Palo Alto’s strong economy comes with its share of challenges and City Manager James Keene said the budget proposed for fiscal year 2017-18 reflects the city’s efforts to address increased service demands as well as traffic congestion and housing issues.
The $661.8 million proposed budget is 3.1 percent more than the current year’s of about $641.8 million. Of that, the general fund part that covers operating expenses totals about $210 million.
The city released the proposed budget this week, kicking off a seven-week review process that starts 6 p.m. Tuesday with an overview at the Finance Committee meeting.
The larger upcoming budget also takes into account an issue that tops Keene’s concerns: Unfunded pension and retiree health care liabilities that totaled $494.6 million as of March and continue to grow.
Last year the city contributed $2.1 million from the general fund to an irrevocable pension trust to help pay down pension liabilities. This year, the city plans to add $1.4 million from funds other than the general fund to the trust.
Keene said the proposed budget strives to maintain the high quality of services and facilities the community values while tackling priorities identified by the City Council at the start of this year.
Those center around transportation, infrastructure, a healthy community and housing.
City leaders will have to make key decisions in the coming year on hefty transportation and infrastructure projects, such as Caltrain grade separation, that will have “lasting impact” on the city’s budget, Keene said.
The proposed capital improvement budget is $157.2 million but the figure likely will increase by the end of the budget process in June once the costs of ongoing projects are factored into the equation.
Last year, the city identified about $128.8 million in infrastructure project priorities, such as construction of a new public safety building in the California Avenue commercial area.
This year, projects on the Infrastructure Plan list total $170 million and are expected to grow to $196 million.
“Construction costs continue to rise and, as the saying goes, time is money,” Keene said in remarks released along with the proposed budget.
The public safety building could potentially cost $75.3 million, according to budget documents. Other high-ticket items include about $58 million for parking garages on California Avenue and downtown; $15.6 million to replace fire stations 3 and 4; and $14 million for a new Highway 101 bicycle and pedestrian bridge.
The city’s finance staff proposes balancing the budget by drawing $3.5 million from reserve funds and saving about $2.9 million by reducing and adjusting operating costs.
The General Fund Budget Stabilization Reserves would still be maintained at the level required by City Council of 18.5 percent of expenditures, or $38.9 million.
Budget Director Kiely Nose said the city this year emphasized having department heads reallocate existing resources before requesting additional funding. The result is that the proposed budget adds only the equivalent of 3.85 full-time positions citywide.
The city has 1,058 full-time positions, which is still below pre-recession levels of 1,076 in 2009. Last budget year, the city requested 10 new positions.
About $716,000 in newly identified revenue also will help. For instance, about $180,000 will come from additional classes at the Palo Alto Art Center and leasing space for special events such as birthday parties at the Junior Museum and Zoo.
Nose anticipates these changes and adjustments will place the city in a better position to address issues such as the unfunded pension liability.
“We need additional funding capacity if we’re going to do any of these new strategies” related to unfunded pensions, Nose said.
The Finance Committee is scheduled to discuss the proposed budget on May 2, 4, 9, 18 and 23.
A public hearing and adoption of the budget is scheduled for June 19.
