Want to keep your underground utilities? Reach for your wallet.

September 8, 2019 – Palo Alto Matters

Green Acres I may have to self-fund keeping their electric utilities equipment underground 

Under a program started in 1965, 33 districts in Palo Alto had their utility wires undergrounded, with transformers and other equipment placed in subsurface vaults. As utilities standards have changed over the years, most of those subsurface vaults have been converted to above-ground, pad-mounted installations, but nine districts still enjoy fully underground electric utilities in their neighborhood. One of those, Green Acres I, is due for a system rebuild. Citing aesthetics, safety and property values, many residents want to keep their system fully undergrounded. 

City of Palo Alto Utilities says meeting current functional and safety requirements while keeping the infrastructure fully underground would require costly and extensive new subsurface construction. So if the neighborhood wants to avoid the switch to pad-mounted, above ground equipment boxes, city staff and the Utilities Advisory Commission recommend making the neighborhood responsible for raising funds and paying up front for the cost difference.

A resolution going to City Council for a vote on September 16, would amend city regulations to allow a community to keep the equipment underground if they pay both the incremental installation costs and ongoing ownership costs for undergrounding. CPAU roughly estimates that for the Green Acres I project, property owners would have to prepay a total of about $475,000. The remaining eight districts that have not already been converted to above ground equipment boxes would also have access to the self-funding option when their area comes due for a system rebuild.

To initiate subsurface installation under the proposed self-funding option, a proponent would have 45 days to collect signatures from owners of at least 60 percent of the affected parcels and gather funds sufficient to cover the cost of developing a cost estimate for non-standard, subsurface improvements. CPAU would then prepare a cost estimate for the installation and the neighborhood would have 90 days to collect and prepay the difference between the planned standard installation and the fully subsurface installation (including the net present value of the higher continuing ownership costs).  

Council discussion will begin at 7:00 pm on September 16. For more information about the thinking behind the self-fund option, read the staff report.

Business tax favored to fund “transportation and/or housing investments”

September 8, 2019 – Palo Alto Matters

The city aims to decide in the next couple of months on the core attributes of a local tax measure for the 2020 ballot. To that end, staff and the Finance Committee have been analyzing and evaluating alternatives and narrowing the parameters for a tax proposal.  On September 16, City Council will weigh in on the Finance Committee’s efforts and confirm identified next steps and areas for further staff analysis.

Over three meetings since June, the Finance Committee narrowed its focus to direct further analysis toward a general business tax based on either number of employees or square footage and a parcel tax based on square footage, with an overall goal of generating between one and six percent of General Fund revenues.

Both flat and tiered pricing structures remain on the table and agreement has not been reached on whether to pursue a general tax (with non-binding advisory language on intended use of funds) or a special tax (designating specific uses). A general tax can be approved by a simple majority of voters while a special tax requires a two-thirds majority of voters to pass. The business community strongly encouraged the city to pursue the special tax route.

Analysis and costing for possible exemptions or phase-in strategies remains to be done, but the Finance Committee is interested in exemptions for public utilities, hospitality, retail, restaurants, and small medical facilities/clinics. Full discussion of desired exemptions will have to wait until an ongoing review of potential financial conflicts of interest is completed.

Transportation (grade separations and expanded city shuttles are most often cited), infrastructure improvements, and affordable housing are all on the city’s wish list for use of business tax revenues, but targeted allocations will be determined at a later date and informed by polling. Potential uses of new tax revenues will also consider the nexus between the use of the funds and those paying the tax. The Finance Committee agreed that unfunded infrastructure projects like the Cubberley redevelopment, the Palo Alto History Museum, and expansion of the animal shelter should wait for a parcel tax or general obligation bond at a future date.

Council discussion of this topic will begin at 8:00 pm on September 16. More information can be found in the staff report.

New study on revenue potential from 2020 tax ballot measures

August 17, 2019 – Palo Alto Matters

On August 20, the Council Finance Committee will take a deeper dive into potential Tax Measures to place on the 2020 Ballot. The latest analysis describes the process and revenue potential for a General Bond or a Parcel Tax and a commissioned study on Business Tax measures in the Bay Area over the past 10 years, including comparative research across municipalities and analysis and modeling of the range of potential revenue the city might generate via a business tax vehicle (based on employee head count, square footage, or payroll expenses).

There are a lot of variables that can impact how much revenue a given tax might generate, including potential exemptions and different pricing levels and structures. In selecting an appropriate vehicle, the city must also consider “potential areas of tax leakage” and impacts on the economic environment and tax ecosystem. With further Finance Committee and council direction to narrow the focus, more complex scenarios will be modeled. Meanwhile, In a nutshell, the initial analysis modeled the following including initial, general assessments of impacts on equity, administrability, stability, and economic benefits:

  • General Obligation Bonds ranging from $100 to $500 million in debt issuance. These would require 2/3 voter approval.
  • Parcel Taxes of either a flat $350 per parcel or a $1 per square foot per eligible parcel, yielding between $7 million and $25 million per year. City parcel taxes typically require 2/3 voter approval.
  • Business license taxes, whether based on employee headcount, square footage, or payroll size, could potentially generate $1 million to $15.5 million annually, depending on the tax rate. If the tax is considered a “general tax”, it requires only majority voter approval. If a “special tax” it would require 2/3 voter approval. Whether “general” or “special” depends on the level of specificity regarding what the revenues will be spent on.

Following the Finance Committee meeting, staff will return to City Council with an update and confirm timing for next steps, including polling and stakeholder outreach, with an eye toward a decision about the type of measure to pursue by October/November. Click here for the staff report. 

City’s Fiscal Year 2020 Budget features operating cuts and a slew of utilities rate hikes

June 18, 2019 – Palo Alto Matters

On June 17, City Council voted 6-1 (Tanaka dissenting) to adopt the city’s Fiscal Year 2020 Budget Ordinance. The final budget recommended by the Council Finance Committee reflects a 2.8 percent increase ($19.4 million) over the proposed budget presented in April, primarily due to reappropriations to continue ongoing capital projects. However, the FY 2020 Budget also imposes a multi- million dollar reduction in the city’s operating budget, marking the second year of continued reductions in the General Fund necessitated in large part by council’s decision to proactively fund the City’s long-term pension obligations.

Other notable elements of the adopted FY 2020 Budget include:

  • Increased city investment of $270,000 in the Transportation Management Association (TMA) to shift commuters out of single occupancy vehicle modes ($180,000 derived from increasing parking fees by 7.5 percent and $90,000 from the University Avenue Fund), bringing the city’s 2020 investment to $750,000;
  • Addition of an Automated Parking Guidance System as part of the city’s priority Infrastructure Plan (replacing the sidelined Downtown Parking Garage);
  • Dedication of new hotel Transient Occupancy Tax (TOT) revenues and voter approved TOT rate increase revenues towards funding the Infrastructure Plan.

Click here for the staff report on the FY 2020 City Budget.

Also on June 17, the council approved the Fiscal Year 2020 Utility Financial Plans and adopted customer rate increases across the utilities system, including electric, gas, wastewater, water, and storm water and surface water drainage. Each of those rate changes received the recommendation of both the Utilities Advisory Commission and the Council Finance Committee and were included in the assumptions underlying the city’s FY 2020 Budget. Here’s how the rate increases break down:

  • Electric: Total increase of 8 percent across electric rates, including an approximate 4 percent increase for residential customers. Additional annual rate increases of 4 percent are projected through FY 2023.
  • Gas: Gas distribution-related rates will rise by an average of 8 percent (following 6 percent increase in July, 2018), including a 13.25 percent hike for residential customers. When combined with supply-related rates, the overall system rate increase for natural gas will be 5 percent, with 8.1 percent attributed to residential customers. Additional annual rate increases of four to eight percent are projected through 2024.
  • Wastewater: 7 percent increase in wastewater collection rates for 2020, with projected additional increases of 6 percent annually through FY 2024.
  • Water: Water costs are projected to rise by an average of 3 to 4 percent annually over next several years. Proposed overall rate increase of one percent in FY2020, followed by annual increases of 2 to 6 percent in later years. On average, residential customers will see an increase of 2 percent.
  • Storm Drain: Storm water and surface water drainage rates will rise by 4.5 percent, consistent with the annual Consumer Price Index adjustment approved by ballot measure in April 2017.

Click here for the staff report on utilities rate increases.

City to explore business tax to help fund transportation improvements

May 5, 2019 – Palo Alto Matters

After several fits and starts in the past ten years, City Council voted 6-1 (Tanaka dissenting) on April 22 to begin laying the groundwork for a business tax to be placed on the ballot in 2020. The approved work plan presents an iterative approach to outreach, analysis, and refinement featuring frequent check-ins with council, the business community and the general public.

Initial thinking is for the revenue measure to support a variety of transportation improvements, including grade separations. The approved work plan calls for a decision this October on which type of revenue generating model to pursue, followed by polling and additional outreach and analysis, and culminating in draft ballot language by June 2020.

Meanwhile, the city budget keeps getting tighter

May 5, 2019 – Palo Alto Matters

The Council Finance Committee will kick off three budget hearings on May 15. The city’s proposed Fiscal Year 2020 Budget anticipates healthy revenue growth from sales tax (9.9 percent), property tax (7.3 percent), and hotel tax (17 percent), but expects labor costs to rise by 9.2 percent – a costly increase when the city has so many infrastructure projects lined up. Taking that and the city’s growing pension and retiree benefit obligations into account, even with healthy revenue growth, the proposed budget calls for a reduction of the equivalent of 9.95 full time employees, phasing back of city investments in Project Safety Net (a community collaboration to promote youth well-being), and a “service inventory” to evaluate city programs and their costs, with an eye toward reducing ongoing costs and identifying areas that can be cut to provide $4 million in savings to put toward long term pension liabilities. 

“This budget reflects the very difficult straddle we have before us, in which we have continued cost escalation of everything in the Bay Area, the increase in demand for services and infrastructure as our community grows and our move to accurately recognize some of our cost structure, including our commitment to fund our long-term liabilities. Those things to some extent mutually exclude one another.”

– Mayor Eric Filseth

The May 15 budget hearing begins at 1:00 pm (Community Meeting Room, City Hall). Click here for agenda, including links (at top of page) for proposed capital and operating budgets. Subsequent hearings will take place on May 23 and May 28.

District grapples with ongoing budget deficit

Palo Alto Unified’s 2016 tax misestimation and 2017 contract blunder will affect bottom line for several years

Palo Alto Weekly – by Elena Kadvany / January 19, 2018

Palo Alto Unified, a well-resourced district that has set ambitious and costly educational goals for the next several years, is facing a financial squeeze: There is no ongoing revenue to pay for budget additions in the next school year, staff said Thursday.

This prompted board President Ken Dauber to ask Interim Superintendent Karen Hendricks to come up with $3 million to $5 million in administrative cuts, an amount he warned “may not be ambitious enough” to address an ongoing deficit.

As costs grow, city may scale back garage plan

Palo Alto considers eliminating one of the basement levels at planned garage near California Avenue

Palo Alto Weekly – by Gennady Sheyner / January 19, 2018

With cost estimates rising dramatically, Palo Alto is considering scaling back its plans for the California Avenue area parking garage by removing one of the two planned underground levels.

The revision, which is proposed in a new report from the Public Works Department, would reduce the cost of the garage by between $6 million and $8 million at a time when the city’s overall infrastructure plan is facing a funding gap of about $50 million.

Palo Alto faces legal challenge over budget transfers

City’s practice of moving money from utility funds to General Fund may also hinge on Redding case

Palo Alto Weekly – by Gennady Sheyner / January 19, 2018

For more than a century, Palo Alto’s municipal utilities have served the city as both a provider of critical services and a revenue-generating asset from which the city can transfer money to pay for basic services like public safety, libraries and park maintenance.

Now, that long and at times controversial practice is facing a legal challenge. Downtown resident Miriam Green has filed a lawsuit against the city, charging that the transfer amounts to an illegal tax. At the same time, the state Supreme Court is preparing to hear an argument over a similar case in Redding, where an appeals court has recently struck down by a 2-1 vote the city’s transfer policy.

Rising costs strain Palo Alto’s infrastructure goals

Palo Alto Weekly – by Gennady Sheyner / November 28, 2017

City Council moves ahead with new fire station and bike bridge, despite major questions about latest cost estimates

Palo Alto’s ambitious plan to fix up the city’s aged infrastructure and build a new bike bridge over U.S. Highway 101 is being strained by a sizzling construction market, which is adding millions of dollars to the price of each project and forcing local officials to lower their expectations.

Despite the obstacle, two priority projects on the city’s infrastructure list moved forward Monday night, when the council voted to approve the construction contract to rebuild the 1948 fire station near Rinconada Park and to approve the environmental analysis for the new bike bridge at Adobe Creek.

In each case, council members voiced significant reservations about the cost increases. The budget for the fire station has gone up from $6.7 million, the amount in the city’s 2014 Infrastructure Plan, to about $8.6 million (or $9.5 million, if you factor in the cost of staff salary and benefits).