ALTO
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Community
Services
Administration Support Reduction
This action recognizes $76,132 in six months of projected vacancy
savings for 1.0 Administrative Assistant, vacated this year. As part of
the FY 2022 balancing strategy, this position is recommended to be
defunded and frozen beginning in FY 2022 ongoing. This reduction is in
addition to 3.48 positions (including 1.0 Assistant Director) that were
defunded and frozen in the Community Services Administration team
for a total of 4 of 6 full‐time positions in the Administration team, a 2/3
reduction in support. The duties associated with this position will be
absorbed by other existing department staff and include administrative
tasks such as records retention, oversight of website and marketing
materials for the department (including catalog creation for recreation
programs), coordinating agendas and reports with Council/clerk's
office, timecard monitoring, public records request responses and
other administrative items supporting the entire department. There
will be 2 full‐time staff dedicated to the administration for this
department. The remaining Administration Team will be focused on the
most critical tasks for daily operations, however, this action could
impact delays in public records requests, accuracy in Council and
committee reports, and support for special projects, and Council and
public ad hoc inquiries. Administrative tasks will also be decentralized
to division/program‐level staffing as well. (Ongoing Savings: $145,019)
‐$ (76,132)$
Community
Services
Junior Museum and Zoo (JMZ) Opening Delay
This one‐time action adjusts revenue and expenses for the Junior
Museum and Zoo. The continuing community impact of COVID‐19 has
necessitated the delay of the opening of the new JMZ from March
2021, which results in revenue decreases in ticketed entry and
membership sales ($1,140,000). Other revenue‐generating activities
have also been canceled due to health order limitations on gatherings,
which results in revenue decreases in classes, camps, field trips and
birthday parties ($433,000). This action also recognizes expense savings
from the postponed opening in areas such as staff hiring delays,
marketing, accreditation‐related activities, and new animal care and
transport. (Ongoing net savings: $0)
(1,573,505)$ (526,492)$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Community
Services
Art Center and Public Art Revenue and Expense Adjustments
This one‐time action adjusts revenue and expenses for the Art Center
and Public Art program. Health orders related to COVID‐19 have
restricted programming at the Art Center, leading to many cancelled
classes and programs. Art Center staff have implemented creative
strategies to provide popular programming and generate revenue,
including a curb‐side ceramics drop off program and ceramics wheel
rentals, as well as virtual art classes. Estimated impacts from canceled
and modified Art Center programming totals $403,000 in revenue
losses and $187,000 in expenses savings. This action also recognizes an
approximate $26,000 decrease in donations from the Palo Alto Art
Center Foundation (PAACF); $5,000 of revenue loss for juried
exhibitions, which have not started due to Art Center exhibitions being
closed all year; and $5,200 lost in teen leadership fee revenues. Finally,
this action also recognizes $20,000 in expense savings in Public Art due
to cancelled events and deferred maintenance. (Ongoing net savings:
$0)
(439,400)$ (207,192)$
Community
Services
Recreation Revenue and Expense Adjustments
This one‐time action recognizes revenue and expense decreases in
recreation programs including Adult Sports, Middle School Athletics
(MSA), Special Interest Youth & Adult classes, Teen programs, and
Summer Camps. Health orders related to COVID‐19 have placed
restrictions on recreation programming, shared indoor and outdoor
facility space, and comingling of different households, all of which
significantly limit the recreational offerings of the City. Staff diligently
adhere to all health restrictions by restructuring class and camp
operations, frequently sanitizing, and following all health & safety
protocols; programming has been adjusted wherever possible to
comply with health orders, for example maintaining small, stable
cohorts. This action recognizes expense savings from staff positions
that can be held vacant given the limited level of programming,
reduced need for recreation programming contractors such as referees
in MSA, and fewer supplies needed due to cancelation of many in‐
person programs. Estimated impacts from canceled and modified
recreation programming totals $1.1 million in revenue losses and
$566,000 in expenses savings. (Ongoing net savings: $0)
(1,049,851)$ (565,962)$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Community
Services
Community Center Closures Revenue and Expense Adjustments
This action recognizes revenue and expense reductions from the
limited operations of community centers and recreational facilities.
Due to COVID‐19 public health orders, these facilities have not been
fully opened to the public during FY 2021 and their normal revenue
generating activities have been significantly restricted. Expense savings
from these operational limitations are estimated to be $51,000 and
include savings in janitorial services and supplies; replacement and
repair costs for machinery, equipment, and technology; office supplies;
pest control services; and marketing expenses. Revenue losses are
estimated to be $618,000 and consist of the following: Lucie Stern
Community Center ($225,000) indoor ballroom and large outdoor patio
spaces for large events such as weddings, neither of which are
permitted under current health orders. Small outdoor gatherings have
been accommodated to the extent possible. Mitchell Park Community
Center ($177,000) and the Art Center ($20,000) predominantly rent
indoor space, which is not allowed under current health orders.
Reservable outdoor space at the Art Center has been prioritized to
accommodate the relocation of classes and programs that would
typically be inside. Parks and Fields ($180,000) and tennis court
($16,000) rentals continue at a reduced level; current health orders
restrict comingling of households, sports leagues, and close contact
sports. Expenditure reductions of approximately $52,000 for
contractual services that are not needed while the facilities are closed
partially offset the revenue losses. (Ongoing net savings: $0)
(618,000)$ (51,282)$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Community
Services
Children's Theatre Revenue and Expense Adjustments
This action recognizes revenue and expense adjustments at the
Children's Theatre (CHT). Health orders related to COVID‐19 have
restricted programming at the CHT, leading to many cancelled classes,
programs, and performances. In‐person performances have been
halted for FY 2021, resulting in a revenue loss of approximately
$52,000. For most of the year, the CHT has not been allowed to
operate indoor programs including theatrical performances and youth
acting and music classes, limiting programming to virtual platforms.
With the recent move to the Purple Tier of the health order, CHT will
be able to offer some in‐person classes & camps of limited size and
frequency to adhere to the health other. Estimated impacts from
canceled and modified CHT programming totals $91,000. This action
also recognizes a decreased donation from the Friends of the Children's
Theater in the amount of $90,000. This action also recognizes a full
year of vacancy savings from 0.3 FTE Arts & Science Aide, a part‐time
summer production support position, which can be defunded and
frozen in FY 2021 resulting in expense savings of approximately
$10,500. (Ongoing savings: $0)
(233,000)$ (10,464)$
Community
Services
Foothills Preserve Entry Fee Revenue and Operations Expense
This action recognizes ongoing, prorated revenue from a new vehicle
entry fee to Foothills Preserve, as approved in CMR 11956 on 2/1/2021.
One‐time funding is also recommended to be allocated to Foothills
Preserve for the purchase of an automatic fee collection machine which
will allow the entry fees to be collected full time. In the FY 2022 budget
development process CSD plans to propose to reinstate currently
frozen and defunded a 1.0 Community Services Manager (Ranger) at a
cost of approximately $150,000, offset by revenue collected from the
vehicle entry fee. (Ongoing net savings: $200,000)
75,000$ 20,000$
Fire Department Ambulance Subscription Fee Revenue Adjustment
This one‐time action recognizes revenue reduction due to delays in
implementation of the Ambulance Subscription Fee, an optional fee for
residents and businesses to secure co‐pay free ambulance transport.
An initial plan was reviewed with the Finance Committee in CMR 11710
December 15, 2020 and the department is gathering data and
performing additional work as requested by the Committee before
bring the final plan to the full Council for adoption of the new fee.
Implementation is anticipated to be complete in late spring 2021.
(Ongoing expense: $0)
(1,184,000)$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Fire Department Ambulance Transport Revenue Adjustment
This action recognizes reduced revenue from lower than projected
ambulance transports in FY 2021. Shelter‐in‐place orders have limited
EMS calls for service and corresponding ambulance transports. This
revenue reduction is anticipated to continue as long as health orders
significantly limit community activities. (Ongoing revenue reduction:
$745,000)
(745,000)$ ‐$
Fire Department First Responder Fee Revenue Adjustment
This action recognizes reduced revenue from delays in implementation
of the First Responder Fee. This fee would be charged for all EMS calls
regardless of transport and would cover cost for initial response for
first due engine. This fee would be assessed on insurance companies. It
is still being developed by the department with the support of a
consultant. The department will bring a plan forward to Council as soon
as possible to pursue implementation. (Ongoing revenue reduction: $0)
(375,000)$ ‐$
Fire Department Revenue from the State of California/Strike Team Reimbursement 1,040,339$ 1,040,339$
Human
Resources
This cost neutral action recognizes additional revenues and
corresponding Overtime expenses associated with the deployment of
strike teams. To date, the Fire Department has deployed ten strike
teams through FY 2021. The Fire Department will return as part of the
FY 2021 Year‐End process if it deploys additional strike teams through
the remainder of the year. (Ongoing savings: $0)
Administrative Expense Reduction
This one‐time action recognizes non‐salary expense savings in FY 2021.
These savings are available due to reduced administrative operations,
training resources, and contractor services. (Ongoing savings: $0)
‐$ (27,000)$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Library
Department
Various Grants Revenue and Expense Adjustments
This expense neutral one‐time action increases grant revenues by
$39,634 for grants received from the Pacific Library Partnership (PLP)
and California Library Services Act (CLSA) in FY 2021 with corresponding
expense offsets specific to each grant. The grant funds will be used for
enhancing library services and learning opportunities, which includes
the following: Mitchell Park robot for Harvest at the Library ($5,000);
XR camera for immersive virtual library programming ($5,000);
Overdrive consortium dues ($9,634); and a "Read Together" program
kit of resources and materials to support diversity, inclusion, and youth
literacy ($20,000). Grant funded projects are limited in scope to the
current fiscal year and any ongoing maintenance costs will be absorbed
by the Library's annual operating budget. Patrons will be informed of
the temporary nature of any subscription based services. (Ongoing net
expense: $0)
39,634$ 39,634$
Non‐
Departmental
Election Expense Savings
This one‐time action recognizes $75,000 in expense savings from the
$225,000 originally budgeted for the November 2020 Election. These
savings are available due to Council direction in March 2020 (CMR
11161) to withdraw a local tax measure from the ballot in light of the
economic hardships of COVID‐19. (Ongoing savings: $0)
‐$ (75,000)$
Non‐
Departmental
Property Tax
The FY 2021 Adopted Budget assumes $52.0 million in total property
tax and is expected to grow to $53.2 million by year‐end. The budget
includes $3.2 million in Excess ERAF. Although not in decline, during a
recession, property tax impact is delayed by a year. Based on trends
from the last two recessions, trends currently indicate a plateau rather
than an increase in receipts
1,173,000$ ‐$
Non‐
Departmental
Sales Tax
The FY 2021 Adopted Budget for sales tax revenue was based on a
conservative estimate and a variety of unknowns. Based on activity and
receipts for the recent quarter close, it is estimated that sales tax
revenue will exceed the FY 2021 Adopted Budget by $4.5 million, or
22.1 percent, and will generate a total of $25.0 million by year‐end of
FY 2021. This is compared to the $30.6 million received in FY 2020, and
$36.5 million received in FY 2019.
4,530,000$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Non‐
Departmental
Transient Occupancy Tax/Transfer to Capital Improvement Fund
Receipts are expected to fall below FY 2021 Adopted Budget estimates
and represents a decrease of 67.6 percent, or $10.1 million, from $14.9
million to $4.8 million. This revenue decrease is partially offset by a
recommended $4.5 million reduction in the transfer to the General
Capital Improvement Fund in alignment with the City Council policy to
dedicate a portion of TOT receipts to infrastructure investments.
(10,070,000)$ (4,466,000)$
Non‐
Departmental
Documentary Transfer Tax
A proposed $2.2 million revenue budget increase is recommended,
increasing budget from $4.7 million to $6.9 million, to account for
increased property sale activity through December 2020 and to
estimate moderate sale activity for the remainder for the year.
2,175,000$ ‐$
Non‐
Departmental
Utility Users Tax
This action reduces revenue based on year‐to‐date activity, which is
trending 14.1 percent below prior year second quarter levels.
(1,020,000)$ ‐$
Non‐
Departmental
CARES Act
This action recognizes Palo Alto's portion of funding from the Federal
Government distributed to local jurisdictions as part of the Coronavirus
Aid, Relief, and Economic Security (CARES) Act.
854,743$ ‐$
Non‐
Departmental
Cable Franchise Fee Revenue
Cable franchise fees paid to the Cable Franchise Joint Powers Authority
(JPA) has been impacted by COVID‐19. This action represents the
reduction in Palo Alto's portion of the fee funds from $0.9M to $0.7M.
(Ongoing revenue reduction: $200,000)
(200,000)$ ‐$
Office of
Transportation
Travel, Training, and Membership Expense Reductions
This action recognizes one‐time expense savings from the department's
travel, training, and membership budget. This will reduce the
department's capacity to travel for City business, limit attendance at
conferences and trainings, eliminate the Friends of Caltrain
membership, and reduce resources available for office work including
transcription services for meetings of the Palo Alto Transportation
Management Association (PATMA). (Ongoing savings: $0)
‐$ (43,554)$
Office of
Transportation
Contract Service Expense Reductions
This action recognizes one‐time expense savings from the department's
contracts for transportation infrastructure maintenance and parking
consulting services. (Ongoing savings: $0)
‐$ (26,446)$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Police (1,392,000)$ ‐$
Police (141,000)$ ‐$
Police
Parking Enforcement Suspension
This one‐time action reduces the revenue estimate for citations for the
temporary suspension of parking restrictions and enforcement in the
Palo Alto commercial districts at University and California Avenue. Due
to COVID‐19 health orders, the City is experiencing less parking in
business districts, and staff has been reassigned to other work that
impacts health and safety. Staff will bring forward budgetary
adjustments as appropriate to align citation revenues as health orders
rescind and commercial restrictions resume. (Ongoing net costs: $0)
Penalties and Fines
This ongoing action reduces the revenue estimate for penalties and
fines to align with state law changes that have affected crime
classifications and sentencing guidelines. Over the course of the past
few years, these changes have reduced the number of cases at the local
level that would otherwise have associated fines and penalties. This
action technically aligns revenue estimates with more recent trends
and is anticipated to be brought forward as an ongoing adjustment in
the FY 2022 Budget. (Ongoing net costs: $141,000)
School Resource Officer (SRO) Reimbursement
This action eliminates reimbursements from the Palo Alto Unified
School District (PAUSD) for School Resource Officers (SROs). In the prior
agreement, PAUSD reimbursed the City for half of the cost of 2.00 SROs
to provide Police Officer presence and enhance school safety efforts
(CMR 10059). This service has been discontinued in FY 2021. (Ongoing
net costs: $250,000)
(250,000)$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Planning &
Development
Services
Cost Recovery Program: 3225 El Camino Real
This net‐neutral action increases Development Services appropriations
for a private development project using full cost recovery contracts.
Under this program, the applicant pays upfront for contract services
related to their project and funding is held in a deposit account until
services are performed. (Ongoing net costs: $0)
96,250$ 96,250$
Planning &
Development
Services
Local Early Action Plan (LEAP) Grant
This net‐neutral action increases appropriations for a reimbursable
grant from the California Department of Housing and Community
Development (HCD) for technical assistance, preparation and adoption
of planning documents, and process improvements to accelerate
housing production and facilitate compliance to implement regional
housing needs assessment. (Ongoing net costs: $0)
300,000$ 300,000$
Planning &
Development
Services
Salary Vacancy Savings Expense Reduction
This action recognizes salary savings anticipated to be generated by
vacant administrative and planning positions in the Long Range and
Data Divisions through the end of FY 2021. The existing staff has
temporarily absorbed these workloads, and the department will
evaluate the need to recruit or adjust staffing levels as part of the FY
2022 Budget process.
‐$ (130,433)$
Public Works Street Sign Supplies and Materials
This action recognizes $10,000 in savings for supplies and materials to
replace reflective sign material and poles. Similar work is currently
performed under capital project PO‐11000 so the consolidation of
these services should have little to no service delivery impact. (Ongoing
savings: $10,000)
‐$ (10,000)$
Public Works Foothills Road Brush Clearing
This action recognizes $54,800 in savings for an expired contract to
provide brush clearing services on Pagemill Road. In‐house staff will
take over this work, which may decrease capacity among the Streets
crew to perform other work such as road and sidewalk repairs. Long‐
term impact may affect projects in other areas, such as Utilities or
special initiatives if reduced capacity to complete work orders are
prolonged and a backlog of work orders accumulate. (Ongoing savings:
$54,800)
‐$ (54,800)$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Public Works Streets and Facilities Maintenance Services
This action recognizes $205,000 in projected vacancy savings for 0.20
Management Specialist‐H, 0.90 Facilities Technician, and 1.0 Traffic
Controller I/II, which were each vacated this year. As part of the FY
2022 balancing strategy, these positions were recommended to be
defunded and frozen beginning in FY 2022 ongoing. This reduction is in
addition to 4.48 FTE in positions that were defunded and frozen in the
Public Works Department as part of the FY 2021 Adopted Budget. The
Management Specialist position change will result in little to no impact
due to the limited term nature of the assignment. The Facilities
Technician and Traffic Controller position changes will result in impacts
primarily associated with facilities and streets maintenance work
functions. Anticipated service delivery impact in those work functions
are delays in work orders and an accumulation of backlog, which will
reduce capacity to cover unanticipated events and preventative work.
(Ongoing Savings: $298,000)
‐$ (204,822)$
TECHNICAL ADJUSTMENTS
Non‐
Departmental
Equity Transfer to the General Fund
This action decreases revenues from the Electric and Gas Equity
Transfer to the General Fund by $108,000 to true‐up of transfers in
alignment with net assets reported in the FY 2020 Comprehensive
Annual Financial Report (CAFR) as of June 30, 2020. During the
development of the FY 2021 budget, the net assets were not yet
available and estimates were applied. This alignment will increase
transfers from the Electric Fund by $159,000 and decrease transfers
from the Gas Fund by $267,000 for a net decrease of $108,000.
(108,000)$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Non‐
Departmental
Street Lights and Traffic Signals Transfer from the General Fund
This action is a technical correction to adjust the General Fund transfer
to Electric Fund by $62,844 from $2,144,844 to $2,082,000 for FY 2021.
The base transfer covers the General Fund's portion of Street Light and
Traffic Signal (SL/TS) base electric costs, which are set when Electric
rates are updated. Rates were last updated in FY 2020, when Council
adopted an 8% rate increase for Electric utilities and the General Fund's
base transfer amount was set to $2,082,000 (rounded). In FY 2021, the
adopted base transfer amount was $2,144,844, which reflects a rate
increase of 4%. This rate increase was the FY 2021 rate change
forecasted in the FY 2020 Financial Plan. However, since Council
adopted a 0% rate adjustment for FY 2021, the FY 2021 transfer
amount should have remained the same as FY 2020, at $2,082,000 until
the next rate adjustment.
‐$ (62,844)$
Non‐
Departmental
FY 2021 Staffing Transition / Use of Reserves
This action reduces the reserve for staffing transition costs in order to
fund actions described below in this report.
‐$ (210,000)$
Non‐
Departmental
Economically Sensitive Department Revenue Reserve
As part of the FY 2021 Adopted Budget, a $5.0M reserve was
established to mitigate reductions in economically sensitive revenue
particularly from services impacted by COVID‐19. This action uses
$3.5M of this reserve to offset revenue losses mainly from the
Community Services, Fire, and Police Departments.
3,538,879$ ‐$
Various Travel and Meetings Expense Reduction
This one‐time action eliminates all available remaining funding for
travel and meetings across the General Fund. (Ongoing savings: $0)
‐$ (289,196)$
Various Management Development Expense
This one‐time action eliminates current year funding for management
development across the General Fund. A total of $289,000 that was
reappropriated from FY 2020 to FY 2021 remains for this
purpose.(Ongoing savings: $0)
‐$ (125,072)$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
GENERAL FUND
CITY OF PALO ALTO
Various FY 2021 Staffing Transition Expenses / Use of Reserves
This action recognizes the use of reserves for costs associated with
position reductions (freezes). A total of $1.1 million was set aside in a
reserve in FY 2021 to offset position related costs that staff could not
implement immediately. This action increases salary and benefit
expenses for employees in impacted positions during a 30 day noticing
period in July 2020: Human Resources Department ($10,000),
Community Services Department ($90,000), Library Department
($60,000), and Police Department ($50,000). These costs exclude safety
personnel; concessions in these groups offset an extended attrition
period. A corresponding action is included in this report to reduce the
reserve from $1.1 million to $845,000.
‐$ 210,000$
GENERAL FUND (102 & 103) SUBTOTAL $ (5,575,911) $ (5,575,911)
PUBLIC SERVICES DONATION FUND (191)
Police ‐$ 55,000$
Non‐
Departmental
Transfer to Vehicle Replacement Fund
This action increases the transfer to the Vehicle Replacement Fund for
one‐time replacement costs of an Animal Control Officer (ACO) vehicle.
The ACO vehicle requires early replacement in FY 2021 due to higher
than anticipated mileage. The Vehicle Fund has accumulated $25,000
of the expected $80,000 to replace the vehicle; this action resolves the
difference using animal service donations.
Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments
recommended in this report.
‐$ (55,000)$
PUBLIC SERVICES DONATION FUND (191) SUBTOTAL ‐$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
CAPITAL IMPROVEMENT FUNDS
CAPITAL IMPROVEMENT FUND (471)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as
outlined in Attachment A, Exhibit 2.
(808,506)$ (981,687)$
Capital Transfer from the General Fund
This action reduces the transfer from the General Fund to the Capital
Improvment Fund from $6.6M to $2.1M due to the reduction in estimated
Transient Occupancy Tax (TOT) revenue in alignment with the City Council
policy to dedicate a portion of TOT receipts to infrastructure investments.
(4,466,000)$ ‐$
Fund Balance Adjustment to Fund Balance (Infrastructure Reserve)
This action decreases the fund balance to offset adjustments
recommended in this report.
‐$ (4,292,819)$
CAPITAL IMPROVEMENT FUND (471) SUBTOTAL (5,274,506)$ (5,274,506)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
ENTERPRISE FUNDS
ELECTRIC FUND (513 & 523)
Utilities Expense and Revenue Adjustments
This action increases revenues and expenses in FY 2021 to align funding in
the Low Carbon Fuel Standards (LCFS) program with current projections
and reallocate portions of FTE from two utilities positions working on the
LCFS program into the LCFS cost center. In order to comply with the
requirements of this program, a new cost center and LCFS reserve was
established to distinguish LCFS program revenue and expenses from other
demand‐side management (DSM) program activities which are geared
towards planning, implementing, and monitoring activities of electric
utilities designed to encourage consumers to modify their level and
pattern of electricity usage.
1,760,000$ 1,745,404$
Utilities Street Lights and Traffic Signals Transfer from the General Fund
This action is a technical correction to adjust the General Fund transfer to
Electric Fund by $62,844 from $2,144,844 to $2,082,000 for FY 2021. The
base transfer covers the General Fund's portion of Street Light and Traffic
Signal (SL/TS) base electric costs, which are set when Electric rates are
updated. Rates were last updated in FY 2020, when Council adopted an
8% rate increase for Electric utilities and the General Fund's base transfer
amount was set to $2,082,000 (rounded). In FY 2021, the adopted base
transfer amount was $2,144,844, which reflects a rate increase of 4%. This
rate increase was the FY 2021 rate change forecasted in the FY 2020
Financial Plan. However, since Council adopted a 0% rate adjustment for
FY 2021, the FY 2021 transfer amount should have remained the same as
FY 2020, at $2,082,000 until the next rate adjustment.
(62,844)$ ‐$
Utilities Equity Transfer to the General Fund
This action increases expenses from the Electric Fund Equity Transfer to
the General Fund by $159,000 to true‐up of transfers in alignment with
net assets reported in the FY 2020 Comprehensive Annual Financial Report
(CAFR) as of June 30, 2020. During the development of the FY 2021
budget, the net assets were not yet available and estimates were applied.
This alignment will increase transfers from the Electric Fund by $159,000
and decrease transfers from the Gas Fund by $267,000 for a net decrease
of $108,000.
‐$ 159,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
ENTERPRISE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments
recommended in this report.
‐$ (207,248)$
ELECTRIC FUND (513 & 523) SUBTOTAL 1,697,156$ 1,697,156$
FIBER OPTICS FUND (533)
Utilities Fiber To The Home (FTTH) Funding for the Community & Economic
Recovery Workplan
This action appropriates funds for the acceleration of Fiber to the Home
(FTTH) as part of the recommendations brought forward to Council on Jan
19, 2021 (CMR 11877) to appropriate funding for specific projects to
mitigate the spread of COVID‐19 to the greatest extent possible.
‐$ 200,000$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
ENTERPRISE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments
recommended in this report.
‐$ (200,000)$
FIBER OPTICS FUND (533) SUBTOTAL ‐$ ‐$
GAS FUND (514 & 524)
Utilities Low Carbon Fuel Standards Program Adjustments
This action recognizes $20,000 in salary expense decreases for the Gas
fund as a result of reallocating 0.25 FTE from Gas to Electric as part of the
funding alignment for the Low Carbon Fuel Standards (LCFS) program. In
order to comply with the requirements of this program, a new cost center
and LCFS reserve was established to distinguish LCFS program revenue and
expenses from other demand‐side management (DSM) program activities
which are geared towards planning, implementing, and monitoring
activities of electric utilities designed to encourage consumers to modify
their level and pattern of electricity usage.
‐$ (20,015)$
Utilities Equity Transfer to the General Fund
This action decreases expenses from the Gas Fund Equity Transfer to the
General Fund by $267,000 to true‐up of transfers in alignment with net
assets reported in the FY 2020 Comprehensive Annual Financial Report
(CAFR) as of June 30, 2020. During the development of the FY 2021
budget, the net assets were not yet available and estimates were applied.
This alignment will increase transfers from the Electric Fund by $159,000
and decrease transfers from the Gas Fund by $267,000 for a net decrease
of $108,000.
‐$ (267,000)$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments
recommended in this report.
‐$ 287,015$
GAS FUND (514 & 524) SUBTOTAL ‐$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
ENTERPRISE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
UTILITIES ADMINISTRATION FUND (521)
Utilities City Auditor Services Alignment
This action reallocates existing funds and adds additional funding for year
one of the new Internal City Auditor contract with Baker Tilly US LLP, in
accordance with CMR 11624. 25% of the cost of the City Auditor contract
is allocated to the Utilities Administration Fund and the other 75% to the
General Fund. In subsequent years, it is expected that the contract
services authorized will be funded similarly to the current audit services,
75% in the General Fund and 25% in the Utilities Enterprise Funds for a
total not to exceed $750,000 annually. Additional entry in General Fund to
align all audit functions across the City.
‐$ 30,305$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments
recommended in this report.
‐$ (30,305)$
UTILITIES ADMINISTRATION FUND (521) SUBTOTAL ‐$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
GENERAL BENEFITS FUND (687)
Non‐
Departmental
Charges to Other Funds / Healthcare and Pension Expense
This net‐neutral action decreases the estimate for charges to other funds by $3.2
million due to staffing freezes approved as part of the FY 2021 Adopted Budget.
In total, the City froze nearly $16.0 million in salaries and benefits in FY 2021. Of
this amount, approximately $3.2 million is attributable to pension and
healthcare costs. The General Benefits Fund acts as a pass‐through for pension
and healthcare costs; therefore, this action reduces expenditures by a
corresponding amount.
(3,209,116)$ (3,209,116)$
GENERAL BENEFITS FUND (687) SUBTOTAL (3,209,116)$ (3,209,116)$
GENERAL LIABILITIES INSURANCE FUND (689)
Non‐
Departmental
Umbrella Excess Liability Insurance Expense
This action increases the estimate for umbrella excess liability insurance to align
with higher than anticipated premium costs, from $2.04 million to $2.09 million.
‐$ 51,600$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this
report.
‐$ (51,600)$
GENERAL LIABILITIES INSURANCE FUND (689) SUBTOTAL ‐$ ‐$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
INFORMATION TECHNOLOGY FUND (682)
Information
Technology
‐$ 40,000$
Fund Balance
Funding Request for Virtual Interview Platform
This ongoing action adds $40,000 in expense funding to support a subscription
to the on‐demand virtual interview program, Hirevue. In FY 2020, the Human
Resources Department was provided one‐time funding to pilot prescreening
technology to enhance candidate screening cycles along with a goal to reduce
bias in the interview process, which lead to the contract with Hirevue to provide
on‐demand screening through recorded interview process. This contract was
established in March 2020, just as a Shelter in Place (SIP) orders were enacted.
The recruitment team has successfully completed many interview processes
through Hirevue and believe that a recorded online interview process to be the
new normal process to screen candidates. Due to financial pressures,
recruitments are being fully vetted through an internal Hiring Committee and
while the numbers of active recruitments are reduced compared to pre‐COVID‐
19 numbers, the City continues to remotely recruit for positions that provide
critical services to the community. (Ongoing cost: $40,000)
Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in
this report.
‐$ (40,000)$
INFORMATION TECHNOLOGY FUND (682) SUBTOTAL ‐$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
VEHICLE REPLACEMENT AND MAINTENANCE FUND (681)
Public Works ‐$ (100,000)$
Police 55,000$ 55,000$
Fund Balance
Expense Action
This action recognizes $100,000 in expense savings for vehicle fuel purchase
expenses. This action will align fuel costs more closely with how extra taxes are
accounted, and with reduced fuel consumption related to aging fleet being
replaced with newer, more fuel‐efficient vehicles/equipment. This alignment will
have little to no service delivery impact. (Ongoing savings: $100,000)
Transfer from Public Service Donation Fund / Vehicle Expense
This action increases the transfer from the Public Service Donation Fund for one‐
time replacement costs of an Animal Control Officer (ACO) vehicle. The ACO
vehicle requires early replacement in FY 2021 due to higher than anticipated
mileage. The Vehicle Fund has accumulated $25,000 of the expected $80,000 to
replace the vehicle; this action resolves the difference using animal service
donations.
Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in
this report.
‐$ 100,000$
VEHICLE REPLACEMENT AND MAINTENANCE FUND (681) SUBTOTAL 55,000$ 55,000$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CALIFORNIA AVENUE FUND (237)
Office of
Transportation
California Avenue Parking Fund Revenue Adjustments
This action recognizes decreased revenue in the California Avenue Parking
Fund. Revenue in fund 237 is comprised predominantly of 1‐day and
annual parking permits. Both revenue categories are tracking significantly
below budgeted targets due to the suspension of parking enforcement
and extension of annual parking permit expiration dates, both part of the
City's response to the community and economic impacts of COVID‐19.
Parking enforcement is proposed to resume and annual permits are
proposed to expire in Spring 2021; with these actions, the most significant
driver of revenue in the fund, annual parking permits, is expected to
return to normal levels of demand. 1‐day permit revenues are expected to
recover upon reinstatement of enforcement to average budgeted levels,
therefore this action decreases revenue in this area representing the
losses incurred while enforcement was paused. The California Avenue
fund is projected to remain solvent based on the Q4 FY 2021 resumption
of enforcement and permit sales. (Ongoing impact: $0)
(231,491)$ ‐$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset actions recommended in this
report.
‐$ (231,491)$
CALIFORNIA AVENUE FUND (237) SUBTOTAL (231,491)$ (231,491)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUND (232)
Planning &
Development
Services
FY 2021 CDBG Allocation
This net‐neutral action aligns the FY 2021 CDBG allocation with revised
estimates from the Department of Housing and Urban Development
(HUD). This adjustment reflects a minor formula correction by HUD and is
not anticipated to impact any of the planned programs.
(113)$ (113)$
COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUND (232) SUBTOTAL (113)$ (113)$
GENERAL GOVERNMENT FACILITY IMPACT FEE FUND (226)
Non‐
departmental
Transfer from Impact Fee Funds to the Capital Improvement Fund
This action provides a one‐time transfer of $574,118 from the General
Government Facility impact fee fund to the Capital Improvement Fund for
$356,956 to the Civic Center Fire Life Safety Upgrades project (PE‐18016)
and $217,162 for the JMZ Renovation project (AC‐18001) recommended
to Council on Jan 25, 2021 as part of the Annual Status Report on
Development Impact Fees for FY 2020 and adoption of a resolution
making statutory findings for certain funds (CMR 11875). Please see
Attachment A, Exhibit 2 for related offseting transactions.
‐$ 574,118$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments
recommended in this report.
‐$ (574,118)$
GENERAL GOVERNMENT FACILITY IMPACT FEE FUND (226) SUBTOTAL ‐$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
LIBRARY IMPACT FEE FUND (212)
Library Transfer from Impact Fee Funds to the Capital Improvement Fund
This action provides a one‐time transfer of $220,000 from the Library
impact fee fund to the Capital Improvement Fund for the Library
Automated Material Handling Project (LB‐21000) to increase capacity for
contactless library materials processing. Please see Attachment A, Exhibit
2 for related offseting transactions.
‐$ 220,000$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments
recommended in this report.
‐$ (220,000)$
LIBRARY IMPACT FEE FUND (212) SUBTOTAL ‐$ ‐$
PUBLIC SAFETY FACILITY IMPACT FEE FUND (225)
Non‐
departmental
Transfer from Impact Fee Funds to the Capital Improvement Fund
This action provides a one‐time transfer of $455,912 from the Public
Safety Facility impact fee fund to the Capital Improvement Fund for the
New Public Safety Building Project (PE‐15001) recommended to Council
on Jan 25, 2021 as part of the Annual Status Report on Development
Impact Fees for FY 2020 and adoption of a resolution making statutory
findings for certain funds (CMR 11875). Please see Attachment A, Exhibit 2
for related offseting transactions.
‐$ 105,912$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments
recommended in this report.
‐$ (105,912)$
PUBLIC SAFETY FACILITY IMPACT FEE FUND (225) SUBTOTAL ‐$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
RESIDENTIAL PREFERENTIAL PARKING AVENUE FUND (239)
Office of
Transportation
Residential Preferential Parking (RPP) Fund Revenue Adjustments
This action recognizes decreased revenue in the RPP Fund. Revenue in
fund 239 is comprised predominantly of 1‐day parking permits, annual
parking permits, and parking citation fees. All revenue categories are
tracking significantly below budgeted targets due to the suspension of
parking enforcement and extension of annual parking permit expiration
dates, both part of the City's response to the community and economic
impacts of COVID‐19. Parking enforcement is proposed to resume and
annual permits are proposed to expire in Spring 2021; with these actions,
the most significant driver of revenue in the fund, annual parking permits,
is expected to return to normal levels of demand. 1‐day permit and
citation revenues are expected to recover upon reinstatement of
enforcement to average budgeted levels, therefore this action decreases
revenue in these areas representing the losses incurred while
enforcement was paused. The RPP fund is projected to remain solvent
based on the Q4 FY 2021 resumption of enforcement and permit sales.
(Ongoing impact: $0)
(218,986)$ ‐$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset actions recommended in this
report.
‐$ (218,986)$
RESIDENTIAL PREFERENTIAL PARKING AVENUE FUND (239) SUBTOTAL (218,986)$ (218,986)$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
STANFORD UNIVERSITY MEDICAL CENTER FUND (260)
Non‐
departmental
Transfers from the Stanford University Medical Center development
funds for the Community & Economic Recovery Workplan
This action recognizes a one‐time transfer of $650,000 from the Stanford
University Medical Center to the Capital Improvements Fund as part of the
recommendations brought forward to Council on Jan 19, 2021 (CMR
11877) to appropriate funding for specific projects to mitigate the spread
of COVID‐19 to the greatest extent possible. Please see Attachment A,
Exhibit 2 for related offseting transactions.
‐$ 650,000$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset actions recommended in this
report.
‐$ (650,000)$
STANFORD UNIVERSITY MEDICAL CENTER FUND (260) SUBTOTAL ‐$ ‐$
ATTACHMENT A, EXHIBIT 1
Revenues Expenses
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
UNIVERSITY AVENUE FUND (236)
Office of
Transportation
University Avenue Parking Fund Revenue Adjustments
This action recognizes decreased revenue in the University Avenue Parking
Fund. Revenue in fund 236 is comprised predominantly of 1‐day and
annual parking permits. Both revenue categories are tracking significantly
below budgeted targets due to the suspension of parking enforcement
and extension of annual parking permit expiration dates, both part of the
City's response to the community and economic impacts of COVID‐19.
Parking enforcement is proposed to resume and annual permits are
proposed to expire in Spring 2021; with these actions, the most significant
driver of revenue in the fund, annual parking permits, is expected to
return to normal levels of demand. 1‐day permit revenues are expected to
recover upon reinstatement of enforcement to average budgeted levels,
therefore this action decreases revenue in this area representing the
losses incurred while enforcement was paused. (Ongoing impact: $0)
(756,230)$ ‐$
Office of
Transportation
Transportation Management Association (TMA) Contract Funding
Alignment
This action recognizes one‐time expense savings of $103,000 from the FY
2021 contract with the TMA. Council approved TMA funding of $453,000
for FY 2021 in accordance with the funding request from TMA reviewed in
budget hearings on May 26, 2020. Subsequently, TMA further decreased
their funding request and the final contract was approved for $350,000.
(Ongoing savings: $0)
‐$ (103,000)$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset actions recommended in this
report.
‐$ (653,230)$
UNIVERSITY AVENUE FUND (236) SUBTOTAL (756,230)$ (756,230)$
ATTACHMENT A, EXHIBIT 1
Department Adjustment Adjustment
DEBT SERVICE FUNDS
LIBRARY GO BONDS (370)
Non‐
Departmental
‐$ (219,000)$
Non‐
Departmental
Library GO Bond Debt Service
This technical adjustment corrects the annual debt service expense for
the Library General Obligation Bonds to align with the bond's debt
service schedule.
Adjustment to Fund Balance
This action increases the fund balance to offset adjustments
recommended in this report.
‐$ 219,000$
LIBRARY GO BONDS (370) SUBTOTAL ‐$ ‐$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
Revenues Expenses
ATTACHMENT A, EXHIBIT 1
Department Adjustment Adjustment
AGENCY TRUST FUNDS
CABLE FRANCHISE FEE FUND (779)
Non‐
Departmental
Franchise Fee Revenue/Fee Distribution to JPA Members
This action reduces cable franchise fee revenue paid to the Cable
Franchise Joint Powers Authority (JPA) by cable providers from $1.9M to
$1.6M due to impacts from COVID‐19. The funding distribution to
various JPA member jurisdictions is also reduced by $0.3M of which
$0.2M goes to Palo Alto's General Fund.
(300,000)$ (300,000)$
CABLE FRANCHISE FEE FUND (779) SUBTOTAL (300,000)$ (300,000)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
Revenues Expenses
ATTACHMENT A, EXHIBIT 2
Project
Title Number Revenues Expenses Comments
New Public Safety
Building
PE‐15001 $ 105,912 $ 105,912 Recommendations in the Annual Status
Development Impact Fees FY 2020 report (CMR
11875)
University Avenue
Streetscape Updated
PE‐21004 $ 150,000 $ 150,000 Recommendations for the Community & Economic
Recovery Workplan (CMR 11877)
JMZ Renovation AC‐18001 $ 217,162 $ 217,162 Recommendations in the Annual Status
Development Impact Fees FY 2020 report (CMR
11875)
Library Automated
Material Handling
LB‐21000 $ 220,000 $ 220,000 Funding to purchase library hold lockers and
lending kiosks using Library Impact Fees
Charleston
Arastradero Corridor
PE‐13001 $ (358,536) $ (358,536) Anticipated revenue from grants and subsequent
expense alignment.
Civic Center Fire Life
Safety Upgrades
PE‐18016 $ 356,956 $ 356,956 Recommendations in the Annual Status
Development Impact Fees FY 2020 report (CMR
11875)
Building Systems
Improvements
PF‐01003 $ 500,000 $ 500,000 Recommendations for the Community & Economic
Recovery Workplan (CMR 11877)
Safe Routes to School PL‐00026 $‐ $ 671,000 Recommendations in the VERBS Grant Project and
Community Engagement Plan (CMR 11757)
El Camino Real
Pedestrian Safety and
Streetscape Project
PL‐18000 $ (2,000,000) $ (2,844,181) Recommendations in the VERBS Grant Project and
Community Engagement Plan (CMR 11757)
$ (808,506) $ (981,687)
ELECTRIC FUND
SCADA System
Upgrades
EL‐02010 $‐ $ 50,000 Internal labor required to install peripheral
hardware.
Caltrain
Modernization
EL‐17007 $‐ $ (50,000) Project anticipated to complete with some expense
savings.
TOTAL ELECTRIC FUND PROJECT $‐ $‐
ADJUSTMENTS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 CAPITAL IMPROVEMENT PROGRAM
CAPITAL IMPROVEMENT FUND
TOTAL CAPITAL IMPROVEMENT
FUND PROJECT ADJUSTMENTS
ATTACHMENT B
Attachment B - 1
Review and Authorize the Creation of a Rent Forgiveness Program for
City Tenants
Recommendation
Staff recommends the City Council approve the creation of a rent forgiveness program to
qualified City tenants and authorize the City Manager to execute amendments to all leases in
accordance with the City Council established program.
Options for the structure of a rent forgiveness program for City Council Consideration:
• Option A – Rent Forgiveness for All Active Tenants
• Option B – Rent Forgiveness for Active and Non-Operational Tenants
• Option C – Rent Forgiveness for Active Non-Profit Tenants
• Option D – No Rent Forgiveness
Executive Summary
At the October 19, 2020 City Council meeting, staff recommended that the City Council discuss
Palo Alto’s current fiscal status and provide direction to staff on potential budget actions,
including on rental relief for City non -profit and for-profit tenants. City Council requested staff
bring back options to provide rental relief for a defined period of time for the City’s tenants. This
staff report provides a time bounded rent forgiveness program to City tenants with various
criteria to meet qualifications.
Staff recommends Council approve the following qualifications for tenants to participant in this
program:
1. The rent forgiveness program is available to those tenants that have satisfied all
responsibilities under their existing agreement, have no outstanding delinquencies for
any payments due prior to April 1, 2020, and is a current tenant as the date of the
application.
2. Tenant must cite section(s) of the County ordinance that restricted tenant’s operations.
3. Rent over $100 per month including operatin g expenses.
4. Tenants will be required to complete a form describing their impact from the COVID-19
pandemic and provide financial statements demonstrating the amount of reduced
business revenue.
5. The business must have had gross revenues of less than $2.5 million in 2019.
6. The business must provide an income statement demonstrating a decline in gross
revenue during 1st half of 2020 of at least 50% from 1st half of 2019.
7. If a qualified tenant paid rent during the forgiveness period instead of deferring, it m ay
qualify for rent credits to be used for rent owed in the following three months after the
parties agree to an amendment.
8. Tenants that meet all qualifications will be required to enter into an amendment, subject
to City Manager approval.
ATTACHMENT B
Attachment B - 2
Background
The City rents some of its real property throughout the city to multiple tenants conducting a
variety of business. In total, the agreements provide approximately $278,000 per month in
projected revenue to the City including Airport tenants, as of Fiscal Year End 2019 – 2020. On
March 16, 2020, Santa Clara County Public Health issued a shelter in place order effective the
following day to keep the community safe from the spread of COVID-19. This limited activity,
travel, and business functions to only the most essential needs. Many of the City’s tenants did
not operate during the shelter in place order, resulting in multiple requests made for rental relief.
The City responded by providing rent deferral to its Cubberley and Airport tenants. A total of 20
tenants requested for rent relief and over $250,000 in rent that was due in the fourth quarter of
Fiscal Year 2019 – 2020 was deferred. Some of the City’s tenants did not apply or did not qualify
because they were leasing at other City properties. As a result, th ere is approximately $149,000
in delinquencies from rent owed in fourth quarter of Fiscal Year 2019 – 2020.
In the summer, the City established a Small Business Recovery Grant Program from its General
Fund that provided up to $10,000 each to 50 local businesses. Separately, the County of Santa
Clara adopted a commercial tenant eviction moratorium, which is currently scheduled to expire
on March 31, 2021. Under the moratorium, small business tenants have up to six months after
the moratorium expires or terminates to repay at least 50% of the past-due rent, and up to 12
months after the moratorium expires or terminates to repay in full the past -due rent. Other
government programs also provided support through the Paycheck Protection Program,
Economic Injury Disaster Loan, and deferral of property and income tax payments.
Discussion
Despite the various support available to City tenants, the lingering effects of COVID-19 continue,
with some tenants still expressing difficulty in paying rent and requesting for rent forgiveness.
To provide additional support to City tenants that continue to struggle with paying rent, and with
consideration for the City’s $39 million budget shortfall forecast in the current fiscal year, staff is
proposing to offer to certain tenants rent forgiveness for amounts due in the months of April,
May, and June 2020. If a qualified tenant paid rent during the forgiveness period instead of
deferring, it may qualify for rent credits to be used for rent owed in the following three months
after the parties agree to an amendment. Staff suggests making the rent forgive ness program
available to those tenants that have satisfied all responsibilities under their existing agreement
and have no outstanding delinquencies for any payments due prior to April 1, 2020. Additionally,
rent forgiveness should only be made available to tenants whose operations at the premises
were restricted by the County ordinance.
The program qualifications for Council’s consideration includes options ranging for $0 and up to
$875,000 and possibly assist up to 67 tenants (Attachment A – List of City’s Current Tenants). The
rent forgiveness considers nonprofit organizations, small businesses, and tenants experiencing a
loss of revenue at a certain level attributed to the COVID-19 pandemic. To determine which
ATTACHMENT B
Attachment B - 3
tenants qualify and are most in need of rent forgiveness, tenants will be required to complete a
form describing their impact from the COVID-19 pandemic and provide financial statements
demonstrating the amount of reduced business revenue. Those tenants that meet all
qualifications will be required to enter into an amendment, subject to City Manager approval.
The City Manager requests City Council delegation to determine final eligibility and authority to
execute amendments with tenants who elect to participate in the forgiveness program.
Here is a list of options for City Council’s consideration:
Rent Forgiveness Options to
Consider
Estimated
Impact Cost
Estimated Impacted
Stakeholders
Time
Covered
Option A –
Rent Forgiveness for All
Active Tenants
$875,000
67 tenants –
(For-profits, Non-profits, Small
Businesses, Large Businesses)
3 months
Option B –
Rent Forgiveness for Active
and Non-Operational Tenants
$751,000
58 tenants –
(For-profits, Non-profits, Small
Businesses)
3 months
Option C –
Rent Forgiveness for Active
and Non-Operational Non-
Profit Tenants
$203,000 19 tenants –
(Non-Profits) 3 months
Option D –
No Rent Forgiveness $0 N/A N/A
• Option A – would give rent forgiveness for all our current tenants for three (3) months.
• Option B – would give rent forgiveness for all active and non-operational tenants for three
(3) months. The Shelter-in-Place mandate impacted business operations for most of our
tenants which prompted the City to offer rent deferral.
• Option C – would give rent forgiveness for all active non-profits for three (3) months. The
option would focus our effort in helping our most impacted business given the essential
service they provide to the Palo Alto community.
• Option D – would not provide rent forgiveness to our tenants. The County’s eviction
moratorium has been continued multiple times throughout 2020 and we are unsure when
it will expire. If staff is given more time to and gain clarity on when business reopens, we
would be able to provide a better approach to the situation. With the vaccine becoming
available, staff would foresee late Summer or Fall as an ideal time to revisit the rent
forgiveness program.
Staff may come back to Council at a later date to discuss scenarios related to large rent amounts
becoming overdue. For example, the City has commercial tenants who currently owe multiple
ATTACHMENT B
Attachment B - 4
months in delinquent rent and are requesting substantial discounts. In one example, a
commercial tenant is seeking to reduce rent more than 90% from its current rent of over $40,000
due to substantial loss in revenue.
Timeline
Staff will notify qualified tenants about the rent forgiveness program requirements and provide
forms after Council approval.
Resource Impact
As of Fiscal Year End 2019 – 2020, the City’s real property assets were projected to generate
approximately $278,000 per month in revenue through various agreements with tenants
including Airport tenants. The ultimate fiscal impact to the City’s budget would depend on the
amount of tenants that apply and are q ualified in any program approved by the City Council. As
outlined above, staff would recommend use of the City Council’s COVID-19 Reserve or Budget
Stabilization Reserve for financial impacts of this potential program.
Policy Implications
Policy and Procedures 1-11 provides guidance on leased use of city land/facilities. “The purpose
of this policy is to ensure that decisions regarding use of City real property are made in the best
interest of the citizens and taxpayers of Palo Alto….Tenant shall be required to provide the City
with adequate compensation for the rights granted by the City to the tenant. Determination of
appropriate consideration shall begin with the estimated fair market rental value of the lease
premises for the use proposed.” While the rent forgiveness program will impact the City’s budget,
it is believed to be necessary to assist vital community businesses through an unprecedent
pandemic. The granting of rent forgiveness may result in inadequate compensation, but Policy
and Procedures 1-11 gives consideration to tenants that provide clearly articulated actual non -
monetary benefits to a significant portion of the citizens and taxpayers of the city.
Stakeholder Engagement
Staff has received a number of requests for rent forgiveness from tenant occupying various City
real property. There are some private and public landlords that reportedly have provided limited
rent forgiveness.
Staff researched neighboring cities including Mountain View, Menlo Park, and Los Altos regarding
a rent abatement program. Staff discovered these neighboring cities did not have a rent
abatement program but did reference County’s eviction moratorium. Santa Clara County
approved a Small Business Loan Program in December 2020. The loan program is expected to
provide up to $100,000 per small business and as much as $100 million dollars in total loans. Staff
was able to find one example of public rent abatement with the Port of San Francisco. The Port
of San Francisco Rent Forgiveness Program focused on eligible tenants that included percentage
rent tenants with base or minimum rent obligations, certain categories of maritime tenants, and
local business enterprise tenants. The program cost was estimated at $13.45 million which
included an estimated 196 eligible tenants. The Simon Property Group is an example of private
sector granted rent deferral and abatement to thousands of local and regional small businesses
ATTACHMENT B
Attachment B - 5
and restaurants entrepreneurs for the period they were closed. The San Mateo County Board of
Supervisors has dedicated $2 million to establish a grant program for small -scale residential
rental property owners in the County who have been impacted by the COVID -19 pandemic.
Staff has received multiple phone calls and emails from City tenants requesting additional rent
relief as the pandemic continues. City tenants have expressed their inability to operate their
business due to the County’s restrictions. While some City tenants are back in operation, their
business has struggled to maintain pre-COVID clientele. This unfortunately has closed the doors
for some businesses. Staff has been unable to further assist some tenants beyond citing the rent
deferral of April, May, and June.
Environmental Review
The project is categorically exempt from the requirements of the California Environmental
Quality Act (CEQA) pursuant to Section 15301 (Existing Facilities) of the CEQA guidelines.
ATTACHMENT B
Attachment B - 6
Exhibit A
List of City’s Active Tenants
ATTACHMENT B
Attachment B - 7
Exhibit A
List of City’s Active Tenants
ATTACHMENT B
Attachment B - 8
Exhibit B
County’s Notice to Small Business Tenant Concerning Repayment of Your Rent