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HomeMy WebLinkAbout0406.092~' .. " .,"''' " . S~ptamber 10, 1992 HONORABLE CITY COUNCIL Palo Alto, California Attention: Finance Committee Mem}:)ers of the Council: .eport: in Iri.~ THE SUBJECT OF THIS REPORT ISA COU~JCIL PR10fllTY This reports transmits to the Council Finance committee a prelimi­ nary workplan and schedUle for the Economic Future Study, under­ taken in conjunction with the Committee's work on a Strategic Plan for the City of Palo A]to. The Study will take approximately one year, and will be divided into three phases. The phases are desiqned to dovetail with Councilmember Cobb's outline for the Strategic Plan currently before the Finance committee for discus­ sion. Backqrc-:,m4 In March 1992, the City Council referr~d to the Finance commi:tee the council priority of Palo Alto's Economic Future. Du~inq the 1992-94 Budget process, the council also referred to the committee the issue of developing a strategic plan designed to identify long­ term solutions to the structural deficit in the city budget. The plan was to be incorporated into the next two-year budget process, and would strike a balance, acceptable t~ the community, between six elements: ne .. revenues related to land-use policies; new revenues from fees and charges; savings from operational efficien­ cies; taxes; public/private partnerships; and service level adjustments. CMR:406:92 • Q In July 1992 (CMR:338:.92), staff presented an outline for a 12- month studYr bringing together information available in various part$ of the city o~qanization and in the busir.ess community, and providing the basis ~or long-tlE:rm projections and planning.. Staff reviewed the outline with the committee on July 28, 1992, and was directed to return with a proposed workplan and sch2dule tor the Study. xnt.aqratipD wit} s·q.'ategic Plan In order to integrate the Economic Future Study with the Finance committee's work cn Palo Altols Strategic Plan, staff is proposing the Study be divided into three phases: Examin"ltion of the Itstru.ctural Deficit-; General Review of Revenue/Expenditure Alternatives; and Directed Review of Revenue/Expenditure Alterna­ tives. Phase 1, Exe:minatior. of the "Structural Deficit .. , will involve gathering information on the history of General Fund and Special Revenue Fund revenues, expenditures and capital projects (Attach­ mant 1) .. Demographic information will be accumulated, as will a Consumer Price Index deflator database. In the land use area, revenues and costs for "typical-land uses will be d-eveloped. Businesses which have relocated. to or fr-om Palo Alto in recent years which have involved siqnificant revenue gains or losses will be identified, with emphaSis on related land use ch~~qes. Interviews with representatives of these businesses will be undertaken to identify the reasons for the relocation. The primary focus of Phase 1 is data collection, and the development of preliminary models to provide forecasting of what the "structural deficit-is likely to be in the futUre. Phase 2, General Review of RevenueJExpenditure Alternatives, will involve gathering information on various revenue and expenditure alternatives~ The fOC'.us will be on quantifying elezJ.ents in Council:member Cobbls strategic:: Plan modal., particularly revenues .from land use decisions, fees and charges, taxes, public/private partnerships, and employee salaries and benefits. Phase 3, Directed Review of Revenue/Expenditure Alternatives, will focus on those revenue and expenditure alternatives from Phase 2 that the Finance Co~ittee wishes to explore in more detail. Staff will incorporate into this phase exploration of any alternatives coming from the organizational Review for which the Finance c~mmittee wishes additional information or analysis. Workplan Bcbe4ule After reviewing the information gathered Finance Committee, the detailed 'Workplan CMR:406:92 2 in Phase 1 with the for Phase 2 will be --~-: ... -. >-..:: ,.. .. o finalized. staff vill seek committee direction again after completion of Phase 2 as to 'Which elements of the revenue and expenditure equation should be sinqled out for more detailed analysis. Each phase is expeetea to take approxh:ately 4 to 5 months. The timinq anticipatas that the Finance committ~c will be able to incorporate preliminary results from the Organizational Revie.w into their decisionmaking for the eleltents to be qiven detailed scrutiny in Phase 3 of the St~dy. Bal&tiopahip Bet."n Eqonomic FUture stu4y and strategic PlaD The strateqic planning approach presented to the Finance committee by Councilmember Cobb on July 28 ~ep~e5ente an effort t~ establish a set of comprehensive, integrated policies that would guide decisionmaking in a variety of areas. These include City budget­ inq, corporate planning, appropriate levels of service, economic resources planning, Utilities Department planning and the Compre­ hensive Plan. Rey sources of i~formation for the Strategic Plan include the Economic Future Study, the Organizational Review, and the City's budget. It is anticipated that the first strategic Plan 'Will be more general in approach than might be the case in the future. In large part, this is because the strategic planning effort viii of necessity be inteLactive with the other policy areas noted above~ For example, the S'trategic Plan might identify a ·variety of potential policies related to the Comprel1ensive Plan. Those policies would be evaluated and acted upon within the comprehensive planning process and probably underqo modifications from the initial concepts in the strategic Plan. The modified policies would then result in adjustments in the strategic Plan. The same interactive process would occur in activities related to City operations (e.g., the organizational Review), the budget process, and corporate planning as well as economic resources planning and Utilities Department planninq. Attachment 3 diagrams these relationships. Reeo .... enda...:UJm Staff recommends that the Finance Committee review and comment on the workpl~n for the proposed Economic Future StUdy4 CMR:406:92 3 ---------.,.-- .-1:'. ,-:r" -."' ,~~ • .r ... . ,' r inq and Community Environment aqer AttachJlents: Atta.chment 1: Atta.chDent 2: Attachment 3: Propose~ Economic Future Study workplan Councilmember cobbrs strateqic Plan outline Diagram of Strategic Plan Attachlllent 4: July 23, 1992 statt report (CMR:338:92j cc: Architectural Review Board Historic Resources Board Human Relations Commission Planning commission Public Arts Commission Utilities Advisory Commission Palo Alto Chamber of Commerce Stanford University (Andy Doty) Blue Ribbon Task Force CI!R:(06:92 4 ',' I. Revenues A. Sales Tax _CO_IC 1"1!'l'tlR1l S'l'OJ)Y YORULlIB o Establish historical series for total revenue, business to business, retail sales and for major activity areas (department stores, restaurants, car dealer&$ electronic equipment, liqht industry) o Work 'With KRC to develop qeo-data base for major areas (data exists for 3rd quarter 1986 to present) o Obtain availa~le historical data from Stanford Shoppinq Center administration o Work with KRC' to identify -holes· and possible ·over dependance" in business sectors o Ide.ntity :big revenue sources we have lost/qainecl and determine reasons B. Property Tax o Identify sources of secured and unsecured property tax and establish historical dollar series o Identify split between residential and commercial property work with Board of Realtors to identity sales and price trends identity turnover tr(;tnds: work with Micl­ Peninsula Fair Housinq and Palo Alto Housinq Corporation for single family versus multi­ family units and rental versus owner occupied o Coordinate with Auditor on possible audit of prop­ erty tax allocation process o Contact Stanford Unive~9ity to identify impact of expiring long-term leases 1 i , o C. Utility Users Tax o work with utility Resource Planning group to iden­ tify utility use and cost trends o ·Work with Budget to identify axemptions and stair step reduction for large users D. Transient OCcupancy Tax o Work with Revenue Collections to establish histori­ cal dollar series o Determine number of rates for type and location of establishments, rooms.. roolll rental ratas and occupancy each type o analyze trends by major establishment, location and type of establishment E. other Taxes, Fines and Penalties o Determine how deep to go into detail o Talk with: KRC and Foremetrics fo~ fee background and history; Police fic fines ana parkinq revenue history vehicle license Dept. for traf­ background and o Display historical data along with fee/fine level for each rear, to show sensitivity of revenue to feejfine schedul~ F. service Fees ~nd permits o Work with Budget to establish historical-dollar series o Work with Budget to display cost-recovery levels for major programs o Attezpt to relate actual cost-recovery to policy decisions previously made by various councils, Le., Has the City actually been pursuing cost recovery as aggressively as possible? G. Joint service Agreements o Work with Budget to establish historical series for Fire 2 H. Interest E~rninqs o Work with Accounting to establish historical series o Work with Accounting and Treasury to &djust Gener~l Fund interest earnings for changes in allocation m~thod. {In early 19BO's Gen~ral Fund received All interest earninqs on the City's portfolio.) I. other Revenues o Work with Real Estate to establish historical aeries for rents o Explore feasibility of establishing historical series for federal and state grants to Palo Alto J. Ope~ating Transfers o Work vith Accounting and Real Estate to establish historical series for rent and equity transfers to General Fund,. adjusted if appropriate for loans to/from General Fund o Work with Real Estate to review rent c..!'J.arged to Znterprise Funds K. Speci~l Revenues o Historical data on gas tax, housinq-in-lieu, Commu­ nity Development Block Grant (CDBG),. traffic miti­ gation fees, etc. II. N6w/Additjonal Revenue Source~ A. Land use -related revenues 1.. Establish revenues ana. costs for "typical" land uses o Develop list of land uses to be studied Multiple family residential conventional retail (Downtown, El Camino Real, Neighborhood, Stanford) High volume/deep discount retail commercial office R , 0 office Hotel 3 ",:'~ ~. o o Identity typical revenues and municipal costs for developments of various siles (i~e., one­ h~lt acre, on~ acre, five ac~~s, where appro­ pri~te 1C or 15 acres) B. Evaluate rec"!;nt lana ase changes 1. Identify siqniticant lost ar~ gained uses (approxi­ mately 8 uses including redevelopment and changes i:l occupancy) Stanford Research Park Downtown El Camino Re a 1 2. Evaluate reaSons for the chanqes 3. Identify impacts ot the changes tor the city (i.e., revenues, service demands) 4. Identify broader loss and gain trends, reasons for those trends and potential future scenarios o Interview ~eal estate/property I f:.na.nciaJ professionals o Revie~ professional literature Q Stanford Research Park Stady III. Demoqraphic Study A. Analyze 1970-1990 demographic changes 1. Csnsus Tract. Citywide, comparisons with Santa Clara County, San Mateo county and Bay Region 2. Areas of analysis o Population Total Age/sex Race/ethnic/place of birth Linguistic characteristics (by age) Family and household composition (includ­ inq marital status) Income: household, family, non-family, per capita (median and mean) Income as a percent of property • Poverty (nwnber, percent of t.ot.al, aqe h~us~holder characteristics) Educational at'tairnzlent Mobility limitations Household labor force participation Emplo~ent (resident) CHousing Industry OCcupation Number of units (Structure type, Tenure) Housing value owner identified (median and mE-an) Housing renter costs, renter identified. (zed ian and mean) Age of housing Percent of householc income spent on rant and household owner costs Vehicular ownership Residential turnova~ analysis 2. Prepare base demographic forecasts for 20QO and 2010 1. Identify key assumpti~ns and trends 2. Areas of forecast o Population Total population Age/sex composition Linguistic characteristics by age Income Poverty levels Race Mobility lLnitation Household l~bor force participation Resident employment o Housing Units by structure type and tenure Household size Residential turnover c. Identify two or three alternative future scenarios and their likely impact on the base forecast 5 .' -- -" ."-~~ ~ o IV. Capital iaproveMent analysis A~ Identify City capital .xpenditure~ for 1982 to the present 1. General Fund C Develop master categories for CIP's (include newer cate.gories of computerization, infra­ structure, and parks) o Display historical budget data grouped by category o Identify m~ndated projects 2. Special Revenue o Collect information on Street Improvement Fund, Gas tax, COBG, HIP, Housing-In-Lieu, Federal. State qrants, and traffic mitigation o Present historical data in format as for General Fund B. Identify projected capital expenditures by general activity areas o Hold brainstorming meeting witt, Finance, Planninq, Public Works and Utilities to iden­ tify projects and estimate projections o Include ADA and other mandated projects 6 .. ~ -.-; ... -- "'~ .,! 1-).$'1 ~r..a"'.o '1+ rr' f'I,ItM 1i'C SlIl'T' ~ ~ : ,S ~ 1 M -~0D5~ f'<JW<. -A'U V.r"f - PIImltILSI>tI S !$?.$IO.~) 0.. • b - c- -~~lU>C\"Il.i!. ;:. e ~~TJ>ff~ I~~IT; ~~ fit<:>M ~~E.E ~ 4Eto!T • _.. ..>r . A TTAtItEllT 2 ~~ 'FOR. 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"~sAL.y 12> ,""WOE. .z Attachment 3 Requlatory Aqenc!es Utilities Plann!nq General Information HONORABLE CITY COUNCIL Palo Alto, california A TTACHHEHT 4 Attention: Finance Co~ittee THE SUBJECT OF THIS REPORT ISA COt.INCIL PRIORITY COWlCIL "rQRITY: PALO AL'I'O'S ECONOMIC FPTURE/STR..'TEGIC PLY Members ot the Council: Raport ill Bri.f This report transmits to the Council Finance committee a proposed draft for a study, to be. prepar'ed on a schedule which will allow its results to be incorporated into the next two-year budget, addressing council's priority of Palo Alto's Economic Future. Baekqr o un05 In March 1992, the City Council referred to the Finance Committee the Council priority of Palo Alto's Economic Future. Included in this priority were the following: o Address the structural problems that stand in the way of balancing revenues and expenditures for the long term; o conduct an orqanizational review that 'Will provide a comprehensive objective analysis of the organization and its staf.finq patterr.s and identify possible areas of further economy and efficiency; CMR:338:92 .. I ~)I ~. , , , o '., o Continue the analysis of appropriat~ levels of service, with emphasis en the delivery systems of such se~vices to establish higher standards ot efficiency and quality customer service. The orqanizational review is being addressed separately by the Finance Co:e:tmittee., assisted by a Blue Ribbon Task Force. Th~ com.mitt~e postponed vl.>rk on the other elements of the priority until the 1992-94 Budget process was completed. Council teak further action on the first element of the priority, addressing the structural probhutls that t;tandi in the 'Way of balancing revenues and expenditures in the long-term., during its deliberations on the 199~-94 Budget. The Council referred to the Finance. Committee the issue of de.eloping a strategic plan desiqrled to identify long-term solutions to the structural deficit in the City budqet. The plan, which is to be prepared on a schedule which would permit its results to be incorporated into the next tvo-year budget, would strike a balance, acceptable to the community, between six elements: o o o o o o New revenues New revenues Savin9s from Taxes; related to land-use policl~~; from fees and charges; m~nagement/operaticnal efficiencies; Public/private partnershipsj Service level adj~stments. ~j..qu,.iOD staff is proposing the preparati?n of an analysis of the revenue and expenditure components of the city's Gener~l Fund and special Revenue Funds. The Special Revenue Funds are proposed to be included since they represent revenues from the state and Federal qovernments for General Fund-type programs, including streets and highways, traffic signals, parking, housing, ar.d social services. The special Reverlue Funds. include the Street ImprOveIll.ent .FUnd (gas tax), Fec1eral Revenue F1Jnd (community Development Block Grant), Housing-in-Lieu Fund, Transportation Mitiqation Fund and Special Districts Fund. The stt;.dy would bring together information, mUch of whiCh is currently available in various parts of the city organization, and integrate it into a single framework, providinq the basis for long­ range planr.ing and projections. Examples of sources of information internal to the City operation include Finance Department revenue budget projections, Utilities Department rate projection dat.a, and sales tax information from the City's consultants. Demographic intormation that will be needed in tbe Comprehensive Flan will be CMR:338:92 , '. ,.---, developed by the Planning Division. staff 'Would also propose to use the Economic Outlook Committee, the Chamber of commerce, the Palo Alt~ Board of Realtors, and direr.ted inte~iews with local business people .for fUl:ther insight into issues such as ma!:ket factors, hotel occupancy, economic conditions and potential impact of land use decisions. Attachment I shows schematically how staff would approach the stUdy.. The assumption is that analysis of city revenues on the one hand and city services on the o~her, on a historical, current and projected basis, will identify issues, problems and opportunities that can be addressed through the development of strategic alternatives. sta.f.t's propos~d study assumes that the Finance Commi ttee, as part of the Organizational Review, 'Will identify services 'Warranting more in-depth analysis, including projected need/demand for servlces, projected future costs ot services, and altern~tives for service provision, among others. provided that this stUdy is ~ndertaken in the next year, the work will be closely coorainated with 'Work on updating the Comprehensive Plan. Ultimately this study yill be important input into the Plan update. process, both in terms o~ ser .... ica levels and 'the revenues needed to support them. Responsibility for preparation of the report .-ill be given to the Finance Department and Planning Department, jointly. Staff's involvement will, in large measure, be handled through the city Manaqer's corporate Planning program rather than the departments' normal 'Work program. Staft is conrident that the Council's goal of having the strategic plan ready for inte9ration into the next two­ year budqet is realistic, and ~ill return vith a draft workplan and schedule, including deliverables, once the final outline of the report is approved by the Finance Committee. B. e9m1'11erU~ a t iop staff recommends tl1at the Finance committee review and make any changes to the proposed outline for the study to address Council's priority of Palo Alto's economic future; and direct staff to return with a proposed workplan and schedule for completion of the study. CMR:33s:n 3 ----------'"~----,..-,----,---. '_ .... .. • Respectfully submitted. ~~£ EMIL, HARRISON Direet~r or Finance ~%rd:-p'..I~ KEIINE'l'H R. SCHREIBER Director 0 Q inq and community Environment CMR:338:92 4 GENERAL FUND SERVICES FUNDING STUDY OUTLrN~ I. Where do General FUnd revenues come from: A. Sales Tax (1992-93 = $14,550,000) CMR: 338: 92 1. Retail (i.e.# non busir.ess-to-business) sales Allocate sales tax by geographic areas {1980- Present) Allocate sales tax by activity areas (19805- Present) Refine assuruptions about what perce.ntage residents pay Clarify the market area for Palo Alto sales Review market IV.C) 1980 and 1990 census data for the area an~ develop trend information (See Develop scenarios for the future of the market area 2. Business-to-business sales Breakdown 6ales by activity anQ qenerator categories (1980s-Present) Develop assumptions and projections by major sales category and for leading gene.rators 3. Threats to sales tax Changes to the distributicn systam State Budget Regional revenue sharing General economic conditions Market changes Demographic changes Competitiveness ot Palo Alto's sales tax generators 5 o Identif~! (to the extent pos6ibl~) how much of recent trends is a result of the recession and how much represents long-term structural change B. Property Tax (1992-93 -$8,900,000) 1. Residential property tax Identify residential property sales trends (19S0-present) and correlate with demographic clata Develop prop£rty sales projections 2. Non-residential property tax Identify property sales trends {1geO-Pre~ent) Develop property sales projections 3. Real property conveyance tax revenue trends 4. Coordinate with future audit of the property tax allocation process c. Utility Users Tax (1992-93 = $5,600,O~O) 1. Identify utility use trends and projections 2. Identify lltility use cost trends and projections D. Transient Occupancy Tax (1992-93 = $3,350~OOO) CMR:338:92 1. Analyze trends -by establishment -by locatiQn -by type of establishment 2. Analyze potential impact of Hyatt closing (i.e., how much actual loss and hoW' much of a shift to other establishments) 3. Develop Transient Occupancy Tax projections 6 ,< -. .~ .. E. other Taxes, Fines and penalties {1992-S3 = $4,500,000) 1. Analyze trends by major revenue categories (Vehi­ cle license tees, vehicle finas, property convey­ ance tax -see I.B.l.) 2. Identify potential trend changes and develop pro­ jections F. Service Fees and Permits (1992-9~ = $6,800,000) G. 1. Analyze trends by major revenue categories -Relative cost recovery -Resident and non-resident fees 2. Identify potential trend changes an~ develop pro­ jections .:toint Service $3,900,000) ~ Agreements 1. Analyze trends (stanford) (1992-93 2. Identity potential changes and develop projections H. Interest Earnings (1992-93 = $1,900,000) 1. Project interest earnings under different account balance and interest rate scen~rios I. other Revenues (1992-93 = $2,800,000) 1. Analyze trends by ~a.jor revenue categories 2. Identify potential trend changes and develop pro­ jections J~ Operating Transfers (1392-93 net = $12,900,000) 1. 2. 3. CMR: 338:92 Explain equity transfer Explain rent str"-.!cture applicable to utilities Analyze trends of transfers into and out of the. General Fund. 7 4. Identify pcte~tial trend chanqes an~ develop pro­ jections x. special Revenues other Block .etion Agencies (qas tax, community Development Grant (eDSG), Intermodel surface Transport­ Efficiency Act (ISTEA) 2. City-generated mitigation fees (housing, trans­ portation) 3. Analyze trends of major revenue categories 4 ~ Identify potenticll trend changes and develop pro­ jections II. What sources for addition/new revenues exist? A. Land use-related revenues 011<,338,92 1. E5tabl~sh revenue.s an~ cost ... tor "typical" la.nd uses 2. Identify recent land use chanqes ana reasons tor those changes -Redevelopment -Chanqes in occupancy 3. Potential revenues from land uses ccnsistent with Palo Alto's policies -Retail sales tax -Business-to-business sales tax -Transient occupancy tax -prope.rty tax -Property conveyance tax -tJti1 it)r' users tax 4-. Pote.ntial revenues fro1fl land uses requiring a change in Palo Alto's policies -Retail sales tax -Business-to-business sales tax -Transient occupancy tax -property tax -property conveY4nce tax -Utility users tax 8 -~-"------- '>, • .:(--. s. N8'wl increased fees/charqes c. New/increasod taxes/ass~ssments 1. Landscape and Liqhting District 2 _ Busine.ss License Tax 3. Maintenance Districts •. M~llo-R~OS Districts o. Er~trepreneurlal activities E. Equity participation ZiI. Undertake a P&lo Alto Demographic Study A. His.toric trends (,197Q. 1980 and 199Q censu.s and other data) 8. Collect infonnation [rem available public and private sources C. Oeve1op projections/future scenarios D. Zdent~ify )cey trends and areas of lilr>:ely change trom historic trends IV. Identify services that are not provi~ed that may be desired/necessary in the next 5 years V. Capital improvement analysis A. :Identify City capital expenditures for 1980 to the present -General Fund -utilities -Special Revenue Fund B. Identify projected capital expenditures by general activity areas VI. Historic staffing and expenditure data (1980-1992) A. Personnel and non-personnel expenditures 1. S.l.des 2. Benefits B~ Staffing by departmeDt =:338: 92 1. 2. Regular positions contract/temporary positions 9 o c. IdentJfy major program changes frem 1980 to the p~esent~ 1. Ci ty initiated 2. M~ndated by anoth~r level of government VII. Identity a master list of services VIII. 1. Level of Service Study 2. Internal services coordinate. with Orqanizational RevieW', and determine areas for more extensiv~ analysis, such as: A. Identify recent historic service deliv~ry trends :a. Interview service providers 1. Public 2. Private 3. Non-profit C. Chanqes to the need for/demand for each service I. Chanqes to the recipients of each service 2. Changes to the way that the service is provid8d D. Projected costs of services 1. Identify future expense scenarios 2. Personnel costs 3. Non personnel costs E. Alt,ernatives for provision of services 1. Feasibility and impact of dr~ppinq the service 2~ Feasibility and impa:::t of reducing the le ..... el of service l. Can the service be combined with other government aqencies? 4. Public/Private partnerships 5~ Contracting cut the service 6. Can service be provided on a full cost recovery basis? 7. Identify ways that the service can be provided more efficiently CMR: 338:92 10 ~ -1':.". -16' "'; -, -;;: ~ ~ ~ ~ < ~ • " ;;: Ii " -0 ~ .. ., < Ii' ~ " .. .. .. '" '; > ~ ~ "" '" c u ~ ~ , > .' u " ~ en S ~ ., c > ~ ~ .. '-• " j '" ., '" -0, ~ c c ~ '" ~ " ~ ." ~ ~ '" " c .. c "" > '" '-.. "" 0 > -~ Q ... ~ ~ .., '-' "-'"