HomeMy WebLinkAbout0219.094April 7. 1994
HONORABLE CITY COUNCI!,
Palo Alto, California
Attention: Finance c.oromittee
Members' of the Council:
KEPORT IN BRIJl.E
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The purpose of this report is to highlight ceneral Fund and
citywide policy issues which relate to the 1994-95 Budget" B1ldget
policy issues \lill be discussed at tl.-l0 Council study sessions on
Ap.l"il 19 and May 4. General }'und iSl;mes will be reviewed at the
April 19 study session, and Enterprise .Fund issues, rates and
reserves .will be discussed at the May 4 session. The budget
documont is scheduled to be distributed in late April. 'I'he 1994 ... 95
Budget will be the last budget prepared before the transition to
Mission Driven Budgeting.
Policy issues discussed include the (ollowing~
o A General Pun~ Buc'tget Defioit Reduction Proposal has been
prepared to balance the 1994-95 Budget. A combination of
departmental and citywide reductions are proposed I, none. of
which will have service impacts. The process by which city
staff developed the budget reduction contingency plan involved
close cooperation between management staff in all city
departments.
o Council Priorities for the Organization Review, East Palo Alto
assistance and Palo Alto's Economic Future are all addressed
in the Budget.
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" o Additional funding will be required for the Comprehensive Plan
process; this is recommencted to come fro'.n the Budget
stabiliz.atiQn Reserve, as i.n 1993-94.
o 1'he !993"'94 flleotric utility reba-t,G is recommended to be used
in 1994-95 to auq~ent the capital Improvement Program.
o Funding will be required for World cup Soccer in 1994-95, and
is recoro~ended to come from the Budget stabilization Reserve,
as in 1993-94.
Th.e report" does not contain information on budget issues related to
the: f;a:;Jt Palo Alto Red 'i'eam, the Storm Drainage capital program,
the proposed communications utility/the long-term library
automation plan, and Palo Alto Unified School District fields.
These topics have been or will be covered in separate reports, some
of. which ~ay come to the COUncil outside of the budget process. In
addition, s(lparate: reports will be prepared for the May 9
discussion of Enterprise Fund rates and reserves.
1'.tQl~"qJ~_~_g_.1i_~"DJtral Fund RevellJl~j'U)g ...... r;~)J..qlt1lJ:"f,l:"§: rt became clear
in e.f)rly January ] 994 thc1t the General Fund would be facing a
revonUe shortfall tor 1994-95, based upon reductions in equity
transfers from the Utility Funds, moderate growth of other General
fund rovenue sources, dn increasing expenditure base, and the need
to fund Council priOl"ities such as East Palo Alto assistance, tho
EconomIc Resources Plan, etc.
After adjusting for one-tine events and the State's shift in tax
X"lIiJvenuo, Palo Alto's General Fund revenues have been relativaly
flat oyer the last two years. In February 1994, the Commission on
State Finance: forecast that California's economy would turn around
in "late 1994, with the Northern part of the State leading the
recovery. One of the more positive developments has been the
stre n9th in the national economy, with the gross domestic product
gl'o·.-oinq at its fastest pace in nearly seven years. This bodes well
for products "produced in P~'lo Alto, like computers ,and electronics,
w:licll make up the larqest business segment of Palo Alto's economy.
B~Bed on these indicators, the 1994-95 Budget assumes that a
J::Dderate recovery will take place during the 1994-95 fiscal year.
~alo Alto's largest single revenue so'urce is sales tax" which makes
up approxinately 22 percent of the General Fund's total revenues.
The 1994-95 Budget assumes a 2 percent increase in the City's sales
tax revenues over the previous year. Property tax, which makes up
about 11 percent of total revenue, is projected to grow 5 percent
oVe},: 199:3-94 Cit.y-projected receipts. It is iruportant to note that
tho. proporty tax forecast assumes no add.itional State shift in tax
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rovanues. Oth&r outsido revenue sources are Pl'ojcctcd to grow at
approxb!l~tely 2 to l p~rcent, 'with the exception of the document
transfer tax which is projected to grow at 5 perc~nt, tho same rate
6;S property tax, and \ltil!ty, user tax, which is projected to be
flat next yoar.
T~Q Eloctric, Gas, and Water ('\.andr. all pay the Guneral Fund a
return on equit:i~ rhis. represents a return on the initial
invest~ent ~ade by the Conor\!\ rund in creating these Utility
Enterp"isos, In 1992-9), the equity paymont totalled $9.1 million,
O~: about 1.). percent of tot'lll (iel)or.a:l Fund revenues. Each year, the
~mount,of the equity pay=ent 18 ~djusted to reflect a fair rate of
raturn. The City's polIcy h"$ been to establLsh a rate of return
c.onsistent with those sot by the r~u14tory agencies for public
util1tlcs, auch liS the Publio Utilities COr.lrnission {PUC). In
Oece"bor 1993, bocause of the cQntLnued daclino in interest rates,
the PUC IO\o'ered the rate of return it allo ... ·s regulated utilities to
l"El:Dit to shlu'eholdcl"s. Follo~in9 that } «load , the rate£. of return
fro~ tho E'lectr ie and G,tJu f'unds have been reduced by approximately
9 percent. ~';atcl+ fund equity payt1ent rates had already .been
reduced in prior ye ... rs to less than the full 10vel due to the poor
financial h~alth of the tltnd. Since the financial health of the
FUnd has improved. the rat-e of n .. turn fron the h'ater Fund for the
19094-95 fIscal }'ear .... 35 increased by approxinClitely J percent to
bring th"J Fund to the !ull-payr;;ent level. The net effect of these
changes is a loss to tho Genora I rund of $1. 0 n ill ion from the
projection given to Council w.lth the budget quidelines last fall.
Gtm~ral Fund oxptmditures, on the othur hand, havo increased,
prit!:8rily due to lIhticlpo!!lted or:-.ployee salar,v increases, but also
due to the need to, acco}ar~odilte no"" or changi119 ;r::o::!:rvice priorities,
such as the graffiti rer.;oval program, the Econo~ic ResourceS Plan,
.etc,. In l'ldd it iC)J) , there continues to be a need to fund
tSxpenditures thi\t are extraordll1Bry and non-recurring in nature.
As in tho 1993,-94 Budget, staff proposes they he funded from the
Budget Stabi l!r.ation Rcsorv~. These expenditures include
continuation of £~st Palo Alto Red Tea~ and grant-writing
assistance, costs for the final World Cup Soccer gam~s to b~ held
at stanford this f;j.U!:I'mer, and increased costs for the last. phase of
the Co~prehonsivo ~lar. process,
9,eoeral f\!.n~tji~t~tuctlim CQnt.in~!~,lsUl; III NovClober 1993, the
city Kanaqe~ directed dopartnent heads to begin work on a budget
reduction contingency plan. The rocus of this direction was for
statf to prepare, In an orderly manner, for any financial
reductions that mlght be needed in the f\lture. In prior years, as
extern·');l forces have inpacted th.e organization, departmE':nts have
hastily prepared budgets to respond to the need for expenditure
reductions. It becamo ovident that tho City needed a coordinated
citywide approach in order to nake adjustments to the resources
available in d concerted, ok:ganizcd t1ann!?l:, upon short notice.
Therefore, this year I sttltf spent considerable time developing a
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process that allowed all departments to ~otk together on a bUdget
reduct.ion strat'39Y that can easily be imphmO'nted, if necessary.
In the 1994-95 fiscal year, tho plan could be used if the city
continued to experience revenuo shortfalls as a result of tho
contlning re~ession, or if tho state of california once toga in used
local government revenues to balance its own blJ09ot.
Each General Fund department was given .a roduction. targot of 5
percent of its.operating budget. Tho resulting reduction ptoposalo
were reviewed at a Senior Hanago~ont Croup ottsito I!ectinq in
January 1994. Ocpart'l't\ont heads preaented their pt"oposed reduc
tions, explaining the servic~ i1'lpacto that would result if the
reductions ~'ere i'ropl-oroented. consideration \Hl6-qiven to the
following barriers to implemehttlit1on: a rCl:)ulrOllent to neat and
confer with labor groups; an increase ,in ris)!;: or liability to the
City; diminishing of intQrnal controls; elininati~n of an expected
service level; possible pol itical inpl icat ions; .l l.tlc)( of CQst
effectivenessi a reduction in revenues; and n l·e:qulnH~Cl'nt for le.gal
changes. .
Reduction proposals were placed in an initial ran).: order, based on
the number-of barriers to ir.lpler-:entation, and categorized as having
a low, roediuT'l or high il:1pact on citywide levels of ~e:t~vj,ce. The
ranking went through several :iterations a9 dcpartr;''.(Hlt heads M'orked
with the City Manager to develop an i.'H:freed~upon citY~'ide list of
pos_'3ible reductions in priority order. It "'<'"IS this (rna!. listing
that was utilized to balance the 1994"'95 <;(m<,r~l .'Und budq9t, ~nc(t
revenue and expenditure projecti~ns had been finalized. Specific
departmental budget reductions will be discossed ~t each
departmental budq('>t he<lring. 'rhese Pl"oposed t"'eductions carry no
policy issues with them. but are proces:;. ch~nqes in tho delivery oi
services and methods of operating. 'the policy iriiplication is the
strategy taken by staff to develop 8 balanced approach to tho
budget.
In addition to the department cud get ~eduction5 doscribod above,
staff is recommonding budget l"eductions in vehiclo replacer.:.ent lind
maintenance fundinq and aJ'!\ortization of unfunded e~ployeo benefit
and insurance liabilities.
~~~lli~mg_nt and Mai~nfl...D.Q_~L_.F~.n.{sJ.ng~ Staff has taken
several actions to reduce vehicle rcplacemQnt and rtoaintena;nce
expenditures. These include extendinq the useful life of vehicles,
delaying the replacement of vehicles, and a reassessmont of
required departrr.ent payments into the Vehicle Replaccnenl;. Fund for
future vehicle replacements. In addition, a follow-up review of
the low-use vehicles identified by the 'Vah iele Uso Audit has
yielded a reduction of nine vehicles and t.ho reassignment of One
vehicle to the new Graffiti program l reducing ~nnual maintenance
and roplacement costs on an ongoing basis~ As a L"esult of these
actions I staff has identified ongoing General fund savings of
appr-oximately $450,000.
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AmQ..rti'zatJ&n of Unfunded Employee Benet it ~~stlranc~
Liabilities: The General Fund currently has unfunded liabilities
.for 'accumulated employee sick leave and workers' Gornpensation
claims. These liabilities are arnortized each year, with full
funding scheduled by 1999. Since funding of these liabilities is
not yet a requirement llndel" current generally accepted governmental
accounting principles, the payment schedule ma.y be extended. staff
is 'recommending a postponement of half of the annual funding in
1994-95, resulting in a savings of approximately $200, (lOD to the·
General Fund for fiscal year 1994-95.
ISSOE: In order to balanoe the ~994-95 Budget, statt bas prepared
a budget re4uctioll proposal utilizinq a process which involved all
department heads cooperating to ma~e a recommendation with minimal
impact on city services~ In addition, statf is proposing
reductions in vehicle replacement and mainto:'lance funIJ!ng of
$450,000 and reductions of a~ortization cost funding of $200,O~O.
COUNCIL PRI9RITI~1,!
QrgauJ.._z_&.t,JQIJ._ Rev~: The 1994-95 Budget will be sUbmitted to the
Council for <\pproval prior to the completion of the Orqanization
Review. As such, the city Manager has instructed all General Fund
personnel requests to be held pending completion of the Review and
adoption of the final recommendations. This includes all requests
for reclassification, additions or deletions of positions}
conversions from temporary to permanent staffing, and
reorganizations within and between departments, with the excoption
of staffing for Economic Resou~ces Planning, discussed below.
East Palo A~tq: The Budget includes funding for continuation of
both the Red Team effort in the Police Oep~rtment and for grant-
, writing assistance in the Community Services Department at the same
level as 199)-94. A separate report. is being prepared on tho
proposed Red Team effort, which will be available to the Council
prior to the April 19 Budget Issues study session. Grant-writing
activities are proposed to continue throughout the 1994-95 fiscal
year, with the focus shifting from public safety to the social
services areas. Ihcluded in the Budget Is funding for a hal (-time
Management Assistant and a contract clerical position. The City of
Menlo Park and the County of San Hat20 have both indicated
~illingness to continue to share the costs for the contract
clerical position. The half-time Management Assistant is a
backfill for Palo Alto staff assigned to grant writinq.
Consequently, t.he net cost the ctty will incur for grant-writing
,. assistance is $29 /400 for the. 5 FTE Management Assistant. As ill
the: 1993-·94 Budget. the position is not, considered a pernlanant
addition to staffing. but as a temporary increase to authorized
staffing levels for the 1994·-95 f1sc,,*1 year.
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The Public works Department will continue to support East Palo Alto
for such request's as assistance with vehJcle and equipment repairs,
si9na9'e, and environmental compliance activities, 'Wliich it will
absorb ill its operating budget. The city Manager's office 'Will
also conti.nue its assistance, coordinating support required from
other City departments, in the areas requested by East Palo Alto .
.f.~~OfS Economic FutUre: The Budget contains six: months'
funding for Economic Resources Planning. Tne proposed funding
supports the Manag.er ot Economic Resources Planning, a Program
Assistant, and some non-salary expenditures. This funding level
will be finali~ed, based upon the outcome of the Organizational
Review, and after the Economic Resources Plan has been reviewed by
both council committees and acted upon by the full Council.
ISSUE: The 199~-95 Budget inoludes no personnel requests, pending
coroplet~.on of the ol'qanization RaviaW', except for Economio
Resources Planning. Funding for the East palo ~lto Red Team and
grant-writing assistance will continue at tbe same level as 1993"
94. As ib the 1991-94 Budqet, since theoe costs are extraordinary
in natura, staft proposes thoy he funded from the Budget
Btabiliziltion Reserve. six montl1s t funding is prOriOSEie! for
assistance in Eoonomic Resources Planning.
After completing a full year of the Comprehensive Plan process J the
Planning Department has identified the need for additional funding
for supplies, advortising, publication and editing of the
Comprehensive Plan document, and publication of the associated
Environment Impact Report (EIR).
When th~ original Comprehensive Plan budget 'Was approved, the
Planning Department anticipated a citizens' committee of only half
the si~e of the commit.tee eventually appointed. In addition,
community participation l requests tor .i..nformation l f.nd publ;i.c
interest are far beyond projections. Also, the .coMmunity rorum
series was added after the original budget was approved. These
changes have resulted in additional meetings and advertising
required to inform the public of the Community Forum events.
Consequently, a budget increase of $JO,OOO is requested for
supplies and materials costs and an increase ot $10,000 is
requested for advertising.
Given the high degree of public inVOlvement, there will be a need
to print a 'complete draft of the Comprehensive Plan. This will
allow public input prior to printing a final copy of the Plan. In
addition, staff has found it difficult to produce legible and
usable maps in a standard page-si~e formB.t and is planning to
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irw.lud<\ large pull-out map pages in the Plan.
$20,006 1s requested for printing of the Plan,
An increase of
Editing coats were requested as part of, and eventually removed
frol"3., the or-i(jinal budq(>t. Funding of $2'5,000 for professional
editing 10 again being requosted. Recent experier.ce with the Urban
.Dosign Plan has sho\ln the: need for professtonal editing to make the
docun.ent IJnd;erstandable to the general public. One of the reasons
the, citY'g 19'16 and 1980 Comprehensive Plans received widespr.ead
acelal=. 1J~S that tho text was clear and understandable. That
rt)$ult \las Qbtained throuCjh the use of a professional editor.
Staff' "nticipates -8 similar need for the new Comprehensive Plan,
qiv~n its wide' ranqe of issues and the variety of writers (both
sta'f( and C03!!prehensive Plan Advisory Committee) providing text for
the dCiCuQent~ ... budget increase of $25,000 is requested for
proCessional editing.
i\ cont.ract was recently awa:t:ded for preparation of the ErR of the
Conprehensive Plan. As noted in the January 20, 1994 staff rf!port
(Om: 1l1: 95), nonl". of the "lour consultants ... ·ho responded to the
l1equest tor Propof;als included publication costs in their bids.
Each consultant indicated that. the budget was inadequa+:e to cover
tho ... ·ork required to produce a legally adequate EIR and to publ ish
tho Report. It is estitMted that EIR publishing costs will total
$15,000.
ISSUE: ~he 19~~-95 Budget will propose additional Comprehensive
~lan fun~inq of $20,000 tor supplies, materials, and advertisinq,
~20,OOO tor printitHl of th& ComprohonsivC3I Plan, $25,000 for editing
of ,the t'lOC\l.mGt\t, and $15,000 for publioation of the EIR, tor a
total inoreas8 of $60,000 to the General Funa and $20,000 to the
utility Fun~9.· ~s in the 1993-9~ Sudqet, since these are
extl"~ordin.o,ry GxponcUtlJreSl, ataft recommends they be ta);'en from the
'BUdget 8tabili'2atit>1I Rflserve rather than be absorbed in the
oporating bu4get.
'rhe 1994 .. 95 Capital lreprovcrncnt program proposes the .use of a
portion of the City's 1993-94 electric utility rebate to fund
sp.eclfio capital projects. The projects funded are the Park
tac'ility Inproverncnts at Cameron and Herry Parks ($45/000), Parks
"Softscape" Ground Cover and Plant Replacement at selected .sites
($40,000), and l.lbrary Automation Services ($211,000). This i9
"discussed in 9r:eater detail in the 1994-99 capital Improvement
Program transmittal letter.
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" 'the World cup TOUrnar.lcnt is tho Io!orld# S 6,tngle largest sporting
,1 ,event, attracting attention fro:;oa all over the globe. stanford
stadium is one of tho nino venuo locatl¢ns selected to host the
games which wl1l be played durinq Juno and July 1994. Four of the
qame~ schedulod at stanford will be played in Juno and are included
In tho 1993-94 Budget. The t~o r.~alning ga~os will be played In
July, on Monday, July 4, and SundaYI .. July 10, anu the aosociated
costs are include::d in tho 1994-95 8udget. 'The costs tor the 199oi"
95 fiscal year .lnc:ludo '$S9~500 for Pollc'O Dep8irt~ont services ~nd
$21f862 for Public WorKs Oepartll!ont e>.:pendltm·es.
It is expect'e<l that. tho 9"r:les vIII attrac't capacity crowds of
€:6,OOO at the Stanford Stadiuft, "'S \0,'0'11 as nU:dia porsonnel, and
onlookers without gllr.lO: tickets. Thirty-five to forty percent of
the cro .. 'ds are expect.ed to be foreign I./isitors, The City of Palo
.\lto's pri'r.ary n3spcmsibilities, 'Will be traffic tlanagement and
public $afcty, Secm:ity .... lthln the st"diun pt'e~.iscs is the
responsibility Of World cup ami stanford.
City staff have been ir)Volv(}d in pr.ep,')ratory 1>l<'lnning t'or World Cup
for \I~ll over a year. That ongoing efCort has been absorbed within
the city's regular open.tions and is not sho· .... :1 as a direct World
Cup budgt.".t expense, although ira rc"lit'l sj,gniticant staff houl's
have been diverted fl'Or'l t"equlal" dutios. tlcvElrtheless. all time
devoted to World Cup is b~ing recorded as such on tinecards so that
a full accounting of the Inpi\ct of World CUp will be available at
the conclusion of tho: h'orld Cup ga:r;-,es.
The Worl<l Cup organi~ors p~ .. edict that the qar.!es w:Dl provide
substantial revenue qoneration tor t.he flay "Arce.. now much of that
revenuo will be genorated in Palo ",tto d.opends on ,the number of
qamegoers who dlnn" shop c"Ind stay in f'tllo Alto. At the suggestion
of the City, the Palo Alto t;hal>oor Of COnr:,orcc tool< the lead in
organi~ing the Palo i\lto-stf'lnford World Cup Soccer committee fa
collaborative effort 8pjonCj Cha13bor tcprescntl'ltlves, lrterchants, City
staff, tho media, Stanford officials and other local business
people) 'Which is doing extensive pronotion, Clutreach, and event
planning to draw attentiQn to Palo Alto. rurthert'lorc 1 World Cup
national sponsors 'WIll boar the expense of official World CLIP
banners which will decorate palo ~lto's businoss district streets
durin9 the World Cup 9a~es. '
Staff is continuing to pursue an agreement with the S{'n f'ranc;l.sco
Bay Area World Cup host cpmr:li,ttE.E'o for reim1.mrsernent. of the City's
public safety costs; how~ver, the terr:ts of the agreemont are still
under negotiation.
lSBUE, The 1994-95 Budget will propos. funding of $81,000 tor
WOl'lt1 cup Soccor. ).s in tho 1993"'94 BlIdq&t, sincQ these costs ere
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Slf:trAcrc1inary in nature, st.atf pr<>posos they be tun<led from tho
Budget Sta'bili,zation Reserva.
l'1iNDltlG IBBOH
PAUSD Fiel@: At the time. the Budget was finalized, staff fn:rr~ the
community services Oep~rtment had completed proli~inary cost
estimates for various options for the City dssumin9 the capital and
'maintenance costs for some Ol..' all of the P..,)o Alto Unitied School
District (PAUSD) playin9 fields. staff will De meeting with PAUSO
staff and win work with the city-School Liaison COmr.l\ttM to
develop C.( proposal. This Is anticipated to be revic'W(ld at a
council study session in Hay. no funds arc included in thJs hudget
for PAUSD field maintenance.
~murdcation$_ . .J.l..tJlity: staff is in the Pl.'<lcC!ss of devoloping a
concept paper-en municipal ownership of a connunic.llions uti lity to
be presented to Council in late April. The paper .... 111 request
Council's approval to hire a consultant(s} to assist city statf in
evaluating whether the City should o .... n or participate in ownillCJ a
Communications Utility. The Communications Utility .... ould ci'lrry
int.egrat.ed voice, video and data to spur the developr:ent of neW',
interGl_ctive services that could improve business productivity and
enhance the delivery of education, health caro and qove'l"'lr.Iont
services into the 21st century. The cost to hire technical and
legal consul tant.s to evaluate all aspects of such a pL"oject is not
known at this time. If Council approves staff's rcqllQst 'to
procc-'i!d, it is anticipated the consultant selnction and budget
amendment ordinance would come back to Counci 1 in six to nine
months after issuance' of the request for proposal in Hay, 1994.
storm prainage: The Council has referred the issues associated
with implementation of the Storm Dra.inago Mastor Pla;, to the
Council Finance Committee. They will be discussed at the Hay 10
Finance COr.lmittee meeting. The Budgllt and Capital Ir.!provelno.nt
program contain the staff proposal for debt financing in 1994-95 to
continue storm Drainage ionprovemclIts, and an associated late
increase.
~ry Automation: The Capital Improvemont pcoqram includes
funding for the second phase of a long-term Library 1l.utom~tion
Plan. The issues surrounding this plan, including potential
funding sources, will be discussed at the Counci 1 meeting of Hat 2.
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Respectfully submitted,
)~,,-~)
MELISSA CAVAtLO
Assistant Finance Director
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