Palo Alto City Council
February 6, 2023

Job
Code FLSA SH/NS Job Title
Step Rate Monthly Annual Step Rate Monthly Annual Step Rate Monthly Annual Step Rate Monthly Annual Step Rate Monthly Annual International Fire Fighters Association
Salary Schedule
Effective 01/11/2025
(2% Increase)
Effective 07/12/2024
(4% Increase)
Effective 01/13/2024
(Med Ben)
Effective 01/28/2023
(MKT 5% + 1‐1.5% CPT PARA+ Med Ben)
Effective 07/15/2023
(4% Increase)
1 81.91 $         1 85.05 $         1 85.63 $         1 88.91 $         1 90.71 $ 2 86.19 $         2 89.53 $         2 90.11 $         2 93.59 $         2 95.48 $ 3 90.70 $         3 94.24 $         3 94.82 $         3 98.52 $         3 100.50$ 4 95.44 $         4 99.20 $         4 99.78 $         4 103.71$       4 105.79$ 5 100.43 $       5 104.42$       5 105.00$       5 109.17$       5 111.36$ 6 105.69 $       18,319$       219,829$     6 109.92$       19,053$       228,634$     6 110.50$       19,153$       229,834$     6 114.92$       19,919$       239,034$     6 117.22$       20,318$       243,818$ 662 Non‐exempt NS FIRE  CPT EMT HAZ MT PARA
 
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Attachment D-IAFF Salary Schedule 2023 - 2025
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION

STAFF REPORT
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Administrative Services
Meeting Date: February 6, 2023

TITLE
Approval of Fiscal Year 2022 Palo Alto Public Improvement Corporation's Annual Financial Statement

RECOMMENDATION
Staff recommends that the Board of Directors of the Palo Alto Public Improvement Corporation (PIC) approve the Fiscal Year (FY) 2022 Annual Financial Report for the Palo Alto Public Improvement Corporation.

BACKGROUND
The PIC is a nonprofit corporation formed by the City in 1983, allowing the City to issue Certificates of Participation (COPs) to fund capital improvements. The PIC, through a lease structure, finances the acquisition, improvement, and construction of City facilities. The PIC uses the lease payments by the City’s General Fund to pay the debt service on the COPs. On July 13, 1998, Council adopted a resolution establishing itself as the Board of Directors of the PIC.

The bylaws of the PIC require the Board of Directors of the Corporation to meet at least annually and approve the annual financial report for the Corporation. Therefore, the City Council is required to meet annually as the Board of the PIC.

In 1983 and 1998, the City of Palo Alto issued COPs to fund improvements to the Civic Center and the Golf Course, respectively. In 2002, the Civic Center bonds were refinanced due to a lower interest rate environment and COPs were issued to finance the construction of commercial space adjacent to the new parking structure on Bryant/Florence Street. These bonds (referred to as the Downtown Parking Improvement bonds or 2002B COP) were used to build a two story above-ground structure of approximately 7,638 square feet at 445 Bryant Street, which was previously leased to a commercial tenant (Form Fitness Gym). The space is currently vacant.

In fiscal year 2018, the City issued the 2018 Capital Improvement Project and Refinancing COPs in the amount of $9 million to refinance the 2002B COPs ($0.6 million) and to finance renovations for the Palo Alto Municipal Golf Course ($8.4 million). Fire Station 1 was used as Item 6
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the leased property and collateral for these COPs since it had a market value closer to the COPs issuance amount. The net present value savings of $0.2 million or 6.47 percent on the 2002B refunded bonds and the Civic Center was substituted for Fire Station 1 as the leased property/collateral. This provided flexibility to leverage the high value of the Civic Center to finance the 2021 Public Safety building COPs.

In fiscal year 2019, the City issued the California Avenue Parking Garage Tax-exempt Series A ($26.8 million plus $4.9 million premium) and Taxable Series B ($10.6 million) COPs. These bonds were issued to fund the construction of the new California Avenue parking garage.

Rinconada Library was used as collateral during the garage construction and, upon completion of the garage, the newly build California Avenue Parking garage became the leased property/collateral for these COPs. To preserve greater operational flexibility to use this garage facility over the life of the bonds (e.g. lease portion of the garage for private parking or other commercial use), a portion of the bonds were issued as taxable bonds.

In fiscal year 2021, the City issued the 2021 Public Safety Building tax-exempt COPs ($101.5 million plus $6.5 million premium) for the construction of the City’s new public safety building.

The debt service is payable solely from and secured by the lease payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the Lease Agreement.

Civic Center was used as collateral during the building construction and, upon completion of the building, the newly build Public Safety Building will become the leased property/collateral for these COPs.

The reserve account requirement was waived on all the outstanding COPs due to the City being a highly rated bond issuer. This resulted in additional bonds issuance amount and the related interest savings.

ANALYSIS
The attached financial statement shows the financial condition of the PIC. The debt service payments have been made on time and all financial requirements have been met. At year-end, June 30, 2022, total outstanding debt principal on the COPs equaled $145.6 million as follows:

COPs Description
Principal
Outstanding
(millions)
Fiscal Year Debt
will be Retired
2018 Capital Improvement (2002B
Refinance and Golf Course) $ 8.4 2048
2019 California Ave. Parking Garage $ 35.7 2049 2021 Public Safety Building $101.5 2051
Total COPs $145.6
Staff recommends that the Board of Directors of the Palo Alto Public Improvement Corporation (PIC) approve the FY 2022 financial statement for the PIC.

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POLICY IMPLICATIONS
Approval of the Palo Alto Public Improvement Corporation’s financial statements is consistent with prior Council policy direction and resolutions.

FISCAL/RESOURCE IMPACT
Approval of the Palo Alto Public Improvement Corporation’s financial statements will have no resource impact.

STAKEHOLDER ENGAGEMENT
Staff works internally and coordinates with the City Auditor’s Office third party external auditor Macias Gini & O’Connell LLP (MGO) to prepare this report.

ENVIRONMENTAL REVIEW
This activity is not a project under California Environmental Quality Act (CEQA) as defined in CEQA Guidelines, section 15378, because it has no potential for resulting in either a direct or reasonably foreseeable indirect physical change in the environment.

ATTACHMENTS
Attachment A: Palo Alto Public Improvement Fiscal Year 2022 Annual Financial Statement APPROVED BY:

Kiely Nose, Assistant City Manager
Report #: 2301-0751
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PALO ALTO PUBLIC IMPROVEMENT

CORPORATION
(A Component Unit of the
City of Palo Alto, California)
Annual Financial Report
For the Year Ended June 30, 2022
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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

Item 6: Staff Report
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Annual Financial Report
For the Year Ended June 30, 2022

Table of Contents

Page

Independent Auditor’s Report ................................................................................................................... 1

Management’s Discussion and Analysis (Unaudited) .............................................................................. 3

Basic Financial Statements

Government-wide Financial Statements:

Statement of Net Position ................................................................................................................... 5 Statement of Activities ....................................................................................................................... 6

Debt Service Fund Financial Statements:

Balance Sheet ..................................................................................................................................... 7 Statement of Revenues, Expenditures and Changes in Fund Balance ................................................ 8

Notes to the Basic Financial Statements .................................................................................................. 9

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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596

1 Independent Auditor’s Report

The Honorable Mayor and
Members of the City Council of the
City of Palo Alto, California

Opinions

We have audited the financial statements of the governmental ac tivities and the major fund of the Palo Alto Public Improvement Corpora tion (Corporation), a component unit of the City of Palo Alto, California (City), as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively co mprise the Corporation’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of the Corporation as of June 30, 2022, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinions

We conducted our audit in accordance with auditing standards ge nerally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements sect ion of our report. We are required to be independent of the Corporation and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Responsibilities of Management for the Financial Statements

Management is responsible for t he preparation and fair presenta tion of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and mainte nance of internal control rel evant to the preparation and fair presentation of financial statements that are free from materia l misstatement, whether due to fraud or error.

In preparing the financial statements, management is required t o evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Corporation’s ability to continue as a going concern for twelve months beyond the financial state ment date, including any currently known information that may raise substantial doubt shortly thereafter.

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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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2 Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accorda nce with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal cont rol. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

• exercise professional judgment and maintain professional skep ticism throughout the audit. • identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures respons ive to those risks. Such procedures include examining, on a test basis, evidence regardi ng the amounts and disclosures in the financial statements.
• obtain an understanding of internal control relevant to the a udit in order to design audit procedures that are appropriate in the circumstances, but not f or the purpose of expressing an opinion on the effectiveness of the Corporation’s internal cont rol. Accordingly, no such opinion is expressed.
• evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate th e overall presentation of the financial statements.
• conclude whether, in our judgment, there are conditions or ev ents, considered in the aggregate, that raise substantial doubt about the Corporation’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governan ce regarding, among other matters, the planned scope and timing of the audit, significant audit findin gs, and certain internal control–related matters that we identified during the audit.

Required Supplementary Information

Accounting principles generally accepted in the United States o f America require that the management’s discussion and analysis be presented to supplement the basic fi nancial statements. Such information is the responsibility of management and, although not a part of the ba sic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate op erational, economic, or historical context.

We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of A merica, which consisted of inquiries of management about the methods of preparing the information and c omparing the information for consistency with management’s responses to our inquiries, the b asic financial statements, and other knowledge we obtained during our audit of the basic financial s tatements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Walnut Creek, California
November 16, 2022
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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Management’s Discussion & Analysis (Unaudited)
For the Year Ended June 30, 2022

3 The Palo Alto Public Improvement Corporation (Corporation), a c omponent unit of the City of Palo Alto (City), follows the provisions of Governmental Accounting Stand ards Board (GASB) Statement No. 34, Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments. The Corporation is controlled by the City and was organized to assist the City in financing public improvements. The Corporation issues debt and turns the proceeds of the debt over to the City under lease agreements that provide a revenue source for the re payment of this debt. The Corporation has three outstanding debts and has turned over the proceeds to the City, which pledged certain lease payments as collateral for this debt as discussed in Note 4 to the financial statements.

FINANCIAL HIGHLIGHTS

GASB Statement No. 34 requires the issuance of government-wide financial statements as well as fund financial statements. The governme nt-wide financial statements report the balance of the Corporation’s long-term debt while the individual fund statements do not.

In fiscal year 2018, the City issued 2018 Capital Improvement P roject and Refinancing Certificates of Participation (2018 COPs) in the amount of $9.0 million to refi nance the 2002B Downtown Parking Improvements Certificates of Participation remaining balance of $805 thousand, and also to fund the Palo Alto Municipal Golf Course renovations.

In fiscal year 2019, the City issued the 2019 California Avenue Parking Garage tax exempt Series A and taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million plus $4.9 million premium, and $10.6 million, respectively. Th e 2019A and 2019B COPs are issued to fund the construction of the new California Avenue parking garage.

In fiscal year 2021, the City issued the 2021 Public Safety Bui lding Certificates of Participation (2021 COPs) in the amount of $101.5 million plus $6.5 million premium. The 2021 COPs are issued to fund the construction of the new public safety building.

As of June 30, 2022, the Corporation has the following outstand ing debt: the 2018 COPs, 2019A and 2019B COPs, and 2021 COPs.

At the government-wide level, the interest and fiscal agent cha rges were $4.8 million for fiscal year 2022, an increase of $0.8 million from the prior year. The interest on leases from the City of Palo Alto was $1.7 million, a decrease of $6.9 million from the prior year. The in creases of interest and fiscal charges and decrease of interest on leases are due to the issuance of the 2021 COPs during the prior year which lead to the increase of outstanding bonds and incurrence of one-time costs of issuance.

The Corporation ended fiscal year 2022 with total assets of $15 8.8 million, a decrease of $4.4 million from the prior year. Total assets consisted of $1.5 million in cash and investments, $1.1 million of lease interest receivable from the City of Palo Alto, and $156.2 mill ion of investment in leases to the City of Palo Alto. The total liabilities were $157.2 million, a decreas e of $1.2 million from the prior year. The decrease of assets and liabilities resulted from scheduled prin cipal and interest payments of the 2018 COPS’s, the 2019A and 2019B COPSs and interest payments of the 2021 COPs.

At the fund level, the Corporation’s expenditures exceeded reve nues by $3.1 million due to interest payments of the 2021 COPs. As of June 30, 2022, the Corporation had one fund, the Debt Service Fund, which reported a $1.5 million restricted fund balance.

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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Management’s Discussion & Analysis (Unaudited) (Continued) For the Year Ended June 30, 2022

4 OVERVIEW OF THE CORPORATION’S BASIC FINANCIAL STATEMENTS

The annual financial report is comprised of two parts:

1) Management’s discussion and analysis (this part),

2) The basic financial statements, which include the government-wi de and the fund financial statements, along with the notes to these financial statements.

The basic financial statements comprise the government-wide fin ancial statements and the fund financial statements. These two sets of financial statements provide two different views of the Corporation’s financial activities and financial positions, both short-term and long-term.

The government-wide financial st atements provide a long-term vi ew of the Corporation’s activities as a whole, and comprise the statement of net position and the state ment of activities. The statement of net position provides information about the financial position of t he Corporation as a whole, including all its long-term liabilities on the full accrual basis, similar to tha t used by corporations. The statement of activities provides information about all the Corporation’s rev enues and expenses on the full accrual basis, with the emphasis on measuring net revenues or expenses of the Corporation’s program. The statement of activities explains in detail the change in net position for the year.

The fund financial statements r eport the Corporation’s operatio ns in more detail than the corporate-wide statements and focus primarily on the short-term activities of the debt service fund. Fund financial statements measure only current revenues and expenditures; curr ent assets, liabilities and fund balances; and they exclude capital assets and long-term debt.

Together, these statements along with the notes to the financia l statements are called the basic financial statements.

DEBT ADMINISTRATION

The Corporation issues debt in the form of Certificates of Part icipation (COPs) to be repaid from future lease receipts from the City. Legally, these COPs issues are th e Corporation’s debt only; the City is liable only for the payment of the amounts set forth in the lease securing each debt issue.

As of June 30, 2022, the Corporation has the following outstand ing debt: 2018 COPs, 2019A and 2019B COPs, and 2021 COPs with outstandi ng principal balances of $8.4 million, 35.7 million and $101.5 million, respectively.

ECONOMIC OUTLOOK AND MAJOR INITIATIVES

The economy of the City and its major initiatives for the comin g year are discussed in detail in the City’s Annual Comprehensive Financial Report.

CONTACTING THE CORPORATION’S FINANCIAL MANAGEMENT

These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of the Corporation’s finances. Questions abo ut these financial statements should be directed to the Finance Department of the City of Palo Alto, 25 0 Hamilton Avenue, Palo Alto, CA 94301.

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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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Assets
Cash held for operations 43,376 $
Cash and investments held by trustee 1,488,794
Lease interest receivable 1,070,654
Investment in leases to the City of Palo Alto 156,160,520 Total assets 158,763,344
Liabilities
Interest payable 1,070,654
Long-term debt:

Due in one year 1,268,253
Due in more than one year 154,892,267
Total liabilities 157,231,174
Net Position
Restricted for debt service 1,532,170 $

PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Net Position
June 30, 2022
See accompanying notes to financial statements.
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Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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Expenses
Interest and fiscal agent charges 4,808,310 $
Program revenues
Interest on leases from the City of Palo Alto 1,679,174 Net program revenues (3,129,136)
General revenues
Investment earnings 424
Change in net position (3,128,712)
Net position, beginning of the year 4,660,882
Net position, end of the year 1,532,170 $

PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Activities
For the Year Ended June 30, 2022
See accompanying notes to financial statements.
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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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Assets
Cash held for operations 43,376 $
Cash and investments held by trustee 1,488,794
Lease interest receivable 1,070,654
Investment in leases to City of Palo Alto 156,160,520
Total assets 158,763,344 $
Deferred Inflows of Resources
Unavailable lease receipts from the City of Palo Alto 157,231,17 4$ Fund balance
Restricted for debt service 1,532,170
Total deferred inflows of resources and fund balance 158,763,344 $ Reconciliation of fund balance to net position
Fund balance restricted for debt service 1,532,170 $
Long-term receivables are not available to pay for current period expenditures and are considered unavailable on the governmental fund balance sheet 157,231,174 Some liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the Fund:

Interest payable (1,070,654)
Long-term debt due within one year (1,268,253)
Long-term debt due in more than one year (154,892,267)
Net position of governmental activities 1,532,170 $

PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Balance Sheet
June 30, 2022
Debt Service Fund
See accompanying notes to financial statements.
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Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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Revenues:

Lease receipts from the City of Palo Alto:

Principal 835,000$
Interest 2,070,960
Other 3,691
Investments earnings 424
Total revenues 2,910,075
Expenditures:

Debt service:

Principal repayment 835,000
Interest and fiscal agent charges 5,192,787
Costs of issuance 11,000
Total expenditures 6,038,787
Deficiency of revenues under expenditures (3,128,712)
Net change in fund balance (3,128,712)
Fund balance, beginning of the year 4,660,882
Fund balance, end of the year 1,532,170 $
Reconciliation of net change in fund balance to change in net position Net change in fund balance - debt service fund (3,128,712) $ Amounts reported for governmental activities in the statement of activities are different because:

Repayment of bond principal is an expenditure in the governmental funds, but in the statement of net position the repayment reduces long-term liabilities. 835,000 Interest accrued on long-term debt and amortization of bond premium do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds.

Change in interest payable (12,776)
Amortization of bond premium 408,253
Some amounts reported in the statement of revenues, expenditures and changes in fund balances reflect the timing of collection of assets which are not includable as revenues on the statement of activities.

Lease receipt for bond principal repayment (835,000)
Lease receipt for interest payment 12,776
Impact of bond premium amortization on lease receipt (408,253) Change in net position of governmental activities (3,128,712) $

PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Revenues, Expenditures and Changes in Fund Balance For the Year Ended June 30, 2022
Debt Service Fund
See accompanying notes to financial statements.
8 Item 6
Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements
For the Year Ended June 30, 2022

9 NOTE 1 – DESCRIPTION OF REPORTING ENTITY

The Palo Alto Public Improvement Corporation (the Corporation) was incorporated in September 1983 under the General Nonprofit Corpor ation Law of the State of Cal ifornia to acquire, construct and lease capital improvement projects. The Corporation is exempt from fe deral income taxes under Section 501(c)(4) of the Internal Revenue Code. The Corporation provides financing of public capital improvements for the City through the issuance of Certificates of Participation (COPs), a form of debt which allows investors to participate in a stream of future lea se payments. Proceeds from the COPs are used to construct projects which are leased to the City for lea se payments which are sufficient in timing and amount to meet the debt service requirements of the COPs.

The Corporation is an integral part of the City of Palo Alto, C alifornia (City). It primarily services the City and its governing body is composed of the City Council. Th erefore, the financial data of the Corporation has also been included as a blended component unit within the City’s annual comprehensive financial report for the year ended June 30, 2022.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation
Government-wide Statements: The statement of net position and the statement of activities include the financial activities of the Corporation. Eliminations have been made to minimize the double counting of internal activities.

The statement of activities presents a comparison between direc t expenses and program revenues for each function of the Corporation’s activities. Direct expenses are t hose that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program.

Revenues that are not classifie d as program revenues, including investment earnings, are presented as general revenues.

Fund Financial Statements: The fund financial statements p rovide information about the Co rporation’s funds. The emphasis of fund financial statements is on major in dividual funds, of which the Corporation only reports one debt service fund.

(b) Major Fund
Major funds are defined as funds that have either assets, liabi lities, revenues or expenditures equal to ten percent of their fund-type total and five percent of the grand total. The Corporation has one fund which is reported as a major governmental fund in the accompanying financial statements as follows:

Debt Service Fund – This fund accounts for debt service payments on the Corporation’s long-term debt.

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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

10 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)

(c) Basis of Accounting
The government-wide financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned ad expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.

Governmental funds are reported using the current financial res ources measurement focus and the modified accrual basis of accounting. Under this method, reven ues are recognized when measurable and available. The City considers revenues susceptible to accrual to be available if the revenues are collected within ninety days after year-e nd. Expenditures are recorded w hen the related fund liability is incurred, except for principal and interest on long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured.

(d) Investment in Leases

Improvements financed by the Corporation are leased to the City for their entire estimated useful life and will become the City property at the conclusion of the lease on November 1, 2050. The Corporation therefore records the present value of the lease and considers the leased improvement to have been sold for this amount when leased.

(e) Net Position
The government-wide financial statements utilize a net position presentation. Net position is further categorized as net investment in capital assets, restricted and /or unrestricted. As of June 30, 2022, the entire net position was considered restricted.

Restricted Net Position – This category presents external restrictions imposed by credi tors, grantors, contributors or laws or regulations of other governments and re strictions imposed by law through constitutional provisions or enabling legislation.

(f) Deferred Inflows of Resources
A deferred inflow of resources is defined as an acquisition of net asset or fund balances applicable to a future reporting period and will not be recognized as an inflow of resources (revenue) until that time. On the governmental fund balance sheet, the lease receipts from th e City corresponding to the debt are recorded as deferred inflows of resources since the balances are not current financial resources.

(g) Fund Balances
At June 30, 2022, the Corporatio n’s governmental fund’s fund ba lances include the following classification:

Restricted Fund Balance – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabli ng legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers.

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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

11 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)

(h) Effects of New Pronouncements
As of July 1, 2021, the Corporation implemented the following G overnmental Accounting Standards Board (GASB) Statement:

In June 2017, the GASB issued Statement No. 87, Leases. The objective of this statement is to better meet the information needs of financial statement users by impr oving accounting and financial reporting for leases by governments. This statement increases the useful ness of governments’ financial statements by requiring recognition of certain lease assets and liabilitie s for leases that previously were classified as operating leases and recognized as inflows of resources or outf lows of resources based on the payment provisions of the contract. It establishes a single model for l ease accounting based on the foundational principle that leases are financings of the right to use an und erlying asset. Under this statement, a lessee is required to recognize a lease liability and an intangible right -to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources , thereby enhancing the relevance and consistency of information about governments’ leasing activitie s. The application of this statement did not have a material impact on the financial statements of the C orporation for the fiscal year ended June 30, 2022.

The Corporation is currently analyzing its accounting practices to determine the potential impact on the financial statements for the following GASB Statement:

I n J u n e 2 0 2 2 , t h e G A S B i s s u e d S t a t e m e n t N o . 1 0 0 , Accounting Changes and Error Corrections – An Amendment of GASB Statement No. 62 . The primary objective of this statement is to enhance accoun ting and financial reporting requireme nts for accounting changes and error corrections to provide more understandable, reliable, relevan t consistent, and comparable i nformation for making decisions or assessing accountability. The requirements of this statement a re effective for the Corporation’s fiscal year ending June 30, 2024.

(i) Estimates
The preparation of basic financial statements in conformity wit h accounting principles generally accepted in the United States of America requires management to make est imates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE

(a) Interest Rate Risk
Interest rate risk is the risk that a change in market interest rates will adversely affect the fair value of an investment. Normally, the longe r it takes an investment to reac h maturity, the greater will be that investment’s sensitivity to changes in market rates. Informatio n about the sensitivity of the fair values of the Corporation’s investments to market interest rate fluctuati ons is provided by the following table that shows the distribution of the Corporation’s investments by maturity:

Investment Type Amount Maturity Date
Money Market Mutual Fund 1,488,794$ 19 days

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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

Item 6: Staff Report
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

12 NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE (Continued)

Credit Risk
Generally, credit risk is the risk that an issuer of an investm ent will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rati ng by a nationally recognized statistical rating organization. As of June 30, 2022, the Corporation’s in vestments in money market mutual funds are rated AAAm by Standard & Poor’s.

(b) Fair Value Hierarchy
The City categorizes its fair value measurements within the fai r value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active m arket for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are sig nificant unobservable inputs. The Corporation’s investments in money market mutual funds are not subject to the fair value hierarchy.

(c) Investment Policy
The Corporation must maintain required amounts of cash and inve stments by trustee under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the Corporation fails to meet its obligation under these debt issue s. The California Government Code (Code) requires these funds to be invested in accordance with bond ind entures or State statutes. All these funds have been invested as permitted under the Code. The Investment Policy is described in detail in the City’s Annual Comprehensive Financial Report.

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Attachment A Palo Alto
Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

Item 6: Staff Report
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

13 NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE (Continued)

The table below identifies the investment types that are author ized by the City’s Investment Policy. The table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit risk and concentration of credit risk.

Maximum
Maturity
Minimum Credit
Quality
Maximum
Percentage of
Portfolio
Maximum
Investment in
One Issuer
U.S. Government Securities 10 years (*) N/A No Limit No Limit U.S. Government Agency Securities 10 years (*) N/A No Limit (A) No Limit Certificates of Deposit 10 ye ars (*) N/A 20% 10% of the par value of
portfolio
Bankers Acceptances 180 days N/A 30% $5 million
Commercial Paper 270 days A-1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit $75 million per account
Short-Term Repurchase Agreements 1 year N/A No Limit No Limit City of Palo Alto Bonds N/A N/A No Limit No Limit
Money Market Deposit Accounts N/A N/A No Limit No Limit Mutual Funds N/A N/A 20% 10%
Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million Medium-Term Corporate Notes 5 years AA 10% $5 million
10 years (*) AA/AA2 30% No Limit
Supranational 5 years AA/AA2 20% 10% of the par
value of
portfolio
(A)
(B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. (*) The maximum maturity is based on the Investment Policy that is approved by the City Council and is less restrictive than the California Governmental Code.

Authorized Investment Type
Bonds of State of California Municipal
Agencies & Other U.S. States
Callable and multi-step securities are limited to no more than 25% of the par value of the portfolio, provided that:
1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step-up" are known at the time of purchase, and 3) the entire face value of the security is redeemed at the call date.

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Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

Item 6: Staff Report
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

14 NOTE 4 – CERTIFICATES OF PARTICIPATION

The Corporation’s long-term debt activities are presented below:

Balance Balance Amount due
July 1, 2021 Additions Retirements June 30, 2022 in one year Certificates of Participation
2018 Capital Improvement Project

2.20-4.22%, due 11/1/2047 8,570,000$ - $ 190,000$ 8,380,000 $ 195,000 $ 2019 California Ave. Parking Garage
Series A & B

2.5%-5%, due 11/1/2048 36,365,000 - 645,000 35,720,000 665,000 2021 P ublic Safety Building
2%-5%, due 11/1/2050 101,505,000 - - 101,505,000 - Add: Unamortized Premium 10,963,773 - 408,253 10,555,520 408,253 Total 157,403,773 $ - $ 1,243,253$ 156,160,520 $ 1,268,253 $

On June 1, 2018, the City issued the 2018 Capital Improvement P roject and Refinancing Certificates of Participation (2018 COPs) in the amount of $9.0 million to full y refinance the 2002B COPs and to fund the renovation of the Palo Alto Municipal Golf Course. Princip al payments are due annually on November 1 and interest payments semi-annually at various rates on May 1 and November 1. The 2018 COPs are secured by lease revenues received by the Corporation from any City’s General Fund revenue source.

On March 21, 2019, the City issued the 2019 California Avenue P arking Garage tax exempt Series A and taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million plus $4.9 million premium, and $10.6 million, respectively, for the construction of the new California Avenue Parking Garage. Principa l payments are due annually on N ovember 1 and interest payments semi-annually at various rates on May 1 and November 1. The 201 9A and 2019B COPs are secured by lease revenues received by the Corporation from any City’s General Fund revenue source.

On March 24, 2021, the City issued the 2021 Public Safety Build ing Certificates of Participation (2021 COPs) in the amount of $101.5 million plus $6.5 million premium for the construction of the new public safety building. Principal payments are due annually on Novembe r 1 and interest payments semi-annually at various rates on May 1 and November 1. The 2021 COPs are sec ured by lease revenues received by the Corporation from any City’s General Fund revenue source.

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Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

Item 6: Staff Report
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California) Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2022

15 NOTE 4 – CERTIFICATES OF PARTICIPATION (Continued)

Future annual debt service on the outstanding debt is shown below:

For the Year Interest Total
Ending June 30, Principal Payment Payment
2023 860,000 $ 4,970,244 $ 5,830,244 $ 2024 3,025,000 4,880,640 7,905,640 2025 3,170,000 4,729,196 7,899,196 2026 3,335,000 4,569,844 7,904,844 2027 3,495,000 4,402,268 7,897,268 2028-2032 20,295,000 19,309,115 39,604,115 2033-2037 24,830,000 14,769,404 39,599,404 2038-2042 28,925,000 10,665,351 39,590,351 2043-2047 33,520,000 6,059,329 39,579,329 2048-2051 24,150,000 1,179,520 25,329,520 145,605,000$ 75,534,911 $ 221,139,911 $

Events of Default and Acceleration Clauses
Generally, the Corporation is considered to be in default if th e Corporation fails to pay the principal of and interest on the outstanding long-term debt when become due and payable. If an event of default has occurred and is continuing, the principal of the long-term debt , together with the accrued interest, may be declared due and payable immediately.

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Public Improvement
Corporation Fiscal Year
2022 Annual Financial
Report

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CITY COUNCIL

STAFF REPORT
From: City Manager
Report Type: Action
Lead Department: Planning and Development Services
Meeting Date: February 6, 2023

TITLE
Discussion Regarding Gas Powered Leaf Blower Enforcement and Possible Direction to Prepare an Amendment to the Noise Ordinance (PAMC 9.10) and Resolution to Adjust Financial Penalties for Violations in Residential Neighborhoods to Facilitate Compliance. (Environmental review: not a project)

RECOMMENDED MOTION
Staff recommends that Council:

1. Direct staff to prepare an amendment to the Noise Ordinance (PAMC 9.10) to:
a. clarify that citations may be issued to the leaf blower operator, the property owner authorizing or employing the use of gas powered leaf blower on their property, or both for violations of the ban; and,
b. remove an existing requirement to provide a five-day notice of violation warning the operator of a gas powered leaf blower and/or property owner in advance of issuing a citation for violating the ban;

2. Direct staff to prepare a resolution updating the municipal penalty schedule for violation of the gas-powered leaf blower ban to $250 for the first offense, $500 for the second offense and $1,000 for the third and subsequent offenses within a three-year period; and,

3. Endorse the leaf blower enforcement public engagement strategy presented in this report.

EXECUTIVE SUMMARY
This report summarizes existing gas-powered leaf blower law and current enforcement efforts and recommends strategies to improve compliance with the City’s ban. The recommendation in this report advances the City Council’s priority related to community health and safety and a key workplan project associated with this priority.

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BACKGROUND
Gas-powered leaf blowers pollute the air, pose health risks to operators and residents, and generate extremely loud noise levels disrupting neighborhood tranquility. The State recently adopted an ordinance to outlaw the sale of new gas-powered leaf blowers (and other gas- powered landscaping equipment) as early as 2024.

Palo Alto banned the use of gas powered leaf blowers in residential districts in May 2000. For 15 years enforcement was managed by the Police department before being transferred to Planning and Development Services. Enforcing the City’s ban has been problematic for a number of reasons, including the high mobility and short duration use of leaf blowers, limited code enforcement resources to follow up on complaints or pursue proactive enforcement, local regulatory challenges that require advanced notice or warning letters prior to citing a violator, and low penalty fees to violators if cited.

Increasingly, residents have grown frustrated by the lack of effective enforcement of gas powered leaf blowers in residential areas. Several years ago, the City Council authorized a new code enforcement officer dedicated to leaf blower enforcement. Unfortunately, this position was only filled for a few months. The vacant position was later eliminated during pandemic-related budget reductions and was recently restored in the FY 2022 budget. The City’s code enforcement staff consists of two officers and one part-time retiree, supported by one administrative associate.

The City receives several hundred leaf blower complaints a year. In any given year between 75% and 90% of the complaints received are from ten individuals as illustrated in the graph below.

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Leaf blower complaints may be filed using the City’s 311 system which is integrated with the City’s land use management software (Accela), or by email or phone.1 When a complaint is received for a gas powered leaf blower in a residential district, staff:
a) prepare an initial letter advising the property owner or operator, or both, of an alleged violation of the City’s ban.
b) A code enforcement officer will follow up with a site visit a couple weeks later in an attempt to verify the violation. More often than not, staff is unable to validate a violation and the case is closed.
c) If a violation is observed, notice is sent documenting the violation and advising the operator of the gas powered leaf blower of corrective action within five days (as required by existing City ordinance).
d) The code enforcement officer will follow up several weeks later to confirm compliance.

Again, validating compliance or a violation for three consecutive site visits, which is essentially required with current regulations, is not common due to the uncertainty of when the activity will next take place and availability of City resources. If, however, a citation is issued, the penalty for the violation is $100. Second and third violations are $150 and $300, respectively. Except for three citations issued within the past six weeks, staff is not aware of any other gas powered leaf blower citations being issued.

Code enforcement officers require evidence to be able to cite and defend a challenge to any citation. They are required to document the violation with evidence and demonstrate procedural compliance with the law. When notices of violation or issuance of a citation is served, it is delivered in-person or via certified mail. Staff has not relied on information or evidence provided by the public because the City could not attest to the conditions and circumstances of any alleged violation. More specifically, code enforcement officers do not rely solely on information provided by the public to issue a citation; however, such information could potentially be used supplement an officer observed violation.

ANALYSIS
The use of gas powered leaf blowers within residential zones is a violation of Palo Alto Municipal Code (PAMC) Chapter 9.10, Noise Ordinance. This provision states that persons cannot ‘operate’ gas powered leaf blowers in residential zones. Attachment A provides the current ordinance section that enables enforcement of gas powered leaf blower use.

Battery or electric powered leaf blowers may be used in residential zones Monday through Friday 9 am to 5 pm, and Saturdays 10 am – 4 pm. No leaf blowers may be used on Sundays in Palo Alto. 1 Options for filing a code enforcement complaint:

PaloAlto311: https://www.cityofpaloalto.org/Residents/Services/Report-an-Issue/Palo-Alto-311 Email: [email protected] or Phone: (650) 329-2605 Item 7
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The ban does not apply to non-residential zones, such as commercial and industrial zones. The ban also does not apply to the City’s parks and parking lots or clean up related work for city projects, though efforts are underway to minimize its use as detailed later in this report.

The regulatory framework in the City’s municipal code makes it difficult to observe and cite the gas powered leaf blower operator – the code does not allow issuance of an immediate citation with the first observed violation. The statutory language is also focused on the operator and limits the City’s ability to influence compliance by citing the property owner who is employing the gas powered leaf blower operator. Moreover, if a citation is issued, the penalty schedule does not impose fees that are likely to deter continued use of gas powered leaf blowers.

Accordingly, staff recommends the following amendments to strengthen enforcement tools and improve compliance with the City’s ban.

Municipal Code Amendment: Property Owner Liability
Staff recommends an amendment to PAMC Section 9.10.060 item (f) to clarify and assert the City’s ability to assign property owner liability for knowingly hiring or allowing a person to use a gas-powered leaf blower on their residentially zoned property. This amendment will specifically allow staff to hold property owners responsible for knowingly permitting the use of gas powered leaf blowers by an ‘operator’ on their residential property.

With this change, upon a code enforcement officer observed violation, a warning would be issued to the property owner that puts them on notice that they are permitting an operator to use a gas powered leaf blower on their property. If an officer observes this a second time, the property owner could be cited.

Municipal Code Amendment: Allow Citation Issuance at First Observed Violation Staff recommends eliminating the need to issue a notice of violation warning five days in advance of issuing a citation to a gas powered leaf blower operator. This requirement sets up an impracticality to document consecutive violations for an activity that is typically a short duration use and variable as to when such violations occur. This existing requirement creates a significant inefficiency preventing effective code compliance enforcement and detracts the department’s officers from other work.

With this change, upon a code enforcement officer observed violation, a citation would be issued on site or mailed to the operator of a gas powered leaf blower in a residential district. This amendment will improve the City’s ability to proactively enforce the ban and repeated violations may spur the operator of a gas powered leaf blower to transition toward compliant equipment.

Amend the City’s Penalty Schedule
The financial penalty for violating the gas powered leaf blower ban is not aligned with other municipal code violations such as littering and smoking in restricted areas. Staff recommends the Item 7
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current fees, which are $100, $150 and $300 for the first, second and third (and subsequent) violations, respectively, be increased to $250, $500, and $1000.

Coupled with the recommended changes above, proactive enforcement and changes to the penalty schedule may encourage a landscape professional to implement the following actions:

1. Invest and transition to cleaner battery or electric equipment;

2. Use a rake or other hand tools; or

3. Arrange with the property owner for the use or provision of compliant equipment at the job site.

The first two actions may reasonably result in increased costs to the landscape professional, either financially or in the time it takes to complete the work. While there are options to avoid the penalties, this industry typically has tight profit margins and the City Council may want to consider deferring or phasing in a new penalty schedule.

Public Outreach / Awareness
Prior to proactively enforcing the gas powered leaf blower ban with citations, staff proposes a public engagement strategy to inform property owners of the local gas powered leaf blower ban and penalties for violation.

Staff will provide notification through the City’s various social media outlets, the website and through the City’s utility payment billing service.

Staff prepared a flyer (Attachment B) and is distributing these flyers to operators identified with gas powered leaf blowers in residential neighborhoods and on the door to residences that are alleged to have hired or used gas powered leaf blowers on their residential property.

The flyers contain information about the local ban as well as ways a property owner can help support a landscaper to comply with the law including purchasing an electric or battery-powered leaf blower for use on their property or to give to the landscaper, and/or keeping back up batteries handy to swap out when needed.

Additionally, a code enforcement officer will extend an invitation to attend neighborhood group meetings and present the City’s approach toward enforcement and answer related questions.

Based on Council’s guidance and through adoption of the second reading of a future ordinance, if directed to prepare, there will be at least four months of concerted engagement to inform the community and landscape professionals of the anticipated changes.

Incentives for Zero-Emission Landscaping Equipment
California CORE 2 has an incentive program to help offset the cost of replacing gas powered landscaping equipment. California will ban the sale of all new gas-powered landscaping equipment beginning in 2024 and has allocated $30 million to facilitate this transition. The 2 California CORE website: https://californiacore.org/
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program provides incentives to zero-emission professional landscape equipment. Ten million was set aside for micro businesses and $17 million was set aside for small businesses. The incentives are for handheld leaf blowers (up to $300), and up to $400 for backpack leaf blowers, up to 70% of the MSRP. Most landscaping equipment is eligible for these incentives. The California Air Resources Board website has additional information about the program, which is administered by CALSTART a national non-profit that implements the California CORE program.3 City-Owned Equipment and Increase in Staffing
In the FY 2022 budget, the City Council authorized budget for a full-time officer, and the City hired a new code enforcement officer who began April 2022, to resume handling gas powered leaf blower violations and complaints.

The FY 2022 budget also included funding to purchase electric or battery leaf blowers to explore shifting the use of gas powered leaf blowers for city facilities, such as parks, and parking lots, to electric or battery use. Community Services staff plans on using battery powered backpack blowers instead of gas powered leaf blowers the vast majority of the time. Gas powered leaf blowers may still be used when there is a safety concern and the battery powered equipment is not strong enough to remove plant material or heavy debris from a trail, road or play area. Public Works has a mix of gas powered and electric leaf blowers but is poised to replace all handheld gas powered leaf blowers this year.

Greenhouse Gas Emissions
Gas-powered two-stroke leaf blowers and other two-stroke engines create significant air pollution (such as hydrocarbons, oxides of nitrogen, carbon monoxide, and fine particulate matter). The California Air Resources Board reported that using a gas-powered two-stroke leaf blower for one hour emits as much smog-forming pollution (and not GHG emissions) as a 2016 Toyota Camry does driving for 1100 miles. This has a negative impact on air pollution.

The numbers vary widely, but a leaf blower uses significantly less gasoline per hour than a car, and they spend far less time in use. As a carbon reduction measure, eliminating two-stroke engines does not provide a large return on investment, but it could provide other significant benefits if electrified. In Palo Alto, Portable Equipment, which includes gas-powered two-stroke leaf blowers, accounts for approximately 3,050 MT CO2e or 0.6% of Palo Alto’s overall GHG emissions.

Commercial/Industrial Districts
When the City has collected information about the use, function and practicality of using electric or battery powered leaf blowers on its own facilities, if proven successful, the City Council may 3 California Air Resources Board website: https://ww2.arb.ca.gov/news/point-sale-vouchers-now-available-small- business-landscape-professionals-purchase-discounted
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want to consider extending the gas-powered leaf blower ban citywide to commercial and industrial districts.

This would make enforcement easier and establish clearer expectations for the community if the City has one set of regulations that applied equally across the City boundary instead of just specific areas (residential districts).

Timeline
With Council direction, staff will return with an ordinance and resolution before June 2023.

FISCAL/RESOURCE IMPACT
Increased fees may generate some revenue to the City but is not anticipated to off-set additional administrative costs associated proactive enforcement or processing appeals that will likely be filed. Code enforcement generally is not a cost recoverable program.

STAKEHOLDER ENGAGEMENT
The City’s code enforcement officer assigned to enforce the leaf blower ban has provided handouts to inform landscape professionals and property owners of the ban. The City’s website also provides information regarding the prohibition of gas powered leaf blowers in residential neighborhoods.

ENVIRONMENTAL REVIEW
The recommendation in this report does not qualify as a project in accordance with the California Environmental Quality Act and is therefore not subject to environmental review.

ATTACHMENTS
Attachment A: Current Ordinance Section in PAMC Chapter 9.10 Attachment B: Leaf Blower Flyer
APPROVED BY:

Jonathan Lait, Planning and Development Services Director Report #: 2211-0388
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1/20/23, 2:08 PM https://export.amlegal.com/api/export-requests/bf9b718e-30fc-4972-bac0-20a9883204fb/download/ https://export.amlegal.com/api/export-requests/bf9b718e-30fc-4972-bac0-20a9883204fb/download/ 1/6 Chapter 9.10
NOISE*
Sections:

9.10.010 Declaration of policy.

9.10.020 Definitions.

9.10.030 Residential property noise limits.

9.10.040 Commercial and industrial property noise limits.

9.10.050 Public property noise limits.

9.10.060 Special provisions.

9.10.070 Exception permits.

9.10.080 Violations.
* Editor's Note: Prior ordinance history: Ordinances 2664, 3609, 3640, 3751, 3763, 3790, 3881, 4453.

9.10.010 Declaration of policy.

It is hereby declared to be the policy of the city that the peace, health, safety and welfare of the citizens of Palo Alto require protection from excessive, unnecessary and unreasonable noises from any and all sources in the community. It is the intention of the city council to control the adverse effect of such noise sources on the citizen under any condition of use, especially those conditions of use which have the most severe impact upon any person.
(Ord. 4634 § 2 (part), 2000)

9.10.020 Definitions.

For the purposes of this chapter, certain terms are defined as follows:
(a) "Sound level," expressed in decibels (dB), means a logarithmic indication of the ratio between the acoustic energy present at a given location and the lowest amount of acoustic energy audible to sensitive human ears and weighted by frequency to account for characteristics of human hearing, as given in the American National Standards Institute Standard S1.1, "Acoustic Terminology," paragraph 2.9, or successor reference. All references to dB in this chapter utilize the A-level weighting scale, abbreviated dBA, measured as set forth in this section.

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Attachment A_Current PAMC
Chapter 9.10 Noise Ordinance

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1/20/23, 2:08 PM https://export.amlegal.com/api/export-requests/bf9b718e-30fc-4972-bac0-20a9883204fb/download/ https://export.amlegal.com/api/export-requests/bf9b718e-30fc-4972-bac0-20a9883204fb/download/ 2/6 (b) "Precision sound level meter" means a device for measuring sound level in decibel units within the performance specifications in the American National Standards Institute Standard S1.4, "Specification for Sound Level Meters." (c) "Noise level" means the maximum continuous sound level or repetitive peak sound level, produced by a source or group of sources as measured with a precision sound level meter. In order to measure a noise level, the controls of the precision sound level meter should be arranged to the setting appropriate to the type of noise being measured. (d) "Local ambient" means the lowest sound level repeating itself during a six-minute period as measured with a precision sound level meter, using slow response and "A" weighting. The minimum sound level shall be determined with the noise source at issue silent, and in the same location as the measurement of the noise level of the source or sources at issue. However, for purposes of this chapter, in no case shall the local ambient be considered or determined to be less than: (1) Thirty dBA for interior noise in Section 9.10.030(b); (2) Forty dBA in all other sections. If a significant portion of the local ambient is produced by one or more individual identifiable sources which would otherwise be operating continuously during the six-minute measurement period and contributing significantly to the ambient sound level, determination of the local ambient shall be accomplished with these separate identifiable noise sources silent. (e) "Vehicle" means any device by which any person or property may be propelled, moved, or drawn upon a highway or street. (f) "Property plane" means a vertical plane including the property line which determines the property boundaries in space. (g) "Emergencies" mean essential activities necessary to restore, preserve, protect or save lives or property from imminent danger of loss or harm.
(h) "Leaf blower" means any portable machine used to blow leaves, dirt and other debris off sidewalks, driveways, lawns or other surfaces.
(i) "Residential power equipment" means any mechanically powered saw, sander, drill, grinder, generator, lawnmower, hedge trimmer, edger, or any other similar tool or device (other than leaf blowers). (j) "Residential zone" means all lands located within the following zoning districts: RE, R1, R2, RMD, RM-20, RM-30, and RM-40; "residential zone" also means any lands located within Planned Community (PC) zoning districts actually used for authorized residential purposes. Any zoning district other than those defined as residential zones are classified as non-residential zones for purposes of this chapter.
(k) "Holiday" means and includes New Year's Day (January 1), Martin Luther King Day (the third Monday in January), Washington's Birthday (the third Monday in February), Memorial Day (the last Monday in May), Independence Day (July 4), Labor Day (the first Monday in September), Columbus Day (the second Monday in October), Veteran's Day (November 11), Thanksgiving Day (the fourth Thursday in November), and Christmas Day (December 25). (Ord. 5460 § 15, 2019: Ord. 4634 § 2 (part), 2000)

9.10.030 Residential property noise limits.
(a) No person shall produce, suffer or allow to be produced by any machine, animal or device, or any combination of same, on residential property, a noise level more than six dB above the local ambient at any point outside of the property plane.

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Attachment A_Current PAMC
Chapter 9.10 Noise Ordinance

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(Ord. 4634 § 2 (part), 2000)

9.10.040 Commercial and industrial property noise limits.

No person shall produce, suffer or allow to be produced by any machine or device, or any combination of same, on commercial or industrial property, a noise level more than eight dB above the local ambient at any point outside of the property plane. (Ord. 4634 § 2 (part), 2000)

9.10.050 Public property noise limits.
(a) No person shall produce, suffer or allow to be produced by any machine or device, or any combination of same, on public property, a noise level more than fifteen dB above the local ambient at a distance of twenty-five feet or more, unless otherwise provided in this chapter.
(b) Sound performances and special events not exceeding eighty dBA measured at a distance of fifty feet are exempt from this chapter when approval therefor has been obtained from the appropriate governmental entity, except as provided in Section 22.04.180 of this code.
(c) Vehicle horns or other devices primarily intended to create a loud noise for warning purposes, shall not be used when the vehicle is at rest, or when a situation endangering life, health or property is not imminent. (Ord. 4634 § 2 (part), 2000)

9.10.060 Special provisions.

The special exceptions listed in this section shall apply, notwithstanding the provisions of Sections 9.10.030 through 9.10.050.

Said exceptions shall apply only to the extent and during the hours specified in each of the following enumerated exceptions. (a) General Daytime Exception. Any noise source which does not produce a noise level exceeding seventy dBA at a distance of twenty-five feet under its most noisy condition of use shall be exempt from the provisions of Sections 9.10.030(a), 9.10.040 and

9.10.050(a) between the hours of eight a.m. and eight p.m. Monday through Friday, nine a.m. and eight p.m. on Saturday, except Sundays and holidays, when the exemption herein shall apply between ten a.m. and six p.m. (b) Construction. Except for construction on residential property as described in subsection (c) of this section, construction, alteration and repair activities which are authorized by valid city building permit shall be prohibited on Sundays and holidays and shall be prohibited except between the hours of eight a.m. and six p.m. Monday through Friday, nine a.m. and six p.m. on Saturday provided that the construction, demolition or repair activities during those hours meet the following standards:
(1) No individual piece of equipment shall produce a noise level exceeding one hundred ten dBA at a distance of twenty-five feet. If the device is housed within a structure on the property, the measurement shall be made out-side the structure at a distance as close to twenty-five feet from the equipment as possible.

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Attachment A_Current PAMC
Chapter 9.10 Noise Ordinance

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CONSTRUCTION HOURS

FOR NON-RESIDENTIAL PROPERTY
(Includes Any and All Deliveries)
MONDAY - FRIDAY........8:00 a.m. to 6:00 p.m.

SATURDAY.........9:00 a.m. to 6:00 p.m.

SUNDAY/HOLIDAYS........Construction prohibited.

Violation of this Ordinance is a misdemeanor punishable by a maximum of six months in jail, $1,000 fine, or both. Violators will be prosecuted. P.A.M.C. § 9.10.060(b).
(c) Construction on Residential Property. Construction, alteration, demolition or repair activities conducted in a residential zone, authorized by valid city building permit, shall be prohibited on Sundays and holidays and is prohibited on all other days except during the hours of eight a.m. and six p.m. Monday through Friday, nine a.m. and six p.m. on Saturday, provided that the construction, demolition or repair activities during those hours meet the following standards:
(1) No individual piece of equipment shall produce a noise level exceeding one hundred ten dBA at a distance of twenty-five feet. If the device is housed within a structure on the property, the measurement shall be made outside the structure at a distance as close to twenty-five feet from the equipment as possible.
(2) The noise level at any point outside of the property plane of the project shall not exceed one hundred ten dBA. (3) The holder of a valid building permit for a construction project located within any residential zone shall post a sign at all entrances to the construction site upon commencement of construction, for the purpose of informing all contractors and subcontractors, their employees, agents, materialmen and all other persons at the construction site, of the basic requirements of this chapter. (A) Said sign(s) shall be posted no less than three feet and no more than five feet above ground level, shall be visible from the adjacent street, and shall be of a white background, with black lettering, which lettering shall be a minimum of one and one-half inches in height.
(B) Said sign shall read as follows:

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Chapter 9.10 Noise Ordinance

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CONSTRUCTION HOURS

FOR RESIDENTIAL PROPERTIES
(includes any and all deliveries)
MONDAY-FRIDAY.......8:00 a.m. to 6:00 p.m.

SATURDAY......9:00 a.m. to 6:00 p.m.

SUNDAY/HOLIDAYS.......Construction Prohibited.

Violation of this Ordinance is a misdemeanor punishable by a maximum of six months in jail, $1,000 fine, or both. Violators will be prosecuted. P.A.M.C. § 9.10.060(b).
(d) Other Equipment. Equipment used by city employees, city contractors, or public utility companies or their contractors, not covered by subsections (b) and (c) of this section, shall be allowed during the same hours as the exception set forth in subsection (b) of this section, providing no piece of equipment shall produce a noise level which exceeds one hundred ten dBA, measured at a distance of twenty-five feet from the equipment.
(e) Residential Power Equipment. Residential power equipment shall be allowed during the hours of eight a.m. and eight p.m.

Monday through Friday, nine a.m. and six p.m. Saturday, and ten a.m. and six p.m. on Sundays and holidays, providing it does not produce a noise level that exceeds ninety-five dBA measured at twenty-five feet from the equipment and is not being operated for construction regulated in subsections (b) or (c) of this section. (f) Leaf Blowers.
(1) No person shall operate any leaf blower which does not bear an affixed manufacturer's label indicating the model number of the leaf blower and designating a noise level not in excess of sixty-five dBA when measured from a distance of fifty feet utilizing American National Standard Institute methodology. Any leaf blower which bears such a manufacturer's label shall be presumed to comply with any noise level limit of this chapter provided that it is operated with all mufflers and full extension tubes supplied by the manufacturer for that leaf blower. No person shall operate any leaf blower without attachment of all mufflers and full extension tubes supplied by the manufacturer for that leaf blower.
(2) No person shall operate any leaf blowers within a residential zone except during the following hours: nine a.m. and five p.m.

Monday through Friday and ten a.m. and four p.m. Saturday. No person shall operate any leaf blower within any non-residential zone except during the following hours: eight a.m. and six p.m. Monday through Friday, and ten a.m. to four p.m. Saturday. No person shall operate any leaf blowers on Sundays and holidays. No person shall operate any leaf blower powered by an internal combustion engine within any residential zone after July 1, 2005. Commercial operators of leaf blowers are prohibited from operating any leaf blower within the city if they do not prominently display a certificate approved by the Chief of Police verifying that the operator has been trained to operate leaf blowers according to standards adopted by the Chief of Police. In addition to all authorizations and restrictions otherwise provided in this chapter, public streets, sidewalks, and parking lots in business districts and at the Municipal Golf Course and all city parks may be cleaned between 4:00 a.m. and 8:00 a.m. using leaf blowers which bear an affixed manufacturer's label indicating the Item 7
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Chapter 9.10 Noise Ordinance

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(l) Business District Street Cleaning. Cleaning equipment (other than leaf blowers), when used in public streets and public sidewalks within the public right-of-way in business districts shall be allowed during the hours of ten p.m. and eight a.m. daily, providing no such piece of equipment shall produce a noise level that exceeds ninety dBA measured at a distance of twenty-five feet. (Ord. 4778 §§ 2, 3, 2003: Ord. 4754 § 2, 2002: Ord. 4727 § 2, 2002: Ord. 4634 § 2 (part), 2000)

9.10.070 Exception permits.

If the applicant can show to the city manager or his designee that a diligent investigation of available noise abatement techniques indicates that immediate compliance with the requirements of this chapter would be impractical or unreasonable, a permit to allow exception from the provisions contained in all or a portion of this chapter may be issued, with appropriate conditions to minimize the public detriment caused by such exceptions. Any such permit shall be of as short duration as possible up to six months, but renewable upon a showing of good cause, and shall be conditioned by a schedule for compliance and details of methods therefor in appropriate cases. Any person aggrieved with the decision of the city manager or his designee may appeal to the city council pursuant to Section

16.40.080 of this code.
(Ord. 4634 § 2 (part), 2000)

9.10.080 Violations.

Any person who violates Section 9.10.060(e) or 9.10.060(f) shall be guilty of an infraction. Any person who violates any of the other provisions of this chapter shall be guilty of a misdemeanor. (Ord. 4634 § 2 (part), 2000)
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Chapter 9.10 Noise Ordinance

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GAS-POWERED LEAF BLOWERS

PROHIBITED

IN RESIDENTIAL NEIGHBORHOODS
While it’s been a city law since 2005, the City is reminding the public to go with an electric or battery-powered blower, or grab a rake or broom, for landscaping and garden clean ups in our residential areas. Gas-powered leaf blowers not only pollute our air but make a lot of noise that disturb our neighborhoods. If you see — or hear — somebody using a gas-powered leaf blower in a residential area, there are a few options to report it.

USING A GAS POWERED LEAF BLOWER MAY BE SUBJECT TO FINES LANDSCAPERS:

Convert to electric
leaf blower.

PROPERTY OWNERS: Make
an electric leaf blower available
for your landscaper or provide
an extra battery for their use.

NEIGHBORS: Download the
flyer online to help inform
your neighbors of the
City’s requirements.

Share this
information with
neighbors who
may not be aware.

Make an electric leaf
blower available for your
landscaper or extra
battery for their use.

Submit or report a call
using the Palo Alto 311
app with the day of the
week and time of violation.
cityofpaloalto.org/LeafBlowers
Contact Code Enforcement: (650) 329-2605
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Attachment B_Gas-
Powered Leaf Blower
Flyer

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CITY COUNCIL

STAFF REPORT
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Administrative Services
Meeting Date: February 6, 2023

TITLE
Review and Accept the FY 2024 - FY 2033 Long Range Financial Forecast (LRFF) and FY 2024 Budget Development Guidelines

RECOMMENDATION
The Finance Committee and staff recommend that the City Council accept the Fiscal Year (FY) 2024 to 2033 General Fund Long Range Financial Forecast Revised Base Case and annual Budget Development Guidelines (Attachment B) and direct staff to use this forecast as the starting point for the initiation of the FY 2024 budget process.

EXECUTIVE SUMMARY
The FY 2024 - 2033 Long Range Financial Forecast (LRFF) was reviewed with the Finance Committee on December 6, 2022 (Attachment A) along with the annual Budget Development Guidelines (Attachment B) and were unanimously approved by the Committee. This report 1) summarizes the key discussion points with the Finance Committee, 2) provides a revised Base Case Forecast in alignment with cost estimates of City and labor group positions on economic proposals1, and 3) provides preliminary information regarding Utility rates which may impact development of the FY 2024 Budget.

The Revised Base Case General Fund forecast reflects projected gaps in the first four years (FY 2024-FY 2027) with expenses out pacing revenues resulting in deficits ranging between $500,000 to $5.8 million annually. Staff expect that a combination of one-time funds and the eventual collection of new Business tax revenues from the passage of Measure K will assist in resolving these deficits.

Per City Council policy, items that are unanimously approved by the Finance Committee are placed as a consent agenda item for the City Council. However, staff and the Committee have placed this item on the City Council’s action agenda for deliberation of the full Council in 1 Subsequent to the Finance Committee review in December 2022, the City has reached tentative agreement with two labor groups, on this same February 6, 2023 agenda for approval, and adopted a new management and professional compensation plan.

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acknowledgement of the importance for financial planning in the continued varied economic conditions.

BACKGROUND
The LRFF is a preliminary ten-year forecast based on the most current information available, actual revenues for FY 2022, and projected results through FY 2023 at the point in time of release.

General Fund expenditures are based on current City Council approved service levels (Base Case) compared to projected revenues over the next ten years. This Forecast allows staff and City Council to look at both the short-term and long-term financial status of current service levels in the General Fund to inform daily policy decisions and evaluate long-term goals and ongoing challenges.
•Base Case Long Range General Fund forecast (as of December 2022) projects a surplus of $0.4 million in FY 2024, followed by a $3.4 million gap in FY 2025 and a $2.6 million gap in FY 2026, with small but increasing surpluses in FY 2027 through FY 2033. This forecast maintains current service levels approved in FY 2023 and should be used for planning purposes to assist in gauging effects of major policy interventions against a likely “status quo” version of the future.
•Alternate forecast scenario that reflects a more severe recession. Compared to the Base Case, this scenario increases the General Fund gap over the next ten years. FY 2024 changes from a surplus to a gap of $3.5 million, and revenues are not anticipated to be able to fund the annual expenditures until FY 2029.
•Alternate forecast that reflects estimated funding from Measure K (new business tax) and the impacts on the General Fund over the next ten years reflects a surplus in FY 2024 of $1.1 million, a gap in FY 2025 of $1.9 million, and surpluses in FY 2026 through FY 2033.

These alternate forecasts were done separately to show the impacts of each scenario in isolation; however, aspects of both alternate forecasts may occur in conjunction in the future.

As the COVID-19 pandemic is waning, economic uncertainty has heightened the intensity of financial forecasting and the budget development process including the need for complex problem-solving within an engaged public process across a wide range of issues. There are also several issues across the City continuing to impact the ability to transition beyond impacts of the pandemic including staff turnover, recruitment and retention, supply chain issues, and inflation that continue to increase costs across all aspects of the City. Development of the FY 2024 budget and planning for the subsequent years will balance the increased service level needs of the community with the financial resources projected. Ongoing revenues are unable to keep pace with expenses in the short term.

Based on this forecast, it is anticipated that the prioritization of spending and the use of one-time surplus funding from FY 2022 to cover short-term gaps over the next several years will be necessary to ensure continued financial stability. More detailed guidelines or Budget Policies to inform the development of the FY 2024 budget are discussed in Attachment B.

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ANALYSIS
This report
1) Summarizes the key discussion points with the Finance Committee, 2) Provides a revised Base Case Forecast in alignment with cost estimates of City and labor group positions on economic proposals, and
3) Provides preliminary information regarding Utility rates which may impact development of the FY 2024 Budget.

Finance Committee December 2022 Review and Discussion
As part of the Finance Committee’s review of the LRFF, there were no requests for additional information or changes to the report for the Council’s review; however, a few topics were highlighted as part of the discussion. Staff has compiled these items below.

Economic Development:
Potential for ongoing remote work and reduced office occupancy to impact major tax revenues, and lead to an extended local economic shift rather than a short term “blip”. Permanent parklet program should be evaluated as a revenue source, or at minimum, cost neutral.
Evaluate the potential for revenue from a new Fiber Utility.

Major Projects/Council Priorities:
Repair of the Cubberley Gym should be prioritized as it impacts many children citywide. A majority of work related to the Sustainability and Climate Action Plan (S/CAP) is currently funded in the Utility Funds; however, as work continues to expand, this will become a shared responsibility across other funds.

Labor Costs and Staffing Analysis:
As the biggest source of costs to the City, ensure that salaries and benefits such as pensions and medical plans are managed carefully, as outlined in the pension and retiree medical policies recently reviewed and updated by the Finance Committee. Quantifying service reinvestments should be evaluated in a manner other than just comparing headcount pre and post pandemic.

Revised Base Case Fiscal Year (FY) 2024 to 2033 General Fund Long Range Financial Forecast Subsequent to the Finance Committees review of the LRFF, a new agreement with Management Employees has been approved by the City Council at the December 19, 2022 meeting, and agreements with the International Association of Fire Fighters (IAFF) and Service Employees International Union (SEIU) are scheduled for City Council approval on February 6, 2023. This report includes a revised LRFF forecast that aligns cost estimates with this updated status of City and labor group positions on economic proposals.

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Consistent with prior Council direction in previous long range financial forecasts, a general wage adjustment of 2.0% was included for all years of the forecast along with a level of reserve to reach a target market placement for employee compensation in new labor agreements as a forecasting assumption, not as a commitment to future negotiations.

Staff will continue to refine these estimates during the FY 2024 annual budget process as labor agreements are finalized and more information is gathered on revenue trends. This revised Base Case, revises the LRFF reflecting gaps in the first four years, FY 2024 through FY 2027.

Table 1: Summary of Net One-Time Surplus/(Gap) – Base Case vs. Revised Net Surplus/(Gap) FY23 (Est.) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Base Case $0-6.0M $0.4M ($3.4M) ($2.6M) $1.5M $2.9M
REVISED Base Case $0-4.7M ($0.5M) ($5.8M) ($5.1M) ($1.0M) $0.3M Table 2: REVISED Base Case, FY 2024 -2033 Long Range Financial Forecast Preliminary Utility Rate Forecasts
Current economic uncertainty and commodity prices are expected to result in recommended increases to the utility rates for FY 2024. New information, not available when the LRFF was published in late November, is being provided for review and a preliminary preview of rates expected to be discussed as part of the FY 2024 budget process. These rates will impact customers residential and commercial, including the City itself as a consumer of these commodities. This information can be seen in Attachment C. At the time of this preliminary review of estimated rate forecasts, the state of California has seen unprecedented rainfall and flooding. Staff are reviewing the impacts of this storm on rate forecasts and will ensure this is factored into the recommended rate changes for FY 2024. These recommendations are scheduled to be reviewed in March – May 2023 by the Finance Committee and adopted the City Council in June 2023.

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FISCAL/RESOURCE IMPACT
Financial implications from this report and input from the City Council will be considered in the City Manager’s development of the Fiscal Year 2024 budget.

Upcoming milestones related to the City’s fiscal standing and the FY 2024 Budget Process include:
February 13 Council Meeting – FY 2023 Mid-Year Budget Review and Second Quarter Fiscal Analysis Report
March/April Utilities Advisory Commission (UAC) and Finance Committee Meetings – Five Year Utility Financial Plans and FY 2024 Rate Recommendations May 1 Council Meeting – FY 2024 Proposed Operating and Capital Budgets Published May Finance Committee Hearings – FY 2024 Proposed Budget Review, including Utility Rates, Municipal Fees, and Five-Year Capital Improvement Plan June Finance Committee Meeting – FY 2023 Third Quarter Fiscal Analysis Report June 19 Council Meeting – Adoption of the FY 2024 Operating and Capital Budgets, the Utility Rates, and Municipal Fees

STAKEHOLDER ENGAGEMENT
The preliminary forecast for FY 2024 represents the beginning of the fiscal year 2024 budget development process. As in previous years, the City Council discussion of LRFF will provide guidance to staff in the budget development process. It is anticipated that conversations with City Council and the community will occur through public budget hearings in Spring 2023, according to the standard budget adoption process.

ENVIRONMENTAL REVIEW
This report is not a project for the purposes of the California Environmental Quality Act.

Environmental review is not required.

ATTACHMENTS
Attachment A: FY 2024-2033 Long Range Financial Report (LRFF), CMR 14629 Attachment B: FY 2024 Budget Development Guidelines
Attachment C: Preliminary Utility Rates Forecast
APPROVED BY:

Kiely Nose, Assistant City Manager
Report #: 2301-0753
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City of Palo Alto (ID # 14629)
Finance Committee Staff Report

Meeting Date: 12/6/2022 Report Type: Action Items

City of Palo Alto Page 1

Title: Review and Forward the FY 2024 - 2033 Long Range Financial Forecast From: City Manager
Lead Department: Administrative Services

Recommendation
Staff recommends that the Finance Committee review and recommend that the City Council accept the General Fund Long Range Financial Forecast (LRFF) for Fiscal Year 2024-2033 and the FY 2024 annual Budget Development Guiding Principles (Attachment A) and direct staff to use this forecast as the starting point for the initiation of the FY 2024 budget process.

Executive Summary
Annually, the City presents a ten -year General Fund Long Range Financial Forecast (LRFF) in December that marks the beginning of the annual budget process. This preliminary forecast is based on the most current information available, act ual revenues for FY 2022, and projected results through FY 2023 at the point in time of release. General Fund expenditures are based on current City Council approved service levels compared to projected revenues over the next year.

The Base Case Long Range General Fund forecast projects a surplus of $0.4 million in FY 2024, followed by a $3.4 million gap in FY 2025 and a $2.6 million gap in FY 2026, with small but increasing surpluses in FY 2027 through FY 2033. This forecast maintains current service levels approved in FY 2023 and should be used for planning purposes to assist in gauging effects of major policy interventions against a likely “status quo” version of the future.

Staff modeled an alternate forecast scenario that reflects a more severe reces sion.

Compared to the Base Case, this scenario increases the General Fund gap over the next ten years. FY 2024 changes from a surplus to a gap of $3.5 million, and revenues are not anticipated to be able to fund the annual expenditures until FY 2029.

Staff modeled an alternate forecast that reflects estimated funding from Measure K and the impacts on the General Fund over the next ten years reflects a surplus in FY 2024 of $1.1 million, a gap in FY 2025 of $1.9 million, and surpluses in FY 2026 through FY 2033. These alternate forecasts were done separately to show the impacts of each Item 8
Attachment A_Finance
Committee FY 2024-2033
LRFF, CMR 14629

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City of Palo Alto Page 2

scenario in isolation; however, aspects of both alternate forecasts may occur in conjunction in the future.

As the COVID-19 pandemic is waning, new economic challenges are emerging such as monetary policy tightening actions by the US Federal Reserve to tame persistently high inflation and increasing geopolitical risks which may lead the United States into a recessionary period. This economic uncertainty has heightened the int ensity of financial forecasting and budget development process. New analyses and data generation demands require deep dives into complex problem-solving within an engaged public process across a wide range of issues. These forecast figures present staff wi th the challenge of prioritizing the growing needs of the City with the fiscal sustainability of these needs.

Locally, based on current election data, staff anticipate that both Measure L and K will be successful in gaining voter approval. Measure L, affi rming the ongoing Equity Transfer from the Gas Utility Fund is included in the Base Case scenario. Measure K, approval of a new Business Tax, is not assumed in this LRFF as part of the Base Case scenario; a resolution for intended use of funding has been e armarked for investments in public safety, transportation and train crossing safety, and affordable housing and unhoused support.

There are several issues across the City continuing to impact the ability to transition beyond impacts of the pandemic includ ing staff turnover, recruitment and retention, and supply chain issues and inflation that continue to increase costs across all aspects of the City. Development of the FY 2024 budget and planning for the subsequent years outlined in the forecast will need to be done strategically over the next several months in order to balance the increased service level needs of the community with the financial resources currently projected. With these variables, ongoing revenues are unable to keep pace with expenses in the short term.

City staff will continue to review and refine these projections to establish the FY 2024 budget and use this forecast to begin internal planning for budget balancing solutions. Based on this forecast, it is anticipated that the prioritizat ion of spending and the use of one -time surplus funding from FY 2022 to cover short -term gaps over the next several years will be necessary to ensure continued financial stability. More detailed guidelines or Budget Policies to inform the development of the FY 2024 budget are discussed at the end of this document (Attachment A).

Included in this report and subsequent documents are the following:
- The Economy: discussion of the current financial climate of the United States to the local economy of the City of Palo Alto (details can be found in Attachment B) - Summary Long Range Financial Forecast including Revenue and Expense assumptions in FY 2024-2033 (details can be found in attachment C and D) o Financial status of the General Fund as of the FY 2023 Adopted Budget o Brief discussion of FY 2022 surplus funding
o Updated FY 2023 revenue assumptions based on current projections - FY 2024 Budget Development Policies to inform the Budget process (Attachment A) Item 8
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- Alternate scenarios to the base case forecast to demonstrate financial impacts to the City from:
o Impacts from a moderate recession
o Impacts from the passage of Measure K

Background
Annually the Office of Management and Budget produces a ten -year General Fund Long Range Financial Forecast (LRFF). The LRFF reflects staff’s best estimates on the projected revenues and expenditures over the next ten years based on the information that is currently available. It is important to note that the LRFF is a planning document and is separate and distinct from the development o f the City’s annual Operating and Capital Budgets. There are assumptions and parameters modeled in the LRFF, but these assumptions are revised and refined as more information becomes available through the budget development process.

The LRFF contains a comprehensive review of the costs to provide current City Council approved service levels, including current contracts, updates to salaries and benefits based on the current population of employees, and the current labor contracts in effect. The LRFF also reviews the status of the current economy and various economically sensitive revenues such as Sales Tax, Documentary Transfer Tax, Property Tax, and Transient Occupancy Tax to explain key trends in those areas. This Forecast allows staff and City Council to look at both the short -term and long -term financial status of current service levels in the General Fund to inform daily policy decisions and evaluate long-term goals and ongoing challenges.

The Economy
U.S. workers and consumers have shown great resiliency throughout the pandemic, energy cost spikes, geopolitical uncertainty, and high inflation. National, state, regional, and local economic indicators are in transition; the economy exited 2021 in overdrive, but that growth combined with global supply c hain constraints has pushed inflation higher than expected. The federal reserve began raising the fed funds interest rate in March 2022 and is expected to continue in 2023 which is intended to tame inflation, but as of the writing of this report, progress is slower than desired. This has begun to and is predicted to cool the economy and result in a rise in unemployment. The federal reserve’s ability to balance the objectives of fighting inflation while maintaining employment and GDP growth will be challenging.

The local economy continues to show strong performance in the latter half of the calendar year 2022 though signs of “headwinds” are growing that are likely to stem economic growth.

Additional details on economic statistics such as Gross Domestic Product (GDP) and Consumer Price Index (CPI) can be found in Attachment B in greater length.

Discussion
Palo Alto serves a diverse community with a broad range of unique services that adds to the complexity of managing a balanced budget and healthy fiscal ou tlook. This annual General Fund Long Range Financial Forecast is coupled with annual rate forecasts for the City’s various Item 8
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enterprise activities such as electric, gas, and water utility services provided to the community.

As the COVID -19 pandemic is wanin g, new economic challenges are emerging which may lead the United States into a recessionary period. This economic uncertainty has heightened the intensity of financial forecasting and budget development process and continues the rigger previously demonstr ated by the Council and staff through the challenges of the pandemic.

These forecast figures present staff with the challenge of prioritizing the growing needs of the City with the fiscal sustainability of these needs.

The FY 2024-2033 ‘Base Case’ revenue and expense assumptions include updates on the status of the general fund as of the FY 2023 Adopted Budget, the FY 2022 fiscal year end, and current FY 2023 projected assumptions. As with all forecasts, there is uncertainty regarding the revenue and expenditure estimates contained in this document. This forecast assumes a mild 18 -month recession at the beginning of the ten -year period. Major tax revenues continue to rebound from prior year levels, reserves for economically sensitive revenues have been elim inated as programs modified or canceled during the pandemic have returned, and investments in Capital projects are restored to pre -pandemic levels. One -time resources that have boosted the City’s financial outlook in prior years: Coronavirus Aid, Relief, and Economic Securities Act (CARES Act) and American Rescue Plan Act (ARPA) have been allocated in full with no funds included in FY 2024.

Base Case
Table 1 displays the projected General Fund revenues and expenditures over ten years and the cumulative net operating margin.
- The operating margin reflects the variance between the projected General Fund revenues and expenditures for each year of the forecast or the annual surplus or shortfall.
- The net operating margin is presented on a one -time basis, as the annual surplus or shortfall for a given year, and on an incremental basis.

The incremental forecast assumes that each shortfall is addressed completely with ongoing solutions in the year it appears and that each surplus is completely expended with ongoin g expenditures. It is the City’s goal to remain in balance on an ongoing basis, so the incremental figure is useful to illustrate the additional surplus and/or shortfall attributed to a particular fiscal year. To the extent a shortfall is not resolved, or a surplus is not expended on an ongoing basis, it is important to understand that the remaining budget gap or surplus will remain and be pushed to the following year.

The Base Case financial forecast projects a surplus of $0.4 million in FY 2024, followed by a $3.4 million shortfall in FY 2025, a $2.6 million shortfall in FY 2026, and increasing surpluses thereafter. Based on these assumptions, the cumulative net operating margin, or ongoing surplus, during the forecast period is a surplus of $33.9 million.

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TABLE 1: FY 2024 – 2033 Long Range Financial Forecast (Base Case)

TABLE 2: FY 2024 – 2033 Long Range Financial Forecast Net Operating Margin (Base Case)

Revenue Assumptions
The FY 2022 Annual Comprehensive Financial Report (ACFR), scheduled for review by the Finance Committee on November 29, 2022, reported higher annual earnings for general fund revenues as compared to the prior year; major tax revenues experienced faster recovery paces in the last two quarters of the fiscal year (CMR 14632 1). Major tax revenues generated $137.5 million in FY 2022, an increase of $20.7 million or 17.7% over the FY 2021 levels of $116.8 million. Staff and the Council anticipated a portion of this increase in revenues and discussed $14 million during the May 2022 bu dget discussions for allocation in FY 2023. This recovery trend may continue as discussed in the First Quarter (Q1) FY 2023 Financial Report, scheduled for review by the Finance Committee on December 6, 2022; several categories appear to be tracking simila rly in FY 2023 to FY 2022 (CMR 14630). The current timing and potential for recession makes it difficult to determine if these trends will continue in the near term. In FY 2023, Staff estimates a range of $238 to $244 million in total revenues, reflecting up to $6

1 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/finance- committee/2022/20221129/20221129pfcsm-linked.pdf
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million or 2.5% above adopted budget levels. The higher end of this projection assumes that revenues will continue a similar positive trend as recent quarters. However, actual results will vary depending on the timing and magnitude of recessionary impacts in the near term.

A summary of revenue assumptions are discussed here, extensive information regarding each revenue category can be found in Attachment C.

- Tax revenues constitute nearly 60% of General Fund resources. In FY 2024, the forecast projects an $11.4 million or 8.4% increase from FY 2023 adopted levels ($135.1 million to $146.5 million). This increase is primarily attributed to higher anticipated receipts for Sales Tax, Property Tax, and Transient Occupancy Tax (TOT) categories. o Sales Taxes is anticipated to increase $0.7 million or 2.2% from FY 2023 ($32.6 million to $33.3 million). Revenue in this category is experiencing growth; however, is not anticipated to reach pre-pandemic levels until FY 2026. o Property Taxes make up the largest source of the General Fund’s revenue, approximately 25%. In FY 2024, this revenue is anticipated to increase $3.9 million or 6.5% from FY 2023 ($58.9 million to $63.7 million). During economic downturns, impacts to property tax occur a year later, however , due to robust residential and commercial property sales this source has continued to grow annually.
o Transient Occupancy Taxes are impacted by business and other leisure/non - leisure travel and experienced significant reductions in the past few years due t o a number of factors resulting from the pandemic. Though this revenue remains below pre-pandemic actuals, the opening of the two Marriott hotels in FY 2021 and the re -opening of multiple hotels in FY 2021 and FY 2022 were positive developments for this ta x revenue. In FY 2024, this revenue is anticipated to increase $6.8 million or 37.3% from FY 2023 ($18.2 million to $25.0 million); however, this category is not anticipated to reach pre -pandemic levels until FY 2026.

- The forecast for non -tax revenues pro jects a $1.0 million or 1.2% increase in FY 2024 from FY 2023 adopted levels. This increase is primarily attributable to the alignment of revenue estimates for the Stanford agreement to provide Fire and Dispatch services, and the restoration of several pro grams and services that were modified due to public health orders, mainly in public safety and community services.

- One-time resources that have boosted the City’s financial outlook in prior years have been eliminated:
o The City received $13.7 million in A merican Rescue Plan Act (ARPA) funding that the Council, per the legislation, designated to address the significant revenue loss resulting from the pandemic;
o $294,000 in Coronavirus Aid, Relief, and Economic Securities Act (CARES Act) funding to provide r ental assistance and support safe parking and COVID -19 Item 8
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testing programs; and
o $3.5 million in federal funds in FY 2022 through the Staffing For Adequate Fire and Emergency Response (SAFER) Grant Program. This funding offset the hiring costs of 5.0 firefighters for a three-year period and is fully expended in FY 2025.

The changes by revenue category, including dates in which revenues are anticipated to reach pre-pandemic levels, are discussed in greater detail below.

TABLE 3: General Fund Revenue Forecast
Revenue & Other Sources
Actual
2022
Adopted
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
CAGR 10
Years
CAGR 5
Years
Sales Taxes 32,705 32,580 33,288 34,953 37,085 39,570 41,292 43,080 45,096 47,301 49,628 52,085 4.6% 2.2% Property Taxes 59,353 59,770 63,669 67,305 71,224 75,448 79,950 84,570 89,238 94,334 99,937 106,164 5.2% 2.3% Transient Occupancy Tax
General Purpose 8,828 8,472 14,429 15,255 16,059 16,549 17,181 17,894 18,766 19,710 20,740 21,829 4.2% 1.8% Infrastructure 8,118 9,727 10,567 11,173 11,762 12,121 12,583 13,106 13,744 14,435 15,190 15,987 4.2% 1.8% Documentary Transfer Tax 11,990 7,217 6,867 7,029 7,200 7,381 7,574 7,849 8,152 8,452 8,755 9,066 2.8% 1.0% Utility Users Tax 15,599 15,579 15,878 16,967 18,359 19,133 18,460 20,488 21,215 21,943 22,706 23,498 4.0% 1.5% Other Taxes and Fines 893 1,784 1,784 1,784 1,784 1,784 1,784 1,784 1,784 1,784 1,784 1,784 0.0% 0.0% Subtotal: Taxes 137,486 135,129 146,483 154,467 163,473 171,986 178,824 188,771 197,995 207,959 218,740 230,413 4.6% 2.0% Charges for Services 28,671 30,271 33,355 33,648 33,847 33,952 34,040 34,225 34,379 34,563 34,622 34,744 0.4% 0.2% Permits and Licenses 9,111 9,764 11,454 11,928 12,154 12,266 12,456 12,743 13,020 13,316 13,161 13,274 1.5% 0.8% Return on Investments 1,325 1,066 1,492 1,528 1,574 1,622 1,671 1,734 1,805 1,881 1,960 2,043 3.2% 1.1% Rental Income 13,681 15,572 16,447 17,303 18,034 18,635 19,151 19,682 20,228 20,792 21,372 21,968 2.9% 1.5% From Other Agencies 9,232 7,526 1,281 998 266 266 266 266 266 266 266 266 -14.5% -14.5% Charges to Other Funds 13,980 13,690 14,460 14,810 14,989 15,091 15,398 15,668 15,963 16,261 16,330 16,411 1.3% 0.6% Other Revenue 2,447 2,201 2,592 2,615 2,630 2,646 2,662 2,679 2,696 2,712 2,730 2,748 0.6% 0.3% Total Non-Tax Revenue 78,447 80,090 81,080 82,830 83,495 84,477 85,643 86,996 88,357 89,791 90,441 91,454 1.2% 0.5% Operating Transfers-In 22,802 22,532 23,614 24,374 25,097 25,740 26,204 26,709 27,143 27,802 28,508 29,233 2.2% 1.0% BSR Contribution (One-Time) 9,670
Total Source of Funds $238,735 $247,421 $251,177 $261,671 $272,065 $282,203 $290,671 $302,477 $313,495 $325,552 $337,689 $351,101

TABLE 4: General Fund Revenue Forecast Year to Year Percentage Change Revenue & Other Sources
Actual
2022
Adopted
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Sales Taxes -0.4% 2.2% 5.0% 6.1% 6.7% 4.4% 4.3% 4.7% 4.9% 4.9% 5.0% Property Taxes 0.7% 6.5% 5.7% 5.8% 5.9% 6.0% 5.8% 5.5% 5.7% 5.9% 6.2% Transient Occupancy Tax
General Purpose -4.0% 70.3% 5.7% 5.3% 3.1% 3.8% 4.1% 4.9% 5.0% 5.2% 5.3% Infrastructure 19.8% 8.6% 5.7% 5.3% 3.1% 3.8% 4.2% 4.9% 5.0% 5.2% 5.2% Documentary Transfer Tax -39.8% -4.8% 2.4% 2.4% 2.5% 2.6% 3.6% 3.9% 3.7% 3.6% 3.6% Utility Users Tax -0.1% 1.9% 6.9% 8.2% 4.2% -3.5% 11.0% 3.5% 3.4% 3.5% 3.5% Other Taxes and Fines 99.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Subtotal: Taxes -1.7% 8.4% 5.5% 5.8% 5.2% 4.0% 5.6% 4.9% 5.0% 5.2% 5.3% Charges for Services 5.6% 10.2% 0.9% 0.6% 0.3% 0.3% 0.5% 0.4% 0.5% 0.2% 0.4% Permits and Licenses 7.2% 17.3% 4.1% 1.9% 0.9% 1.6% 2.3% 2.2% 2.3% -1.2% 0.9% Return on Investments -19.6% 39.9% 2.4% 3.0% 3.0% 3.0% 3.8% 4.1% 4.2% 4.2% 4.2% Rental Income 13.8% 5.6% 5.2% 4.2% 3.3% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% From Other Agencies -18.5% -83.0% -22.1% -73.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Charges to Other Funds -2.1% 5.6% 2.4% 1.2% 0.7% 2.0% 1.8% 1.9% 1.9% 0.4% 0.5% Other Revenue -10.1% 17.8% 0.9% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.7% 0.7% Total Non-Tax Revenue 2.1% 1.2% 2.2% 0.8% 1.2% 1.4% 1.6% 1.6% 1.6% 0.7% 1.1% Operating Transfers-In -1.2% 4.8% 3.2% 3.0% 2.6% 1.8% 1.9% 1.6% 2.4% 2.5% 2.5% BSR Contribution (One-Time) -100.0%
Total Source of Funds 3.6% 1.5% 4.2% 4.0% 3.7% 3.0% 4.1% 3.6% 3.8% 3.7% 4.0%

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TABLE 5: City of Palo Alto Major General Fund Revenues

Expense Assumptions
As part of developing the FY 2024 -2033 Forecast expenditure budget, the General Fund expense catego ries have been adjusted by removing FY 2023 Adopted Budget one -time expenses and updating major cost elements such as salary and benefits costs. The table below displays the expense forecast and when compared to the FY 2023 Adopted Budget, growth of

1.4% is expected in FY 2024. The small overall annual growth is due to the elimination of large one-time reserves in FY 2023 that offset the increase in expenses in other categories such as Salary and Benefits and Transfers to Infrastructure.

A summary of expen se assumptions are discussed here, extensive information regarding each expense category can be found in Attachment D.

- Salary and Benefits are projected to increase $11.3 million or 7.6% from the FY 2023 ($148.4 million to $159.7 million). This is primari ly attributable to increases in salaries ($6.1 million or 7.7%) and pension costs ($4.1 million or 10.5%). A general wage adjustment of 2.0% is included for all employees starting in either January 2023 or July 2023 for all years of the forecast since no M OA’s would be in effect at that time. A level of reserve to reach a target market placement for employee compensation in new labor agreements, as directed by the City Council is also assumed beginning in FY 2023.

- Long Term contributions to pension and oth er post -employment benefits and capital investments are being phased through the first three to five years of the forecast:

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o Pension 115 Trust contributions reflect City Council approved discount rate from

6.2% to 5.3% over two years; FY 2023 is a transitional year in which six months or the equivalent of approximately 5.8% is budgeted and the full transition in FY 2024 ($12.2 million ($7.2 million in the General Fund) in supplemental contributions is assumed in FY 2024).
o California Employers’ Retiree Benefi t Trust (CERBT) Fund for Retiree medical liabilities contributions reflect a 5.75% discount rate (6.25% assumption), and shortened amortization (from 22 to 15 years). Through FY 2023, it is expected that $8.0 million in supplemental principal contributions will be made to the CERBT Trust. The FY 2024 Budget estimates $16.4 million ($10.5 million in the General Fund) for ADC, an approximate $0.5 million or 2.9% increase from FY 2023 levels of $15.9 million ($9.9 million in the General Fund). o Capital Infrastructure transfers reflect the goal established as part of the 2022 - 2026 Capital Improvement Plan (CIP) to restore the base portion of this transfer to pre -pandemic levels by FY 2026. As the local economy continues to recover from the COVID-19 pandemic, estimated transfers from TOT revenues in FY 2024 are currently projected to increase to $10.5 million and the base transfer to increase to $10.8 million for a total $21.3 million transfer to the Capital Improvement Fund.

- Inflationary assumptions in this long range reflect the record inflation being seen at present, in FY 2024 and F Y 2025, a 5% annual inflation is assumed, while in the outer years FY 2026 ongoing it is brought to the historical average of 3%.

- Previously committed investments are included in th is forecast including but not limited to the continuation of the two year restoration of key services as adopted in the FY 2023 Budget. These services are assumed to be ongoing in this forecast in alignment with the expected voter approval of measure L an d affirmation of current revenues to the General Fund. This LRFF includes the City’s committed investment of $7.0 million in operating expenses for the partnership with LifeMoves and Project Homekey site services ($1.0 million annually which started in FY 2023 and is programmed through FY 2029).

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TABLE 6: General Fund Expense Forecast and Year to Year Percentage Change Expenditures & Other Uses
Actual
2022
Adopted
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
CAGR
10 Years
CAGR 5
Years
Salary 71,145 79,732 85,869 90,166 92,806 95,320 97,394 99,341 101,269 103,198 105,127 107,056 3.0% 1.3% Benefits 61,531 68,636 73,780 77,229 79,099 80,111 82,477 86,269 87,134 88,371 87,251 87,425 2.4% 1.1% Subtotal: Salary & Benefits 132,676 148,368 159,649 167,395 171,905 175,431 179,871 185,610 188,403 191,569 192,378 194,481 2.7% 1.2% Contract Services 20,844 24,194 23,921 25,375 25,863 26,555 27,106 27,931 28,461 29,330 29,834 30,688 2.4% 1.3% Supplies & Material 2,508 3,205 3,270 3,426 3,519 3,612 3,705 3,798 3,891 3,984 4,077 4,170 2.7% 1.3% General Expense 3,174 21,765 8,561 8,745 8,835 8,938 9,042 9,161 8,252 8,357 8,463 8,576 -8.9% 0.5% Rents & Leases 453 1,333 1,368 1,405 1,443 1,482 1,522 1,564 1,606 1,649 1,694 1,741 2.7% 1.1% Facilities & Equipment 538 480 450 471 484 497 510 523 536 549 562 575 1.8% 1.3% Allocated Charges 19,647 22,714 24,744 25,741 26,454 27,121 27,860 28,623 29,403 30,227 31,072 31,939 3.5% 1.2% Total Non Sal/Ben Before Transfers 47,164 73,691 62,314 65,163 66,598 68,205 69,746 71,600 72,149 74,097 75,701 77,689 0.5% 1.1% Operating Transfers-Out 5,498 4,962 4,643 4,745 4,854 4,959 5,072 5,188 5,302 5,423 5,547 5,699 1.4% 0.9% Transfer to Infrastructure - Base 4,506 10,673 13,640 16,607 19,575 20,009 20,523 21,053 21,599 22,161 22,740 23,336 8.1% 4.2% Transfer to Infrastructure - TOT 8,118 9,727 10,567 11,173 11,762 12,121 12,583 13,106 13,744 14,435 15,190 15,987 5.1% 1.8% Total Use of Funds 197,963 247,421 250,814 265,083 274,694 280,726 287,794 296,558 301,197 307,685 311,557 317,193 2.5% 1.4% Expenditures & Other Uses
Actual
2022
Adopted
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Salary 12.1% 7.7% 5.0% 2.9% 2.7% 2.2% 2.0% 1.9% 1.9% 1.9% 1.8% Benefits 11.5% 7.5% 4.7% 2.4% 1.3% 3.0% 4.6% 1.0% 1.4% -1.3% 0.2% Subtotal: Salary & Benefits 11.8% 7.6% 4.9% 2.7% 2.1% 2.5% 3.2% 1.5% 1.7% 0.4% 1.1% Contract Services 16.1% -1.1% 6.1% 1.9% 2.7% 2.1% 3.0% 1.9% 3.1% 1.7% 2.9% Supplies & Material 27.8% 2.0% 4.8% 2.7% 2.6% 2.6% 2.5% 2.4% 2.4% 2.3% 2.3% General Expense 585.8% -60.7% 2.2% 1.0% 1.2% 1.2% 1.3% -9.9% 1.3% 1.3% 1.3% Rents & Leases 194.1% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.8% Facilities & Equipment -10.7% -6.2% 4.7% 2.8% 2.7% 2.6% 2.5% 2.5% 2.4% 2.4% 2.3% Allocated Charges 15.6% 8.9% 4.0% 2.8% 2.5% 2.7% 2.7% 2.7% 2.8% 2.8% 2.8% Total Non Sal/Ben Before Transfers 56.2% -15.4% 4.6% 2.2% 2.4% 2.3% 2.7% 0.8% 2.7% 2.2% 2.6% Operating Transfers-Out -9.7% -6.4% 2.2% 2.3% 2.2% 2.3% 2.3% 2.2% 2.3% 2.3% 2.7% Transfer to Infrastructure - Base 136.8% 27.8% 21.8% 17.9% 2.2% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% Transfer to Infrastructure - TOT 19.8% 8.6% 5.7% 5.3% 3.1% 3.8% 4.2% 4.9% 5.0% 5.2% 5.2% Total Use of Funds 25.0% 1.4% 5.7% 3.6% 2.2% 2.5% 3.0% 1.6% 2.2% 1.3% 1.8%

Budget Stabilization Reserve
The City's Budget Stabilization Reserve (BSR) serves as the primary General Fund reserve. By policy, the BSR is maintained in the range of 15 to 20% of General Fund operating expenditures, with a target of 18.5%. Any reduction to the reserve below 15% requires City Council approval.

At the discretion of the City Manager, any BSR balance above 18.5% may be tran sferred to the Infrastructure Reserve (IR) in the Capital Improvement Fund, and/or the City's Section 115 Pension Trust Fund, as outlined in the Pension Funding Policy. The BSR is used to fund unanticipated one -time costs as opposed to ongoing or recurring operating expenditures; ongoing revenue or expense trends are updated as part of the annual budget process to adjust ongoing needs. The City's intent is to fund ongoing programs and services with ongoing dollars.

Maintaining the BSR at 18.5% also provides flexibility for the City to deal with unforeseen issues that may arise. Furthermore, establishing, and following, sound fiscal reserve policies has been a strong factor in the City being rated AAA by rating agencies.

Based on information reported in the FY 2022 Annual Comprehensive Financial Report (ACFR) CMR 146322, the City’s current BSR balance is $59.8 million, approximately $14.2 million above the 18.5% target of $45.6 million for FY 2023. Micro and macro -economic conditions are adjusting daily, with rising inflation, changes in jobs, and recessionary trends creating significant uncertainty. As the State of California Legislative Analyst Office (LAO) wrote in their annual Fiscal Outlooks for California “Economic Conditions Weigh on Revenues, [the] bo oming

2 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/finance- committee/2022/20221129/20221129pfcsm-linked.pdf
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economy has led to high inflation…efforts to tame inflation are slowing the economy…inflation pressures remain, raising risk of recession…fiscal outlooks revenues balance competing risks. 3” As shown in the table below, there are recommended adjustmen ts in line with the City Manager’s authority for transfer of excess BSR, adjusted for a recommendation to reserve funds to safeguard the stability the City has strived to achieve in the recent year by re - establishing an economic uncertainty reserve. Staff anticipates returning to Council in February 2023 with the FY 2023 Mid -Year Review and recommendations in alignment with the allocation below for the appropriation of BSR funds above the 18.5% level. Staff do recommend a transfer to the Infrastructure Rese rve as inflationary costs are impacting capital project needs including anticipated significant price increases in the Automated Parking Guidance Project, as well as a need to provide safety improvements to critical assets such as the artificial turf playi ng fields.

These actions will leave the BSR at $45.8 million or $0.2 million above the 18.5% Council recommended level.

TABLE 7: Budget Stabilization Reserve (BSR) Summary (in millions) General Fund BSR Balance, June 30, 2022 $72,835

FY 2023 Approved Adjustments to the BSR Balance
FY 2023 Adopted Budget ($9,072)
FY 2023 Services Reinvestment ($3,700)
Downtown Streets Team (CMR 14526) ($167)
Reappropriations (CMR 14728) ($100)
Subtotal: Approved Adjustments to the BSR Balance ($13,039)

Subtotal: BSR Balance, After Approved Adjustments $59,796

Uses of the FY 2022 Surplus
FY 2023 RECOMMENDED Adjustments to the BSR Balance
(to be considered in FY 2023 Mid-Year Budget Review)

Reserve for Economic Uncertainty ($5,000)
Transfer to Section 115 Pension Trust Fund ($5,000)
Transfer to Infrastructure Reserve (IR) in the Capital Improvement Fund
($4,000)
Subtotal: RECOMMENDED Adjustments to the BSR Balance ($14,000)

Current Projected FY 2022 BSR Level, (June 30, 2023) $45,796

This trend may continue as discussed in the First Quarter (Q1) FY 2023 Financial Report, scheduled for review by the Finance Committee on December 6, 2022, in which several categories appear to be exceeding budgeted levels in FY 2023 similar to FY 202 2 (CMR 14630).

3 The 2023-24 Budget California’s Fiscal Outlook, California Legislative Analyst’s Office (LAO), November 16, 2022, https://lao.ca.gov/Publications/Report/4646
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Although revenues have experienced growth in recent periods, the potential for recession makes it difficult to determine if these trends will continue in the near term. This LRFF assumes a mild 18-month recession at the beginning of the ten -year period and projects a range of $238 to $244 million in total revenues in FY 2023, reflecting up to $6 million or 2.5% above adopted budget levels. The higher end of this projection assumes that revenues will continue a similar positive trend as the su mmer period. Although staff may complete the 115 Pension Trust Fund and Infrastructure Reserve transfer, staff recommend waiting until more data is available on current trends to ensure staff and the Council are making an informed decision on how best to position the city to ensure stability during these uncertain times. Staff expect that one -time funding such as these will be critical to continue to mitigate impacts from a recession and bridge the near term gaps seen in the first few years of this LRFF.

Assumptions NOT Included in Forecast
It should be noted that this forecast does not include several potential impacts to the FY 2024 - 2033 LRFF that are outlined below. These items are known projects or areas of investment that are a priorities, but have not been fully developed in terms of costs and timelines. This is not intended to be a comprehensive list nor in any priority order.

Project Homekey: On September 27, 2021 the City Council directed staff to apply for Project Homekey funding in conjunction w ith LifeMoves to build an emergency shelter at the former Los Altos Treatment Plant (LATP) site (CMR 13595 4). This project will rapidly deploy modular housing to provide interim housing opportunities for homeless individuals and families in the City of Pa lo Alto. The grant was awarded in Summer 2022 and the City is currently in negotiations with local partners on operational roles to leverage local expertise and ensure high quality services. This LRFF includes the City’s committed investment of $7.0 millio n in operating expenses ($1.0 million annually which started in FY 2023 and is programmed through FY 2029); however, with the actual timing of the funding still to be determined, and commitments from other local partners negotiated, City costs for this pro ject could fluctuate throughout the ten year period.

Sustainability and Climate Action Plan (S/CAP): In early 2020, the City launched an update of the Sustainability and Climate Action Plan (S/CAP) Framework to determine the goals and key actions needed to meet its sustainability goals, including the goal of reducing greenhouse gas (GHG) emissions to 80 percent below 1990 levels by 2030 (the “80x30” goal). As part of the FY 2022 Mid -Year Review (CMR 13801 5) and the 2023 Adopted Operating Budget 6, Council approved several actions to increase resources to support S/CAP needs. In October 2022 (CMR

4 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2021/09-september/20210927/210927accsm-amended-final.pdf 5 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2022/20220207/20220207pccsm-revised-final.pdf 6 https://www.cityofpaloalto.org/files/assets/public/administrative-services/city-budgets/fy2023-city- budget/adopted-fy23/operating-budget_final-4.pdf
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147207), City Council accepted the updated S/CAP Goals and Key Actions and adopted a goal to make the City carbon neutral by 2030. Staff commenced California Envir onmental Quality Act (CEQA) evaluation of the S/CAP upon Council’s acceptance of the proposed S/CAP Goals and Key Actions. The City is currently in the process of finalizing the Three -Year Work Plan, which will be brought to Council for review and discussi on in December 2022. The final S/CAP Report will be brought to Council for acceptance in Spring 2023. As the S/CAP Work Plan and final report are still in development, cost projections are not yet contemplated in the forecast.

Implementation is anticipated to require significant resources, including internal staffing and consultant expertise.

Service reductions not restored to pre-pandemic levels:

The City made significant service reductions in FY 2021 and FY 2022 Adopted Budgets to align expenses with lo sses of nearly $40 million in General Fund tax revenues due to economic impacts resulting from the COVID -19 pandemic. During this time, many services were reduced or eliminated across the organization and essential services were prioritized. Ultimately, th e City’s General Fund workforce was reduced by 83 full -time staffing positions (76.50 FTE) and 107 part -time positions (26.18 FTE). In FY 2022, the City began to see gradual signs of improvement and a positive economic outlook that supported initial reinve stments in the first quarter (Q1) FY 2022 financial report (CMR 13439 8), FY 2022 Mid -Year Budget Review (CMR 138019), and the Staffing for Adequate Fire and Emergency Response (SAFER) grant (CMR 1364310). Further reinvestments were made in the FY 2023 Adopt ed Budget 11 to restore services that were previously reduced and provide resources to support priority initiatives. In total, full -time staffing levels have increased by 61.85 FTE, from the pandemic low of 956.00 FTE to 1,017.85 FTE. This level of staffing remains below pre -pandemic levels of 1,034.85 FTE.

As of this LRFF, some services remain below pre -pandemic levels or have new and evolving changes to meet community needs. These services will continue to be evaluated and proposals brought forward in future budget processes for City Council consideration.

Significant code and ordinance updates: Updates to several significant programs, codes and ordinances are expected to be necessary in the near future; some of these updates include:

Seismic Inventory Ordi nance and Program Development, Historic Building Survey and Ordinance Development, and Zoning Code Updates. Depending on future Council direction, program implementation is anticipated to require significant resources, including internal staff and outside consultant expertise.

7 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2022/20221003/20221003accsm-amended-presentations.pdf 8 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2021/10-october/20211025/20211025pccsm-linked-w-times.pdf 9 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2022/20220207/20220207pccsm-revised-final.pdf 10 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2021/11-november/20211101pccs-amended.pdf 11 https://www.cityofpaloalto.org/files/assets/public/administrative-services/city-budgets/fy2023-city- budget/adopted-fy23/operating-budget_final-4.pdf
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Fee and Organizational Studies: The Planning and Development Services (PDS) Department is in the process of completing two studies, a fee study and an organizational study on the Fire Prevention group. The purpose of the fee study is to align fees and revenues based on the updated department structure to continue to meet Council approved cost recovery levels.

Ahead of the completion of the Department -wide study, an organizational study of the Fire Prevention program will be completed t o inform the fee study. Because the Fire Prevention Program is currently housed in both the Fire and Planning and Development Services departments, recommendations may be made to realign the program and resources. The Library Department is also in the process of completing an organization study to assess staffing, resource, and service levels with the goal of increasing open hours and providing additional services to the community. Lastly, a citywide fee study needs to be completed periodically by an outsid e consultant to ensure the City’s fees are in line with its cost recovery policies. This study will be scheduled to be completed by FY 2024 and could update fees and associated revenue assumptions in future year LRFF reports.

Labor negotiations: As of the timing of this report, all labor agreements are scheduled to expire on December 31, 2022, with the exception of the Service Employees International Union Hourly Unit (SEIU-H) agreement, which is extended through June 30, 2023. A general wage adjustment of 2.0% is included for all years of the forecast since no agreements would be in effect at that time. This is consistent with prior Council direction in previous long range financial forecasts to use the 2.0% increase as a forecasting assumption, not as a commitment to future negotiations.

Additionally, this forecast includes a level of reserve to reach a target market placement for employee compensation in new labor agreements, as directed by the City Council. Staff expects to adjust these costs throughout the budget development process in accordance with market studies and final contract terms.

Capital Infrastructure Plan: As referenced earlier, the June 2014 Council approved Infrastructure Plan of $125.8 million in projects was based on construction and d esign costs with data from 2012. As construction costs have increased and the City is required to pay prevailing wages, the Infrastructure Plan’s funding status has shifted. The FY 2023 Adopted Capital Budget anticipated that these projects would cost $261 .8 million. Staff is working to maintain these projects within the current budget; however, project costs can fluctuate based on market conditions at the time of construction award.

Grade Separation: The grade separation project consists of the four at-grade crossings along the Caltrain corridor in the City of Palo Alto located at Palo Alto Avenue, Churchill Drive, Meadow Avenue, and Charleston Road. The City is working on conceptual alternative plans for the selection of the preferred alternative at Churc hill Avenue, Meadow Drive, and Charleston Avenue crossings. In November of 2021, after performing a detailed review of the alternative plans under consideration, Council selected the Partial Underpass Alternative as the preferred alternative and designated Closure with Mitigation as a backup alternative for the Churchill Avenue crossing. Council also directed staff to conduct additional studies and to refine underpass alternatives by seeking input from stakeholders (Pedestrian and Bicycle Advisory Item 8
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Committee, Palo Alto Unified School District, and Stanford University). Such input could further assist in narrowing down grade separation alternatives. On May 23, 2022 (CMR 14341 12), the City Council authorized an amendment to the consultant contract for performing these additional tasks

Once preferred alternatives are selected, the next phase will include preparing preliminary engineering and environmental documents for the three crossings. The Valley Transportation Authority (VTA) 2016 Measure B Caltrain Grade S eparation funding is available to the City for additional studies and the next phases of the project which include preliminary engineering and environmental review, right-of-way, design, and construction. In addition to this, on August 10, 2022 (Supplement al Memorandum AA1 13) the City Council adopted advisory spending guidelines stating its intention to expend a portion of the revenues from Measure K on the rail grade separation project.

The 2016 Measure B program tax revenue amounts to a total of $700 mil lion in 2017 dollars for all at-grade crossings in Santa Clara County, and the City anticipates allocation of 50% of said funding. The VTA is currently programming these funds in two -year increments. Grade Separation 2016 Measure B funding requires matchin g local funds as a result, additional funding sources will need to be identified to perform this work in upcoming years (FY 2024 – FY 2033). The full funding needed to complete the grade crossings project is unknown at this time; however, it is expected, t hat funding necessary to complete this work will exceed funding currently identified for this project. Therefore, additional resources will need to be explored to plan and fund these grade separations, including City staff pursuing additional funding throu gh grant opportunities as they become available.

Parks Master Plan: The Parks Master Plan 14 was finalized in 2017; however, when approved it identified a need to develop a funding strategy and this is still in process. As such, this forecast does not yet contemplate the necessary investments to fully execute this plan.

Racial Equity Work: The Race & Equity Framework and action plan was approved in June 2020 (CMR 1144115) and remaining funding of $0.5 million has been reappropriated to be available in FY 2023. Staff is in the process of procuring consultants to assist with the City’s diversity, equity, and inclusion efforts in engaging staff, the City Council, and Boards/Commissions. After this initial work, further recommendations are anticipated to be for thcoming and will likely require additional resources either for more consultant assistance and/or an ongoing in -house Equity Officer position (discussed during the 2020 Ad Hoc Committee meetings). These

12 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2022/20220523/20220523pccsm-revised.pdf 13 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/at-places- memo/20220810apmccsm.pdf
14 https://www.cityofpaloalto.org/files/assets/public/public-works/palo-alto-parks-master-plan.pdf 15 http://cityofpaloalto.org/civicax/filebank/documents/77273 Item 8
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recommendations are anticipated to be brought forwar d in FY 2023 or as part of the FY 2024 budget process.

Palo Alto Animal Shelter operations and rebuild
In early 2019, the City entered into a public private partnership with Pets In Need (PIN) to support the operation of the City’s animal shelter. Part of PIN’s operating proposal included robust fundraising to rebuild the current shelter into a state -of-the-art animal shelter for the City, with costs shared between the City and PIN. Since the initial agreement, PIN has indicated that additional constructio n projects are required, which will increase capital project costs significantly. Preliminary estimates are $3.0 to $4.0 million over existing commitments, and no funding is identified for these costs. The City and PIN both have an interest in continuing t he partnership and on February 14, 2022 City Council directed staff to proceed with negotiations to update the service agreement (CMR 1395216).

City owned assets operated by non -profit organizations: This Forecast does not include any additional capital or operating investments for the Avenidas Senior Center, the Ventura Child Care Center, nor the Sea Scout Building. As costs around potential capital or operating investments for these assets solidify, staff will return to City Council to address them as appropriate. As part of the FY 2023 Adopted Capital Budget 17 the City Council established the Roth Building Rehabilitation Phase 1 capital project (PF -23001) directed a funding strategy for the Roth Building Rehabilitation Project, which consists of utilizing $5.4 million from a variety of funding sources including the Stanford University Medical Center (SUMC) Fund; library, parks, and community center impact fees; grants from Santa Clara County; and donations from the Palo Alto Museum. This funding strategy is included in the LRFF; however, if costs for rehabilitating the Roth building increase, additional sources of funding would need to be identified.

Cubberley Community Center Concept Plan: The City and PAUSD completed a co -design process for a Cubberley C ommunity Center Concept Plan in 2019; however, costs to implement the concept plan are not assumed in this LRFF in excess of the dedicated Cubberley infrastructure funding included in the existing agreement between the PAUSD and the City (discussed in the Transfer to Infrastructure section of this report). The Concept Plan may require revision before implementation as operational changes have occurred since its completion including execution of a new lease between the City and PAUSD for the school district owned portion of Cubberley, which commenced on July 1, 2020, and reduced the amount of building space leased to the City (discussed in the General Expense - Cubberley Lease section of this report) . On February 14, 2022 the Council directed Staff to pause p reparation of the Cubberley Concept Plan CEQA and return with a work plan to include: i. exploring a land swap at Fletcher or financial framework for acquiring available land; and ii. scoping the design process for Cubberley Community Center

16 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2022/20220214/20220214pccsm-amended-linked-final.pdf 17 https://www.cityofpaloalto.org/files/assets/public/administrative-services/city-budgets/fy2023-city- budget/adopted-fy23/capital-budget_final-4-online-version.pdf Item 8
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that is City o wned once the acreage is determined. Staff is communicating with PAUSD on the potential to acquire additional land at Cubberley, including acreage amount. This could be through a land swap, acquisition, or ground lease. Staff is also determining next steps for repair of Cubberley Gyms A and B, which have been closed since February 2022 due to damage caused by water line breaks.

Loans for special projects: From time to time the City’s General Fund will assist other City operations with modest cash flow loan s to bridge fiscal years. For example, the City provided over $3 million in loans to the Airport Fund as it worked to secure significant grant funding from the Federal Aviation Administration (FAA) for capital improvement costs. As of FY 2020, the Airport Fund began paying back the loan to the General Fund. Additions and other initiatives funded in other funds may need financial support from the General Fund to ensure they are fully implemented. In FY 2023 the Residential Preferential Parking (RPP) Fund rec eived a one - time $0.4 million General Fund loan to remain solvent while continuing operations given the sustained drop in parking demand during the pandemic. Additional loans from the General Fund are not assumed in this forecast.

Legislative Updates: Various actions at the state and federal level that could impact the City of Palo Alto have not been incorporated into this forecast due to the changing context and uncertainty of the quantitative impacts of potential legislative changes. As the potential impacts of various legislative initiatives are clarified, appropriate adjustments will be identified and brought forward as part of future budget development cycles.

Tax revenue alignment with updated Comprehensive Plan: The 2030 Comprehensive Plan was adopted in FY 2018, including the potential fiscal impact of various land use scenarios. The fiscal impact of this plan and various land use scenarios are not factored into this forecast.

Aging or Noncompliant Infrastructure: The City maintains indoor and outdoor facilities, many of which have been identified in the City’s ADA transition plan and by the Infrastructure Blue Ribbon Commission as requiring capital project work to bring them up to full ADA compliance and/or sufficient conditions. Facilities of con cern include Cubberley Community Center, Foothills Park Restrooms, Lucie Stern Community Theatre restrooms, and Rinconada Pool locker rooms. Staff continues to program work needed in this area as part of the Americans with Disabilities Act Compliance capit al project (PF -93009); however, the entire scope of work needed in this area exceeds current resources.

Parks Trash Removal: The City currently does not have weekend trash removal services at most urban parks. Prior to the COVID-19 pandemic, Rinconada and Mitchell Parks had weekend trash removal, because those parks had picnic tables that could be reserved by residents. Staff have noted that garbage cans can become overfilled on the weekends and are looking into how to fund and operationalize adjustments t o mitigate this issue. Possible solutions under consideration include an increase in collection frequency, enhanced signage, and educational Item 8
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materials on waste reduction options such as reusable picnicware. Staff will bring forward needs for reinvestment in this area in FY 2023 or as part of the FY 2024 budget process.

Permanent Parklet Program: On June 23, 2020 the City Council adopted an emergency ordinance to temporarily permit businesses to operate outdoors on both public and private property, referred to as the pilot parklet program (CMR 11439 18). On April 19, 2021 the Council directed staff to develop a permanent parklet program (CMR 12041 19). The current pilot program was extended most recently on October 24, 2022 (CMR 14692 20) to extend the temporary p arklet program to June 30, 2023 and allow the other on -street and parking lot dining and retail programs through December 31, 2023. Staff are developing a permanent program which will include staffing and maintenance resources funded by new municipal fees and associated revenues. This program is anticipated to be brought forward for Council consideration in December 2022 and resources adjusted in FY 2023 or as part of the FY 2024 budget process.

General Liability Umbrella Excess Premiums: The City’s Gener al Liability Program provides funding to cover various insurance policies for City -owned equipment and machinery. The City is self -insured for the first $1.0 million in losses per occurrence and participates in a Joint Powers Authority for coverage up to $ 55 million per occurrence. These expenses are allocated to citywide departments. General Liability Umbrella Excess Premiums are anticipated to increase in future years due to significant national events and natural disasters such as claim costs for Hurrica ne Ian. Staff will bring forward adjustments for these costs as part of future budget cycles as they become available.

Fire Training Center: As part of the FY 2023 Adopted Capital Budget 21 the City Council approved the Fire Training Facility Replacement ca pital project (FD-24000) to identify an appropriate site and construct a new fire training facility in Palo Alto. Funding was only appropriated for the feasibility study portion of the project, and additional resources will need to be appropriated in future budget cycles based on the results of the study. In addition, the Fire Department is also evaluating opportunities to partner with other local jurisdictions for training needs, instead of building a permanent facility in Palo Alto.

FY 2023 Budget Development Guidelines
When the Fiscal Sustainability Workplan (CMR 10267 22) was approved by the City Council on April 22, 2019 drafting a budget development policy was listed as part of the “Newly proposed

18 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2020/id-11439.pdf
19 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2021/id-12041.pdf
20 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2022/20221024/20221024pccsm-amended.pdf 21 https://www.cityofpaloalto.org/files/assets/public/administrative-services/city-budgets/fy2023-city- budget/adopted-fy23/capital-budget_final-4-online-version.pdf 22 https://www.cityofpaloalto.org/civicax/filebank/documents/70506 Item 8
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or potential activities proposed to be completed”. The i nclusion of Budget Development Guidelines in with this forecast represents staff’s recommended method of addressing this referral. Pairing Budget Development Guidelines with the forecast at the beginning of the budget process links the anticipated fiscal c ondition of the organization with the necessary context regarding service delivery prioritization and resource allocation that will be further explored through the process. This also ensures that the City is able to proactively address anticipated changes in its fiscal condition through the budget process.

As discussed earlier in this document, this preliminary forecast represents the initial steps of the FY 2024 budget development process. Due to the clear overlap of projecting the City’s fiscal condition and the need to shape service level expectations, staff recommends that the inclusion of Budget Development Guidelines be incorporated into the discussions at the beginning of an annual budget process. The FY 2024 Budget Development Guidelines, which are detailed in Attachment A, are meant to reflect the anticipated fiscal condition of the City and to provide high-level budgetary direction to the organization. These guidelines will shape and inform the annual financial planning and the allocation of resour ces across the organization, especially in the General Fund.

Conclusion
This forecast maintains current service levels approved in FY 2023 and should be used for planning purposes to assist in gauging effects of major policy interventions against a likely “status quo” version of the future. The level of uncertainty in this forecast is reduced from where it was a year ago in terms of impacts from the COVID -19 Pandemic; however, the City is continuing to manage through current economic uncertainty and evalua ting potential impacts on the local economy. Positive trends in major tax revenue categories that occurred in FY 2022 caused a one -time surplus of $14.2 million that Staff anticipates returning to Council in February 2023 with the FY 2023 Mid -Year Review and recommendations in alignment with the allocation for the appropriation of BSR funds above the 18.5% level. This includes transfers to the Infrastructure Reserve (IR) in the Capital Improvement Fund ($4.0 million) and the City's Section 115 Pension Trust Fund ($5.0 million), as outlined in the Pension Funding Policy, and a recommendation to reserve funds to safeguard the stability the City has strived to achieve in the recent year by re -establishing an economic uncertainty reserve ($5.0 million). Although revenues have experienced growth in recent periods, the potential for recession makes it difficult to determine if these trends will continue in the near term.

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The LRFF Base Case assumes a mild 18 -month recession at the beginning of the ten -year period in which revenue growth is anticipated to slow through the end of FY 2024. As a result, the LRFF projects a surplus of $0.4 million in FY 2024, followed by a $3.4 million gap in FY 2025, and a $2.6 million gap in FY 2026, with small but increasing surpluses in FY 2027 through FY 2033.

Additionally, this LRFF projects a range of $238 to $244 million in total revenues in FY 2023, reflecting up to $6 million or 2.5% above adopted budget levels. The higher end of this projection assumes that revenues will contin ue a similar positive trend as recent quarters.

However, actual results will vary depending on the timing and magnitude of recessionary impacts in the near term. If these additional revenues continue to materialize in FY 2023, Staff anticipates returning to Council as part of the FY 2023 Mid -Year Budget Review to recommend using this funding to increase the economic uncertainty reserve to help mitigate impacts from a recession as well as smooth the near-term gaps seen in the first few years of this LRFF.

In addition to the Base Case Forecast, staff modeled an alternate forecast scenarios that are discussed below. The first alternative reflects a more severe recession compared to the Base Case and increases the General Fund gap over the next ten years. FY 202 4 changes from a surplus to a gap of $3.5 million, and revenues are not anticipated to be able to fund the annual expenditures until FY 2029. Staff also modeled an alternate forecast that reflects estimated funding from Measure K and the impacts on the Gen eral Fund over the next ten years. The surplus in FY 2024 increases to $1.1 million, the gap in FY 2025 reduces to $1.9 million, and FY 2026 changes from a gap to a small surplus. These alternate forecasts were done separately to show the impacts of each s cenario in isolation; however, aspects of both alternate forecasts may occur in conjunction in the future.

Alternative Scenarios for Consideration
Alternative Forecast Scenario A: Moderate Recession
This alternative forecast models the impact of a moderat e recession that assumes slower growth of major tax revenues as compared to the base case. In this alternative, the range for excess revenues in FY 2023 is reduced from an upper estimate of $6 million to $3 million.

Additionally, growth rates in FY 2024 an d beyond are slowed, reducing net earnings by approximately $4 to $6 million in the forecast and extending the timeframe to recover to pre - pandemic levels by one to three years. The summary table for this alternative forecast and the Net Operating Margin g raph for this alternative forecast are below. Additional discussion for this alternative follows these figures.

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TABLE 8: FY 2024 – FY 2033 Long Range Financial Forecast Alternative Forecast A

TABLE 9: FY 2024 –2033 Long Range Financial Forecast Net Operating Margin Alternative Forecast A

The Base Case projected that by FY 2027, the City would begin to have a positive surplus; this alternative forecast extends the operating gap to FY 2029. In this alternative, the General Fund would have a gap of app roximately $3.5 million in the first year of the forecast. This gap increases to a peak of $7.2 million in FY 2025 and begins to taper in the two years following. FY 2029 is the first-year revenues would reach levels sufficient to support expenses.

Alternative Forecast B: Measure K Funding
This alternative forecast assumes the use of approximately 30 percent of revenues generated from Measure K to offset known eligible expenses that contribute to funding gaps in the base case. Measure K was presented on the November 8, 2022 ballot to establish a tax on businesses operating in Palo Alto. This measure levies a tax on businesses based on a monthly rate of 7.5 cents per square foot of occupancy, subject to exclusions, with initial payments due January 2024. For the first two years, the tax would be imposed at half the rate. The tax rate and cap would be increased by 2.5% annually to account for general inflation, beginning July 2026. The tax would terminate January 1, 2058, unless extended by voters. The propose d tax is estimated Item 8
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to raise approximately $9.6 million each year for 35 years. The City Council has adopted advisory spending guidelines stating its intention to expend revenues on long -term stable funding for public safety, affordable housing and homeless services, and grade separated train crossings that maintain safety and mobility for vehicles, bicyclists, and pedestrians, and to annually report on tax revenues and expenditures. The summary table for this alternative forecast and the Net Operating Margi n graph for this alternative forecast are below. Additional discussion for this alternative follows these figures.

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TABLE 10: FY 2024 – FY 2033 Long Range Financial Forecast Alternative Forecast B

TABLE 11: FY 2024 – 2033 Long Range Financial Forecast Net Operating Margin Alternative Forecast B

In this alternative, the eligible funds for Measure K are phased -in over three years, in alignment with the anticipated implementation of the tax. As mentioned above, approximately 30 percent of the total ant icipated receipts are used to offset eligible costs. These additional resources result in a higher surplus of $1.1 million in FY 2024 as compared to the base case. Additionally, the gaps in forecast years are significantly reduced or eliminated. In this sc enario, the City has a one-time gap of $1.9 million in FY 2025 followed by continued surplus throughout the forecast.

STAKEHOLDER ENGAGEMENT
The preliminary forecast for FY 2024 represents the beginning of the fiscal year 2024 budget development process. Information provided in this report will be discussed with the City Council after Finance Committee and those conversations will provide direction to staff in the budget development process. It is anticipated that conversations with City Council and the Item 8
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City of Palo Alto Page 24

community will occur through public budget hearings in Spring 2023, according to the standard budget adoption process.

RESOURCE IMPACT
Financial implications from this report and input from the Finance Committee will be considered in the City Manager’s development of the Fiscal Year 2024 budget.

ENVIRONMENTAL IMPACT
This report is not a project for the purposes of the California Environmental Quality Act.

Environmental review is not required.

Attachments:
• Attachment A - FY 2024 Budget Policy Guidelines
• Attachment B - The Economy
• Attachment C - General Fund Base Case Revenue Assumptions • Attachment D - General Fund Base Case Expense Assumptions Item 8
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Attachment A – FY 2024 Budget Development Guidelines

1) Develop a structurally balanced budget that brings ongoing revenues and expenses into alignment. Develop a plan for any structural imbalance to ensure that the City maintains fiscal sustainability over the short, medium, and long-term.

2) Allocate one -time resources for one -time needs rather than committing one -time resources to ongoing services. Examine appropriate uses of revenue surpluses that exceed forecasted levels such as planning for recession needs, restoration needs, and strategic investments.

3) Ensure appropriate resource allocation for City Council’s existing priorities.

4) Focus on business process redesign to enhance quality, flexibility, and cost- effectiveness of service delivery (include examining opportunities to streamline, simplify, reorganize, and reallocate resources to avoid duplication of effort).

5) Explore alternative service delivery models (such as partnerships with non -profits or other public/private sector groups) to minimize overlap, maximize cost share, and effectively use resources.

6) Continue to thoroughly analyze non- personnel/equipment/other costs, such as contract services, for cost savings opportunities or realignment with current needs.

7) Explore the expansion of existing revenue sources or the addition of new revenue sources, including the alignment of existing charges for services and the opportunity to establish new fees, when appropriate.

8) Continue to analyze and prioritize resource augmentations, seeking to offset augmentations with reductions elsewhere for net- zero impacts to the budget whenever possible; however, ensuring when resource augmentations are added, it is in alignment with one-time and ongoing forecasted sources.

9) Continue to prioritize proactively funding long term liabilities including but not limited to debt obligations, pension obligations, and capital infrastructure in accordance with City policies as approved by Council.

FY 2024 Budget Development Guidelines

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ATTACHMENT B

The Economy

The economy closed 2021 with GDP growing 6.9% by the end of this calendar year with inflation increasing, year-over-year by 7%, a level not seen since the early 1980s. As of October 2022, the consumer price index (CPI) was below 8%. The unemployment rate at the end of 2021 was 3.9% which was down from 6.4% at the beginning of this year. At the pandemic peak, unemployment rate was at 14.7% when significant portions of the economy were shut down. The GDP growth in 2022 is expected to be below 3% then drop to low 2% in 2023. The unemployment rate hovers around the mid 3% but is likely to go up as the economy cools down. The above outlook is predicated on the federal reserve achieving a “soft landing” whereby there’s a slowdown in economic growth that avoids recession for the purpose of stopping the economy from overheating and continue to experience high inflation.

The local economy continues to show strong performance in the latter half of the calendar year 2022 though signs of “headwinds” are growing that are likely to stem economic growth. The UCLA Anderson Forecast for California paints a generally positive picture for the state as compared to national economic concerns, citing continued gains in gross domestic product. The outlook reports that increases in defense spending and the continued demand for tech will likely keep the economy growing, albeit at a slower pace. The outlook is that the world has become more unstable so the expectation is that federal defense spending over the next few years will increase.

There have been broad-based hiring with leisure and hospitality, health care and social services, and technology. However, the “mixed -signals” in economic data and headline news such as technology sector layoffs are a concerning trend and a potential early indicator of an economic slowdown. Another concerning trend, which California and the local economy are sensitive to, is that the world economy seems to be worse than the U.S. With U.S. rising interest rates and global instability, investors have been putting their money in the U.S. causing the dollar to rise against other currencies. This causes U.S. exports to be more expensive around the world. The growing home inventory, higher mortgage rates, and low and diminishi ng affordability are expected to negatively impact the national and local housing market though demand for Palo Alto housing has always been and is expected to remain strong.

According to the US Bureau of Economic Analysis (BEA), the “advance” estimate of the U.S. economy’s real gross domestic product (GDP) percentage change, from the preceding quarter, changed in the second and third (calendar) quarters of 2022 by a decline of .06% and an increase of 2.6%, respectively. Real GDP is an inflation -adjusted measure that reflects the value of all goods and services produced by an economy in a given year. According to the BEA, in the third quarter the increase in real GDP reflected increases in exports, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending, that were partly offset by decreases in residential fixed investment and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

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Table 1: National Gross Domestic Product (GDP)

The national Consumer Price Index (CPI), as of the second calendar quarter peaked at 8.6% and is expected to steadily decline in the coming quarters. In the third quarter, actuals in July, September and October 2022 were 8.2%, 8.2% and 7.7%. This is slightly better than shown in the Table 2 third quarter forecast of 8.3% which bodes well for the forecasted declining trend.

Table 2: National Consumer Price Index

The nation’s unemployment rate is 3.7% as of October 2022, compared to a record high of 14.7% at the height of the pandemic in April 2020. It is expected, by the U.S. Bureau of Labor Statistics, that the unemployment rate will rise due to the Federal Open Market Committee (FOMC or aka federal reserve) raising the f ederal funds (interest) rate in order to bring down the elevated inflation rate. Per the State of California's Employment Development Department, the state’s unemployment rate as of September 2022 is 4.1% with the prior year being 7% and the County of Santa Clara is 2.3%. Nationally, the improved unemployment rates are driven by job gains in the leisure and hospitality; trade, transportation and utilities; professional and business services; education and health services; manufacturing, and construction. Hi storically, the Bay Area job Item 8
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growth has been led by the Peninsula for the past several years. The unemployment rate for the San Francisco Peninsula was also in the low 2%.

Table 3: U.S. Unemployment Rate

The high inflation rate has resulted in the continued erosion of purchasing power, however, this has not substantially deterred the U.S. consumer from spending. Real personal spending climbed 0.3% in September. This was driven by a 0.6% increase in services spending with goods spending declining by 0.1%, a tread reflected in the prior few months. As the pandemic restrictions have been removed, the trend reflects consumers are shifting their activity to services and away from goods. Though there’s net monthly solid growth, as reflected in the below graph, the year over year shows a slight decline

Table 4: Real Personal Spending Growth

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ATTACHMENT C

General Fund Base Case Revenue Assumptions

Sales Tax
Compared to FY 2019 pre-pandemic actuals of $36.5 million, sales tax revenue declined by $7.4 million, or 20.2%, during the pandemic in FY 2021. The recovery, which began in the last quarter of FY 2021, resulted in the FY 2022 receipts increasing by $3.6 million or 12.3%. Though this trend has continued in the first quarter of FY 2023, the rate of recovery is expected to decline. The general retail, food products (includes restaurants), business to business (includes car leasing), and transportation (includes auto sales) categories experienced significant increases. This economic trend also occurred in municipalities in the San Francisco Bay Area and in California.

These significant upward trends were partially offset by construction activity, which has been declining.

The FY 2023 Adopted Budget for Sales Tax is $32.6 million, a $0.1 million or 0.4% decline over FY 2022 actuals of $32.7 million. In FY 2024, this revenue is anticipated to increase to $33.3 million, a $0.7 million or 2.2% increase over the FY 2023 Adopted Budget. Revenue in this category is experiencing growth; however, is not anticipated to reach pre-pandemic levels until FY 2026. The Base Case assumes 4.3 to 6.7% growth over the length of the forecast.

TABLE 1: City of Palo Alto Sales Tax Revenues through FY 2033

Property Tax
Property tax revenue is the General Fund’s largest revenue source and represents approximately 25% of the total revenues. Historically, the 10 -year compound annual growth rate (CAGR) was

8.4% with a low of 3.1% in FY 2012 and a high of 11.5% in FY 2015. During economic downturns, impacts to property tax occur a year later, however, due to robust residential and commercial property sales and significant Educational Revenue Augmentation Fund (ERAF) growth, the FY 2022 actual growth was 4.9%. In addition, fiscal years 2019, 2020, 2021, and 2022 included receipts of $2.7 million, $3.9 million, $5.5 million, and $6.6 million, respectively, for excess ERAF Item 8
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distributions from the County of Santa Clara. The FY 2022 budget included $4.9 million for excess ERAF, however, actual receipts were $6.6 million, or $1.7 million higher which is explained further below. 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 p ermanent local revenue source.

In FY 2021, five counties including Santa Clara County, and the State were in a dispute over the calculation and disbursement of excess ERAF funds. In a claim by the State, calculations for excess ERAF incorrectly shifted t oo much property tax from schools to local agencies. The City set established a reserve for the potential litigation amounts that was later released to the Budget Stabilization Reserve (BSR) upon reaching a favorable resolution. In November 2021, the County of Santa Clara notified the cities that the California School Boards Association and its Education Legal Alliance filed a lawsuit against the Controller of the State of California arguing that the settlement reached with the counties is unlawful. The County estimates a range between 20 to 30% of Excess ERAF is at -risk. The FY 2023 Budget assumes 25% or $1.5 million for a potential loss starting in the current year and extending into forecast years. The FY 2022 amount at risk, $1.7 million, was sent to the City since the lawsuit wasn’t settled in FY 2022; these funds were recognized as property tax receipts in FY 2022 and are reserved, pending the settlement of the lawsuit. Staff will continue to monitor the status of this dispute and report on any signific ant developments.

Transfer of ownership has been a significant driver of past growth; however, that growth is expected to moderate in FY 2023 due to the expected economic slowdown and the higher mortgage rate. For example, the median sales price of single family residential in the fourth (fiscal year) quarter of FY 2022 declined by 5.3% over the prior quarter.

TABLE 2: City of Palo Alto Property Tax Actuals and Forecast through FY 2033

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The FY 2023 Adopted Budget for Property Tax is $59.8 million, a $0.4 million or 0.7% increase over the FY 2022 actuals of $59.4 million. In FY 2024, this revenue is anticipated to increase to $63.7 million, a $3.9 million or 6.5% increase over FY 2023 Adopted Budget level.

Transient Occupancy Tax (TOT)
Revenue in this category is impacted by business and other leisure/non -leisure travel and has experienced significant reductions in FY 2020 and FY 2021 due to public health orders, travel restrictions, and diminishing business and personal travel plans resulting from the pandemic. TOT revenue declined by $20.5 million or 79.8%, when comparing the FY 2019 pre -pandemic actuals of $25.6 million to the pande mic FY 2021. As public health conditions improved and travel resumed, this revenue began to recover and significantly grew in FY 2022. Though this revenue remains below pre-pandemic actuals, strong growth was realized in the FY 2021 fourth quarter and in F Y 2022. In FY 2022, actual receipts were $16.9 million, an increase of $11.8 million, or 227.2% higher. The opening of the two Marriott hotels in mid and late FY 2021 and the re-opening of multiple hotels in FY 2021 and FY 2022 were positive developments t hat help drive recovery for this tax revenue.

The FY 2023 Adopted Budget for TOT adopted is $18.2 million, a $1.3 million or 7.4% increase over FY 2022 actuals of $16.9 million. In FY 2024, this revenue is anticipated to increase to $25.0 million, a $6.8 million or 37.3% increase over the FY 2023 Adopted Budget. Year- to-date (as of August 2022), daily average room rates increased by 61.2% from $155.73 per day to $251.04 per day while occupancy rate increased by 24.4% from 60.2% to 75%. Revenue in this category is experiencing growth; however, is not anticipated to reach pre-pandemic levels until FY 2026.

TABLE 3: City of Palo Alto Transient Occupancy Tax Actuals and Forecast through FY 2033

Note: January 2015, TOT Rate went from 12% to 14%
April 2019, TOT Rate went from 14% to 15.5%

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Utility User’s Tax (UUT)
The UUT is levied on electric, gas, and water consumption, as well as on telephone usage.

Revenue in this category is impacted by consumption levels and has experienced reductions in prior periods due to water conservation programs and reduced workforces and business closures due to the pandemic. This revenue is expected to recover as the local economy recovers and workers partially return to the office. The FY 2023 Adopted Budget for UUT is $15. 6 million, consistent with FY 2022 actuals. In FY 2024, this revenue is anticipated to increase to $15.9 million, a $0.3 million or 1.9% increase over the FY 2023 Adopted Budget. Revenue in this category is experiencing growth; however, is not anticipated to reach pre-pandemic levels until FY 2025.

TABLE 4: City of Palo Alto Utility Users Tax Actuals and Forecast through FY 2033

Documentary Transfer Tax (DTT)
Revenue in this category is highly volatile and dependent on sales volume and the mix of commercial and residential sales. DTT experienced record receipts in FY 2021 and FY 2022 at $10.6 million and $12 million, respectively. In both years, these milestones were a result of large commercial transactions, six in FY 2021 and nine in FY 2022, and robust residential sales. Revenue from July through October in FY 2022 is running 37.9% below the same period in FY 2021 which is expected, however, this is around 25 % below the average normal year’s receipt. The FY 2023 Adopted Budget for DTT is $7.2 million, $4.8 million or 39.8% lower than FY 2022 actuals of $12 million. In FY 2024, this revenue is anticipated to decrease to $6.9 million, a $0.3 million or 4.8% decrease from FY 2023 levels.

As in past years, this revenue source is challenging to forecast and can fluctuate month to month depending on real estate transactions. The number of transactions through September 2022 (136) are running lower than those through September 2021 (215) with the total value of these transactions decreasing by 37%. Though the Palo Alto housing market remains strong, as discussed in the Property Taxes section, single family residential median sales price in Palo Alto has slightly declined, which is an expected occurrence as the predicated economic downturn and higher mortgage rate will impact property sales activity in FY 2023.

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TABLE 5: City of Palo Alto Documentary Transfer Tax Actuals and Forecast through FY 2033

Rental Income
Rental Income of $16.4 million in FY 2024 primarily reflects rent paid to the General Fund from the City’s Enterprise Funds and the Cubberley Community Center. Th ere is a slight increase in rental income of $0.8 million compared to the FY 2023 Adopted Budget. The increase can be attributed to a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August -to-August period, and it is expected that revenues will be reviewed and revised subsequent to this forecast based on updated information, typically the December-to-December change in the CCPI.

The City is no longer receiving rental income from the former Los Altos Treatment Plant (LATP) site. T he site is no longer av ailable for traditional rental as a laydown yard , although the contractors of the planned projects may need to use portions of the site for this use . The site is planned for two uses: 1) an interim housing project with Project Homekey to provide opportunities for homeless individuals and families, and 2) a joint water purification project with the Santa Clara Valley Water District . Please see the Expense Assumptions General Expenses section of this report for additional information regarding Project Homekey developments at the former LATP site. The water purification project is being funded in the Wastewater Treatment Fund, so it is not part of the General Fund LRFF; however, funding needs for the project will be discussed in the development of the FY 2024 budget for the Wastewater Treatment Fund.

Charges for Services and Permits and Licenses
Revenues in the ‘Charges for Services’ an d the ‘Permits and Licenses’ categories are anticipated to be $33.4 million and $11.5 million, respectively, in FY 2024. Together, these amounts total $44.8 million and are approximately $4.8 million higher than the FY 2023 Adopted Budget of $40.0 million. Increases in this category are primarily due to revenue adjustments for the agreement with Stanford to provide Fire and Dispatch services, the elimination of the Economically Sensitive Department Revenue Reserve, and adjustments to development center revenues.

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Revenues in these categories were impacted by changes in FY 2024, such as increasing golf revenue estimates in alignment with the last two fiscal years of operation. These budget categories also include revenues associated with two fee-based programs in the Fire Department:
a first responder fee (assessed on commercial insurance companies), to cover the cost for initial response for first due engine; and an ambulance subscription fee (FireMed program), to secure co-pay free ambulance transport. These fees were implemented in 2022 with revenue expected to continue growing as advertising campaigns develop.

Additionally, revenues in these categories were impacted by a phase -out of the Economically Sensitive Department Revenue Reserve. This reserve was established to mitigate unexpected losses from services impacted by the COVID -19 pandemic, such as the suspension of parking enforcement, delays in opening the Junior Museum and Zoo, and limited operations at community centers, recreational facilities, an d the Children's Theatre. In total, $2.5 million was set aside for this purpose in the prior year. This forecast assumes gradual overall improvements in the return of canceled or modified services by phasing out this reserve in its entirety in FY 2024.

The revenue estimates in these categories are based on current activity levels. These revenue sources are primarily driven by the cost of staff to provide services to the community. Therefore, as part of the FY 2024 Municipal Fee process, staff will evalua te and bring forward recommendations to align fees with target cost recovery levels, and general salary and benefits and CPI trends. One exception to this is for Development Services activities and related revenue.

Development Services fees are fully cost-recoverable, and the department has been modeled as cost-neutral in this forecast. staff will analyze municipal fee revenue activity as part of the FY 2024 Budget development process and bring forward adjustments as appropriate.

Charges for Service - Stanford Fire and Dispatch Services: The City and Stanford have two separate agreements for the provision of fire response and emergency dispatch services. The fire response services agreement became effective in July 2018 and outlines service level terms and a new cost allocation methodology as the baseline for agreement costs. The term extends through June 2023, with renewals through 2028 unless otherwise terminated. The agreement included a new staffing deployment model for suppression and medical services, which was approved by the City Council in October 2017 and deployed in January 2018. This forecast aligns with the new staffing model and, in accordance with the agreement, adjustments to revenue from Stanford have been aligned with the year-over-year changes to the operating expenses in the Fire Department for FY 2023. Similarly, changes to the revenue received for dispatching services have been aligned with the FY 2023 adjustments to the operating expenses in the Technical Services Division of the Police Department where the costs to provide these services are budgeted. For fire and police revenue, additional adjustments may be applicable if new labor agreements are negotiated. Revenues for these services are based on anticipated changes in salary and bene fits costs within the Fire Department and Police Department Dispatch Unit.

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Charges to Other Funds
The main source of revenues in this category is General Fund administrative cost allocation plan charges to the Enterprise and Internal Service Funds. Internal support departments such as Administrative Services, Human Resources, and Council Appointed Offices provide services to Enterprise and Internal Service Funds. The costs for these services are recovered through the administrative cost allocation plan charges. The FY 2024 estimate for Charges to Other Funds of $14.5 million reflects a slight increase of 5.6% from the FY 2023 Adopted amount of $13.7 million; this is primarily attributed to fully adjusting the costs associated with the allocated charges in the Internal Support Departments to the adjustments made as part of the FY 2023 Budget as well as a technical adjustment to better align the cost plan methodology with the system calculations.

Return on Investment
The return- on-investment category re flects 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. As of the timing of this LRFF, the Federal Open Market Committee (FOMC) has raised the federal funds rate six times totaling 3.75% and may increase this rate further to bring down the inflation rate between 2 to 3%. As a result, an increase in interest earnings is forecasted; earnings on new portfolio investments have increased from 0.5 to 2% to 4.5 to 6%.

The average portfolio rate of return for the first quarter of FY 2023 was 1.66%, and a 1.62% average yield as of the fourth quarter of FY 2022. The adopted budget General Fund FY 2023 interest earning is $1.1 million. Though this is below the FY 2022 actual of $1.3 million, the expectation is the actuals in FY 2023 will be higher. In FY 2024, the forecast reflects a relatively high interest rate environment with increased interest earnings through the ten-year period.

TABLE 6: Palo Alto Historical Investment Portfolio Yields and Citywide Interest Earnings

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Operating Transfers-in
Operating Transfers -in materialize as expenses in other funds throughout the City and as a revenue in the General Fund. This budget category includes repayment of a previous loan from the General Fund to the Airport Fund, funding for police patrol in the downtown area, and the equity transfer from the Electric and Gas funds. Overall, the Operating Transfers-in are estimated to be $23.6 million, a $1.1 million increase from the FY 2023 level of $22.5 million due to a $0.5 million increase from the Electric Fund and a $0.6 million increase from the Gas Fund.

In accordance with the methodology approved by the City Council in June 2009, the electric to general fund equity transfer has been calculated by applying a rate of return on the capital asset base of th e Electric Fund. This rate of return is based on PG&E's rate of return on equity as approved by the California Public Utilities Commission (CPUC). This LRFF also assumed the passage of Measure L on the November 2022 ballot to seek voter approval of the Cit y’s gas to general fund equity transfer going forward. As outlined in the ballot measure language, Staff calculated the gas to general fund equity transfer as 18% of annual gross gas retail revenue.

This LRFF also considers the trial court’s decision in Green v. City of Palo Alto (Santa Clara Superior Court Case No. 16CV300760), a class action lawsuit which challenged the City’s gas and electric rates under Proposition 26, one of many such cases following a 2015 decision involving the City of Redding. In Green, the trial court judge found the City’s electric rates valid, but held that the City’s gas rates were taxes requiring voter approval under California’s Proposition 26, because they were set at a level sufficient to fund an annual transfer to the City’ s general fund. On June 24, 2021, the trial court entered judgment partially against the City and ordered the City to pay $12.6 million to a common fund to refund gas ratepayers and for payment of incurred litigation costs.

The City and the plaintiffs appealed the trial court’s judgment. Payment of refunds due to gas ratepayers under the trial court judgment are stayed pending a decision by the Court of Appeal (expected in 2023) on the parties’ respective appeals. While the ultimate outcome of the claim is uncertain, the City set aside funding in the General Fund for the potential financial impacts.

Specifically, the City recorded a claim payable of $17.5 million, which includes the trial court judgment covering claims for 2015-2019, plus an amount covering refunds for 3 additional years of plaintiff’s claims that were tolled (paused) during active litigation. While the process for calculating the equity transfer from the Electric and Gas Funds has not changed, the City has placed the funds in a Litigation Reserve. This action continues the City’s proactive actions to address known liabilities with the best information available at the time and sets these funds aside pending final resolution of this dispute.

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ATTACHMENT D

General Fund Base Case Expense Assumptions

Salary and Benefits
The table above depicts the estimated General Fund salaries and benefits costs. Consistent with prior years, the FY 2024 salaries and benefits costs represent approximately 60% of the General Fund budget expenditures.

Salary and Benefits are projected to increase $11.3 million or 7.6% from the prior year, from $148.4 million to $159.7 million. Discussed in the following sections, this is primarily attributable to increases in salaries ($6.1 million or 7.7%) and pension costs ($4.1 million or 10.5%).

Salary
Consistent with the City’s salary budget methodology for recent budgets, positions are budgeted at the actual rate of pay of employees including be nefit selections as of Fall 2022. Then, by position, salary costs are updated in accordance with applicable Memorandum of Agreements (MOA’s) between the City and its labor groups and the Management and Professional Personnel and Council Appointees Compensation Plan(s). It is important to note that as of this forecast, all bargaining groups are near the end of their agreement terms and the City is actively engaged in negotiations with the various labor groups. The forecast assumes step increases for employee s in applicable positions, including SEIU, IAFF, and PAPOA, and merit increases for Management and Professional employees including UMPAPA. A general wage adjustment of 2.0% is included for all employees starting in either January 2023 or July 2023 for all years of the forecast since no MOA’s would be in effect at that time. This is consistent with prior Council direction in previous long range financial forecasts to use the 2.0% increase as a forecasting assumption, not as a commitment to future negotiations. Additionally, this forecast includes a level of reserve to reach a target market placement for employee compensation in new labor agreements, as directed by the City Council. Staff expects to adjust these costs throughout the budget development process in accordance with final contract terms.

Benefits
Pension: Pensions are budgeted based on CalPERS determined rates as of the June 30, 2021 valuation (CMR 14628
1) for the City’s Miscellaneous and Safety plans. CalPERS determines the City’s total contributions for a given Fiscal Year as the sum of two factors: Normal Cost (NC) and Unfunded Accrued Liability (UAL). Together the NC and the UAL expressed as a percentage of payroll is the ‘blended rate’ and is used to represent total costs in the discussion below.

The Normal Cost (NC) is expressed as a percentage of payroll and is paid as part of the payroll reporting process of active employees. Commonly referred to as the ‘pay -go’ cost, the NC is variable and increases or decreases directly with the salary levels of the City. It represents the

1 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/finance- committee/2022/20220920/20220920pfcs.pdf
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necessary funding for the City to pay for employees presuming that CalPERS meets the current set of assumptions.

In a year that CalPERS does not meet assumptions, due to plan changes, assumption changes, method changes, or plan experience (including investment gains/losses), there is an increase or decrease to the Unfunded Accrued Liability (UAL) . Commonly referred to as the ‘catch -up’ cost, the UAL is expressed as a dollar amount and is calculated over an amortized period with defined annual payments, similar to a mortgage. The contributions for UAL are billed as a flat dollar amount as opposed to a percentage of payroll due to potential funding issues that could arise from a declining payroll or number of active members in the plan. However, CalPERS provides an estimated percentage of payroll for UAL to allow a consistent comparison of total costs.

In the miscellaneous plan, total costs are projected to increase from the current 42.9 percent in FY 2023 to the 44.8% in FY 2024. In the safety plan, total costs are projected to increase from the current 71.1% in FY 2023 to 74.0% in FY 2024. These rates do not consider the employee pick-up of the employer share; that pick-up materializes as savings in the City’s pension costs. Consistent with applicable MOAs, the FY 2023 forecast presumes that the miscellaneous plan will pick up 1 to 2% of the employer pension cost and that safety plan members will pick up 3 to 4%.

The FY 2024 budget was impacted by significant favorable investment returns of 21.3% (6.8% assumption) earned in the most recent June 30, 2021 valuation and changes to economic and demographic assumptions resulting from the CalPERS Asset Liability Management (ALM) process and Experience Stu dy completed in November 2021. As part of the ALM, the CalPERS board approved a reduction to the discount rate (from 7.0 to 6.8%), revised actuarial assumptions (price inflation from 2.5 to 2.3%), and a new asset allocation targeting 1/3 investment in private assets, 5% leverage, and reduced public equity exposure.

Since the issuance of the current valuation, CalPERS announced a preliminary investment loss of

6.1% for the period ending June 30, 2022. These results will be included in the CalPERS valuation report issued in Fall 2023 to inform the development of the FY 2025 budget. The resulting liability of the investment loss will be amortized over 20 years with a 5 -year ramp-up period. To inform this LRFF, staff used the CalPERS Pension Outlook Tool to ca lculate the estimated impacts, resulting in additional costs of $3.4 million ($2.6 million in the General Fund) in FY 2025, and increasing to $16.8 million ($12.9 million in the General Fund) at the peak of the 5 -year ramp in FY 2029.

TABLE 1: CalPERS’ Projected FY 2023-2033 Blended Retirement Rates (percentage of payroll)
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
Miscellaneous 42.9 44.8 43.6 38.9 32.9 30.9 30.7 30.3 30.1 26.7 25.4 Safety 71.1 74.0 72.3 69.5 66.8 63.6 63.2 61.9 61.4 57.9 55.8

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Committee FY 2024-2033
LRFF, CMR 14629

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The City has taken several proactive steps to address rising pension costs and long-term liabilities, including cost-sharing in labor agreements, establishing an irrevocable Section 115 Pension Trust (“Pension Trust”) (CMR 75532), and adopting a Pension Funding Policy ( CMR 117223). As part of policy goals, the City seeks to reach a 90% funded status by FY 2036. This policy is subject to modification at City Council discretion and requires that staff report the status of the funding goal every three years. Consistent with the Pension Policy, staff continues to include the NC of pension at a more conservative discount rate than CalPERS in budget assumptions and transmits amounts above required payments (“supplemental contributions”) to the Pension Trust.

Beginning in FY 2023, the City Council approved to reduce the discount rate for supple mental contributions from the previously approved rate of 6.2% to 5.3% over two years; FY 2023 is a transitional year in which six months or the equivalent of approximately 5.8% is budgeted.

Additional one-time contributions continue to be made each year if excess revenues or unspent savings are available, subject to City Council approval.

In accordance with Pension Policy reporting requirements, staff is engaged in a series of meetings with the Finance Committee in Fall 2022 to review the status of the C ity’s pension and retiree healthcare plans, and Pension Policy. Staff expects as part of this review to memorialize any practices adjusted since the adoption of this policy, review progress towards policy goals, and recommend potential modifications to the Pension Policy or budgetary practices used to inform the financial planning of these benefits. This series of reports includes: 1) Review of the most current actuarial analysis as distributed by CalPERS (CMR 146284), 2) Review of the current status of both the Pension and Other Post- Employment Benefits (OPEB)/retiree healthcare liabilities including the proactive contributions and discussion with plan providers ( CMR 148295), and 3) Review of actuarial analysis based on alternative assumptions as defined in the Pension Funding Policy and recommended revisions to the Pension Funding Policy for City Council consideration and adoption (tentatively scheduled December 6, 2022).

In this forecast, approximately $12.2 million ($7.2 million in the General Fun d) in supplemental contributions is assumed in FY 2024. This reflects a $4.0 million ($2.7 million in the General Fund) increase over the prior year, primarily due to the transition to a lower discount rate. Through FY 2023, a total of $49.4 million (31.8 million in the General Fund) in principal contributions are expected to be made to the Pension Trust.

In the General Fund, it is anticipated the City will spend a total of $43.1 million on total pension costs in FY 2024, including both CalPERS contrib utions and supplemental Pension Trust Fund contributions. This is approximately $4.1 million higher than the prior year costs of $39.0 million, or a 10.5% increase. These expenses represent approximately 17% of the General Fund’s total expenses.

2 http://cityofpaloalto.org/civicax/filebank/documents/55487 3 http://cityofpaloalto.org/civicax/filebank/documents/79256 4 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/finance- committee/2022/20220920/20220920pfcs.pdf
5 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/finance- committee/2022/20221018/20221018pfcs.pdf
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Committee FY 2024-2033
LRFF, CMR 14629

Item 8: Staff Report
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Healthcare: Consistent with the most recent labor agreements between the City and its bargaining units in the General Fund, the City’s contribution amounts towards medical costs for employees are based on a flat rate contribution from the City, with the employee co ntributing towards the remaining medical plan premium. Like salaries, healthcare costs are updated in accordance with applicable Memorandum of Agreements (MOA) between the City and its labor groups and the Management and Professional Personnel and Council Appointees Compensation Plan(s).

Retiree Healthcare/Other Post-Employment Benefits (OPEB): Retiree Medical is based on the June 30, 2021 actuarial study prepared by Bartel Associates, which is completed every two years. The most recent study was completed in June 2022 to inform the development of the FY 2023 and FY 2024 operating budgets (CMR 14112 as amended by CMR 14502 6). Consistent with City Council direction, this forecast continues the practice to budget for the full payment of the Actuarial Determined Contribution (ADC) for retiree healthcare, using a more conservative discount rate to transmit amounts above the recommended payment as an additional discretionary payment (“prefunding”) to the California Employers’ Retiree Benefit Trust (CERBT) Fund.

The results of the recent valuation benefited from significant favorable investment returns of

27.5% (6.25% assumption) and lower than anticipated healthcare premiums. The City Council further adjusted funding to continue alignment with the proactive pension funding assumptions as well as known variable such as June 30, 2022 market returns. Budgetary assumptions in LRFF include a zero percent return in 2021 -22 (one-time), a 5.75% discount rate (6.25% assumption), and shortened amortization (from 22 to 15 years). Through FY 2023, it is expected that $8.0 million in supplemental principal contributions will be made to the CERBT Trust.

CalPERS blends active employees with pre -Medicare retirees and charges the same medical premium, even though younger employees on average consume less healthcare. The higher premium to younger employees thereby subsidizes older employees and retirees who, on average, have higher claims and premiums. The FY 2024 Budget est imates $16.4 million ($10.5 million in the General Fund) for ADC, an approximate $0.5 million or 2.9% increase from FY 2023 levels of $15.9 million ($9.9 million in the General Fund). The implied subsidy is $3.1 million in FY 2024 and effectively lowers the funding necessary to meet the ADC.

TABLE 2: Retiree Medical General Fund Contributions
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 $10.2 $10.5 $10.9 $11.2 $11.5 $11.9 $12.3 $12.7 $13.1 $13.5

Workers’ Compensation: The budget appropriation for workers' compensation includes an estimate for claims incurred and reserves for current filings at an 85% confidence level, based on actuarial studies completed by Bickmore. In FY 2022, claims expenditure s decreased slightly by $39,000 or 0.6% from $6.07 million to $6.04 million from the prior year. Actuarial estimates

6 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/finance- committee/2022/20220607/20220607pfcsm-final.pdf
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Committee FY 2024-2033
LRFF, CMR 14629

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completed in August 2021 informed FY 2023 budget levels of $6.5 million (approximately 65% in the General Fund). More recent actuary estimates completed in August 2022 project higher than expected levels for FY 2023 at $6.9 million. Staff will continue to monitor expenditures in the fund and bring forward adjustments as necessary. Estimates for FY 2024 are $ 7.3 million, representing a $0.8 million or 12.9% increase over the Adopted FY 2023 Budget. Estimates for workers' compensation increase in the forecast at rates consistent with general CPI increases.

Contract Services
This forecast assumes contract services of $23.9 million in FY 2024, a 1.1% decrease from the FY 2023 Adopted budget of $24.2 million. This decrease is driven primarily by the removal of one - time costs adopted in FY 2023 including funding to address continued COVID-19 recovery efforts across the City. These decreases are partially offset by service contract increases as well as a 5.0% CPI cost increase in FY 2024 based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August-to-August period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust contract funding needs as part of the FY 2024 budget process.

Contract Services - Committed Additions
The Committed Additions included in this forecast account for anticipated operating and maintenance (O&M) costs in the General Fund for capital projects anticipated to come online within the ten- year forecast period. A preliminary total estimate of $0.3 million for costs associated with the following projects anticipated to come online in FY 2024: Boulware Park Improvements (PE -17500), Dog Park Installation (PG -18001), Library Automated Materials Handling (LB-21000), Park Restroom Installation (PG -19000), Public Safety Building (PE -15001), and Rinconada Park Improvements (PE -08001). The Public Safety Building is anticipated to be complete in Fall 2023, so the full O&M cost for the facility is anticipated to be realized in FY 2025.

Additional cost increases are included throughout the ten-year forecast based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August-to-August period . Timing and analysis of the funding needs for these proj ects will be evaluated as part of the FY 2024 Budget process. Also, estimated operating impacts from the Fire Station 4 (PE-18004) project are included starting in FY 2026.

TABLE 3: FY 2024 – FY 2033 Committed Additions (Millions) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 $0.3 $0.6 $0.6 $0.6 $0.7 $0.7 $0.7 $0.7 $0.8 $0.8

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Committee FY 2024-2033
LRFF, CMR 14629

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Supplies and Materials
The FY 2023 Adopted Budget for the General Fund included $3.2 million for Supplies and Materials, which is anticipated to increase by a 5.0% CPI cost increase in FY 2024 to $3.3 million based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August- to-August period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust funding for supplies and materials as part of the FY 2024 budget process.

General Expense
This category includes costs for travel and meetings, telephone and non-city utilities, contingency accounts and reserves, bank card service charges, and subsidies and grants provided through the Human Services Resource Allocation Program (HSRAP). The FY 2023 Adopted Budget of $21.8 million is expected to decrease to $8.6 million in FY 2024, primarily due to phasing out the Utility Ligation reserve and elimination of the one -time Budget Uncertainty Reserve. Please see the Revenue Assumptions Operating Transfers-In section of this report for further information about the Utility Transfer Litigation reserve. The reduction is partially offset by a CPI cost increase based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from th e August-to-August period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust funding for general expense items as part of the FY 2024 budget process.

General Expense – Project Homekey: On S eptember 27, 2021 the City Council directed staff to apply for Project Homekey funding in conjunction with LifeMoves to build an emergency shelter at the former Los Altos Treatment Plant (LATP) site (CMR 13595 7). This project will rapidly deploy
modular housing to provide interim housing opportunities for homeless individuals and families in the City of Palo Alto. Project Homekey is a program, funded by the State of California Department of Housing and Community Development, intended to provide grant fundi ng and facilitate a partnership with the State to quickly acquire, rehabilitate, or master lease a variety of housing types. Once developed, these projects provide interim or permanent housing options for persons experiencing homelessness and who are also at risk of health concerns. The site would be operated for at least fifteen years as interim housing per the program’s durational requirement. This project would utilize a combination of funding sources including the Project Homekey Program for capital expenses and donations, grant funds, and City support for ongoing operations expenses. This LRFF includes the City’s committed investment of $7.0 million in operating expenses ($1.0 million annually FY 2023 through FY 2029), with actual timing of the funding still to be determined. Some operating funding support is expected from Project Homekey as well as the County of Santa Clara. Any remaining gaps in funding will need to be closed by fundraising, operating cost containment strategies, and/or grant funds.

General Expense - Cubberley Lease : In FY 2015, the City and Palo Alto Unified School District (PAUSD) agreed to a five–year extension of the Cubberley lease from January 2015 to December

7 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2021/09-september/20210927/210927accsm-amended-final.pdf Item 8
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Committee FY 2024-2033
LRFF, CMR 14629

Item 8: Staff Report
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2019. In October 2019, the City Council directed staff to negotiate with PAUSD to extend the lease agreement an additional five years, through December 2024 ( CMR 10730 8). A new Cubberley lease was approved by the City Council in June 2020 ( CMR 11460 9) for a smaller portion of the Cubberley site with a correspondingly lower base rent payment (CMR 1138610). As part of the original lease agreement, the City Council approved creation of the Cubberley Infrastructure Improvements Fund. The new lease continues the $1.9 million transfer to the Cubberley Property Infrastructure Fund, which is classified as an Operating Transfer -Out and discussed in further detail in that section of this report below. With the Cubberley Infrastructure funds set aside, the annual base rent for the Cubberley premises is $2.7 million. Other pending factors at the Cubberley site that are part of ongoing discussions, but not included in the LRFF estimates are returning the S Building to PAUSD and the Community Services Department is still interested in negotiating with PAUSD to expand the Cubberley premises by renting additional space from the M Building. Separately, the City leases extended child daycare sites from PAUSD on a one-year lease from July 2022 to June 2023. The combined annual rent for the child daycare sites plus utilities amounts to $0.8 million.

Rents and Leases
The Rents and Leases expense category for FY 2024 is estimated to increase from the FY 2023 Adopted Budget level by approximately 2.7% to $1.4 million, This is based on current lease terms that include previously negotiated lease increases or CPI cost increases based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August-to-August period. This current estimate will be updated when the December -to- December CPI information is available. This category includes the lease agreement for Development Services staff at locations outside City Hall (285 Hamilton and 526 Bryant) as well as lease with Stanford for El Camino Park. A new lease agreement was executed in December 2020 for the Development Services office location at 526 Bryant Street, limiting the space to the basement level (CMR 11426
11). The lease was amended in September 2022 to extend the term initially for 12 months with the right to automatically exte nd for four successive 12 -month periods, potentially through January 31, 2028 (CMR 14713). In June 2021, the City entered into a seventh amendment for the Development Services office lease at 285 Hamilton Avenue to extend the term from February 2022 to Jan uary 2025 ( CMR 12334 12). As expenses for rent for
Development Services are adjusted, a corresponding revenue adjustment will be made to ensure Development Services maintains cost recovery levels.

Facilities and Equipment
The Facilities and Equipment expense category is expected to decrease from the FY 2023 Adopted level of $480,000 to $450,000 due to the elimination of funding for one -time equipment

8 https://www.cityofpaloalto.org/civicax/filebank/documents/73558 9 http://cityofpaloalto.org/civicax/filebank/documents/77365 10 http://cityofpaloalto.org/civicax/filebank/documents/77073 11 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2020-2/id-11426.pdf?t=59979.32
12 https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports- cmrs/2021/id-12334.pdf
Item 8
Attachment A_Finance
Committee FY 2024-2033
LRFF, CMR 14629

Item 8: Staff Report
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purchases in FY 2023 such as electric leaf blowers and medical gurneys. Along with funding for various equipment across departments, this budget category includes subscription payments for equipment like public safety radios. The reduction is partially offset by a CPI cost increase based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August -to-August period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust funding for equipment needs as part of the FY 2024 budget process.

Allocated Charges
Allocated Charges represent expense allocations by the City’s Enterprise and Internal Service Funds for services and products they provide to General Fund departments. The FY 2023 Adopted Budget for the General Fund included $22.7 million for these expenses, including utilities usage, general liability insurance, technology costs, vehicle equipment maintenance and replacement costs, and other charges for services provided by other City departments and funds. The FY 2024 allocated charges in the Forecast update the revenues and expenses for these various allocations based on the information available at the time of the Forecast development. FY 2024 is anticipated to experience an increase of 8.9% to a total of $24.7 million. This increase is primarily due to anticipated higher costs associated with technology services and utilities for City facilities such as water, electricity, and gas.

Operating Transfers Out
Operating Transfers Out include transfers from the General Fund to Debt Service Funds, the Technology Fund, and various other funds but excludes transfers to the Capital Improvement Fund, which are detailed in the following Transfer to Infrastructure section. The FY 2023 Adopted Budget included Operating Transfers Out of $5.0 million. In FY 2024, Operating Transfers Out are anticipated to decrease to $4.6 million due to the elimination of funding for a one -time loan of $0.4 million to the residential parking permit fund in FY 2023. At this time no loans to the parking permit funds are anticipated as part of the LRFF; however, staff will be evaluating these funds as part of the FY 2024 budget development and will bring forward recommendations for additional loans if needed to keep the parking permit funds solvent.

Transfer to Infrastructure
Recovery from the COVID-19 pandemic were reflected in improved revenue levels in the FY 2023 budget compared to the FY 2022 budget. The total General Fund transfer to t he Capital Improvement Fund budgeted in FY 2023 is $17.5 million compared to the $11.9 million transferred in FY 2022. This is comprised of a $7.8 million base transfer including interest earnings, and $9.7 million from TOT revenue generated through voter- approved rate increases and new hotels that is dedicated to the Capital Improvement Fund to support the 2014 Council Infrastructure Plan, consistent with City Council direction. As the local economy continues to recover from the COVID -19 pandemic, estimate d transfers from TOT revenues in FY 2024 are currently projected to increase to $10.5 million and the base transfer to increase to $10.8 million for a total $21.3 million transfer to the Capital Improvement Fund. This forecast continues the goal established as part of the 2022 -2026 Capital Improvement Plan (CIP) to restore the base portion of this transfer to pre-pandemic levels by FY 2026. This budget category also includes the Item 8
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Committee FY 2024-2033
LRFF, CMR 14629

Item 8: Staff Report
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separate $1.9 million transfer to the Cubberley Property Infrastructure Fund. This transfer to the Cubberley Property Infrastructure Fund supports general operating and maintenance needs a the Cubberley Community Center facility as well as capital improvement projects to maintain and upkeep the facility.

Item 8
Attachment A_Finance
Committee FY 2024-2033
LRFF, CMR 14629

Item 8: Staff Report
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Attachment B – FY 2024 Budget Development Guidelines
2 7
2 1)Develop a structurally balanced budget that brings ongoing revenues and expenses into alignment. Develop a plan for any structural imbalance to ensure that the City maintains fiscal sustainability over the short, medium, and long-term. 2)Allocate one-time resources for one-time needs rather than committing one-time resources to ongoing services. Examine appropriate uses of revenue surpluses that exceed forecasted levels such as planning for recession needs, restoration needs, and strategic investments.
3)Ensure appropriate resource allocation for City Council’s existing priorities. 4)Focus on business process redesign to enhance quality, flexibility, and cost-effectiveness of service delivery (include examining opportunities to streamline, simplify, reorganize, and reallocate resources to avoid duplication of effort). 5)Explore alternative service delivery models (such as partnerships with non-profits or other public/private sector groups) to minimize overlap, maximize cost share, and effectively use resources.
6)Continue to thoroughly analyze non-personnel/equipment/other costs, such as contract services, for cost savings opportunities or realignment with current needs. 7)Explore the expansion of existing revenue sources or the addition of new revenue sources, including the alignment of existing charges for services and the opportunity to establish new fees, when appropriate.
8)Continue to analyze and prioritize resource augmentations, seeking to offset augmentations with reductions elsewhere for net-zero impacts to the budget whenever possible; however, ensuring when resource augmentations are added, it is in alignment with one-time and ongoing forecasted sources.
9)Continue to prioritize proactively funding long term liabilities including but not limited to debt obligations, pension obligations, and capital infrastructure in accordance with City policies as approved by Council.

FY 2024 Budget Development Guidelines
Item 8
Attachment B_FY 2024
Budget Policy Guidelines

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Attachment C
Preliminary FY 2024 Utility Rate Forecast

UTILITIES DEPARTMENT
Each year the Utilities Department develops a Financial Plan for the electric, gas, water, and wastewater utilities. Analogous to the Long-Range Financial Plan for the General Fund, these plans guide utility budget development and rate setting. Normally preliminary rate projections are discussed by the Utilities Advisory Commission (UAC) and Finance Committee, followed by formal Financial Plan recommendations from staff prior to the budget process. This year no preliminary projections were made due to the sudden retirement of a key staff member. Formal Financial Plan recommendations will be made in March and April.

Preliminary ranges for July 1, 2023 rate changes are shown below. Costs in all utilities have been increasing, primarily due to the replacement of aging infrastructure and rapid construction cost inflation, which are challenges utilities and public agencies across the country are confronting. At the time of this preliminary development, the state of California has seen unprecedented rainfall and flooding. Staff are reviewing the impacts of this storm on rate forecasts and will ensure this is factored into the recommended rate changes for FY 2024. These recommendations are scheduled to be reviewed in April 2023 by the Finance Committee.

Electric Utility
Tentative July 1, 2023 Rate Change:
•Change from current total FY 2023 rates (incld. hydro rate adjuster): -1% to +1% increase •Base rate: 12% to 14% increase
At present, staff anticipates little or no change in total Electric rates in FY 2024; this is due to the decrease/elimination of in the hydroelectric rate adjuster, offset by a 12% to 14% increase in the base electric rate.

Electric supply purchase costs have risen substantially over the past three years from a combination of higher market energy prices, greater transmission costs, and lower energy generation from the electric utility’s hydro resources. Revenues have also declined from lower loads during the COVID-19 pandemic.

By the end of FY 2022 these factors had reduced operating reserve balances below minimum. A hydroelectric rate adjuster was activated in April 2022 due to decreased hydroelectric output and increased in December 2022 due to high electric market prices. This adjuster is expected to decrease in July 2023, but base rates are expected to increase due to long-term increases in electric supply costs and capital investment related to aging infrastructure and grid modernization. The net effect would be little or no change in customer bills in FY 2024.

Staff is incorporating a lower long-term forecast for hydroelectric output to stabilize rates during future droughts, minimizing the types of increases seen in 2022. Staff expects 3% to 8% base rate increases for FY 2025 to FY 2028, offset by continuing decreases in the hydroelectric rate adjuster, meaning little or no change to customer bills over the forecast period. In the longer term, load increases are expected to roughly balance increases in utility costs associated with electrification, leading to only modest increases in rates.

Gas Utility
Tentative July 1, 2023 Rate Change:
•Change from current total FY 2023 rates (incld. current commodity prices): -14% to 12% Item 8
Attachment
C_Preliminary Utility Rate
Forecast FY 2024

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Attachment C
Preliminary FY 2024 Utility Rate Forecast
decrease
•Distribution Rate: 7% to 9% increase
Currently, Gas rates are expected to decrease for the average customer in FY 2024. Natural gas prices are at unprecedented levels in California and other Western states; the gas utility reserves were severely depleted by an extreme spike in natural gas market prices in FY 2023, which exceeded what could be passed through to customers. Gas market prices are expected to remain elevated through the forecast period, though below FY 2023 levels. The decrease in gas commodity costs from FY 2023 to projected FY 2024 is expected to produce a net decrease in customer bills next year. The decrease in commodity costs will be partially offset by an estimated 7% to 9% increase related to rising gas utility operational and capital costs, and the need to begin to replenish reserves. Capital investment rates and how quickly to refill reserves are major variables being reviewed to finalize rate plans.

Rate increases in the 5% to 9% range are expected over the next three years, while in the longer term increases of no less than 5% are expected as the City electrifies. The City is considering strategies to protect those who are unable to take advantage of electrification from excessive gas bills as the transition proceeds.

Water Utility
Tentative July 1, 2023 Rate Change:
•7% - 14% increase
At this time, Water rates are anticipated to increase 7-14% in FY 2024 as water supply costs remain the greatest source of uncertainty, and staff will adjust the City’s water supply pass- through rate adjuster in July 2023 based on the final water supply rate from the City’s water supplier. Palo Alto residents and businesses have responded to calls for water conservation during the ongoing drought. Recovery is projected to be slow and as in prior droughts, some conservation is projected to be permanent. Water supply costs continue to increase due to continuing investment in rehabilitating and seismically strengthening the Hetch Hetchy system. These factors are leading to the need for rate increases over the next several years. Staff will use the water utility’s healthy reserve levels to spread increases over multiple years. Rate increases are expected to be around 3-4% annually long-term after FY 2024.

Wastewater Utility
Tentative July 1, 2023 Rate Change:
•5% - 9% increase
Based on current information, Wastewater rates are anticipated to increase 5-9% in FY 2024 to pay for infrastructure replacement, including replacing and maintaining sewer lines, and replacing aging equipment at the City’s Regional Water Quality Control Plant. Staff is evaluating a few rate projection scenarios, including accelerating the sewer mains replacement rate from 1 mile per year to 2.5 miles per year beginning in FY 2026 to allow the wastewater utility to replace aging mains before the end of their life expectancy. This scenario expects 8-9% rate increases over the next four years, and 3-5% in the outer years. The other scenario delays the accelerated sewer main replacement plan to begin in FY 2028 or later to mitigate the impact of rate increases on customers.

Item 8
Attachment
C_Preliminary Utility Rate
Forecast FY 2024

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Attachment C
Preliminary FY 2024 Utility Rate Forecast

PUBLIC WORKS DEPARTMENT
Each year the Public Works Department evaluates and analyzes the enterprise funds that provide utility services as part of the budget development and rate setting process. Applicable projections and formal recommendations are presented to UAC and Finance Committee in alignment with the process the Utilities Department follows. Preliminary rate changes for July 1, 2023 are shown below.

Stormwater Management Fee
Tentative July 1, 2023 Rate Change:
•4.9% increase
At this time, the Storm Water Management Fee is expected to increase 4.9% in FY 2024 to keep fund revenues consistent with general cost increases and to provide sufficient funds for planned storm water management capital and operating expenditures. Implementing a 4.9% increase based on the applicable Consumer Price Index is lower than the 6% maximum adjustment specified in the voter approved ballot measure.

Refuse Services
Tentative July 1, 2023 Rate Change:
•3% increase
Refuse rates are anticipated to increase 3% in FY 2024 to provide sufficient funds for increasing operating expenses and to maintain the long-term health of our Rate Stabilization Reserve. The Refuse Fund has not adjusted commercial rates since FY 2017 and residential rates since FY 2018. The anticipated 3% increase across all sectors in FY 2024 will help to mitigate future potential rate adjustment spikes when the municipal solid waste collection and processing service agreements term out in FY 2026. Staff anticipates higher operating costs when a new agreement is to be implemented in FY 2027.

Item 8
Attachment
C_Preliminary Utility Rate
Forecast FY 2024

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Item No. 9. Staff Report Page 1 of 2
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CITY COUNCIL

STAFF REPORT
From: City Manager
Report Type: INFORMATION REPORTS
Lead Department: Administrative Services
Meeting Date: February 6, 2023

TITLE
Biannual Report of Contracts Awarded by the City Manager, Procurement Officer or Other Designated Employees

RECOMMENDATION
This is an information report, no action is required.

ANALYSIS
Palo Alto Municipal Code (PAMC) Section 2.30.710(a) requires the City Manager to provide a biannual report to Council consisting of contracts awarded by the City Manager, Procurement Officer or other designated employees for:

1. Goods contracts $85,000 through $250,000 per year (Attachment A), and

2. Professional and General Services $25,000 through $85,000 and Public Works Contracts $85,000 through $250,000 per year (Attachment B).

The contracts in Attachment A consist of twenty-three (23) distinct awards for goods, and the contracts in Attachment B consist of fifty-seven (57) distinct awards for a wide range of services.

These awards are a core element of the efficient and effective provision of services by the City to our community and reflect extensive coordination and prudent decision-making among operating departments, the Administrative Services Department, the City Attorney's Office, and City Clerk's Office.

For informational purposes, Attachment C provides excerpts from the PAMC that set forth the authority designated by Council to the Procurement Officer to award and sign contracts (PAMC

2.30.200), City Manager to award and sign contracts (PAMC 2.30.210), and exemptions from competitive solicitation (PAMC 2.30.360 and 2.30.900), as noted for certain contracts listed in Attachments A and B.

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ATTACHMENTS
Attachment A: Goods Contracts Awarded $85,000 through $250,000 per year Attachment B: Professional and General Services $25,000 through $85,000 per year and Public Works Contracts $85,000 through $250,000 per year
Attachment C: Excerpts from the Palo Alto Municipal Code APPROVED BY:

Kiely Nose, Assistant City Manager
Report #: 2301-0754
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Contract Awarded To Award Date Award Amount
Bidding Exemption or
Number of Bids
Sent/Received
Description
NATIONAL AUTO FLEET GROUP 07/26/2022 $101,429.03 2.30.360 (j) Three (3) new 2022 Ford Ranger SupCab 6' Box ONE SOURCE DISTRIBUTORS, LLC 08/18/2022 $172,888.81 439/3 Crossarm and Hardware 8 foot Pupi Fiberglass INTERSTATE TRUCK CENTER LLC 08/22/2022 $237,790.60 2.30.360(j) One(1) new 2022 Saw Truck w International Chassis TROJAN TECHNOLOGIES GROUP ULC 08/31/2022 $115,141.72 2.30.900 Trojan UV Lamp and System PB LOADER CORPORATION 09/14/2022 $190,495.39 2.30.360 (j) One(1) new 2023 Isuzu 7 Yard Dump Truck MADER SUPPLY LLC 09/20/2022 $185,014.48 6/3 URD 50 Kva 4160 X 12470 120/240- Mineral Oil SAN LEANDRO CHRYSLER DODGE JEEP RAM 09/29/2022 $211,371.52 2.30.360(b2) Four (4) new 2023 Dodge Durango Pursuit Vehicle for Police SENSUS USA INC 09/30/2022 $91,610.45 1066/13 Meters for AMI project ONE SOURCE DISTRIBUTORS, LLC 10/13/2022 $99,914.70 4/3 Amphenol connectors NATIONAL AUTO FLEET GROUP 10/24/2022 $120,292.72 2.30.360(j) Two(2)new 2023 Ford Interceptor AWD for Police HAYWARD GORDON ULC 10/25/2022 $86,045.06 3/3 Hayward Gordon Bare Pump for PWD BADGER METER INC 11/02/2022 $152,753.47 2.30.360(e) AMI Water Meters and AMI Dials GLOBAL RENTAL COMPANY INC 11/04/2022 $123,334.17 2.30.360(b2) AA55 Altec Bucket Truck INSIGHT PUBLIC SECTOR, INC. 11/07/2022 $116,093.72 2.30.360(j) Seven (7) SuperMicro 620C-TN12R-OTO-13 Servers GOLDEN GATE SYSTEMS 11/18/2022 $111,071.41 2.30.360 (j) Computer Equipment- Laptops and Desktops NATIONAL AUTO FLEET GROUP 11/18/2022 $160,764.64 2.30.360 (j) Two(2) new 2023 Ford Flatbed Trucks AXON ENTERPRISE INC 12/27/2022 $185,081.95 2.30.360(j) Taser 7 Hardware, Services, Software and Warranty OLIN CHLOR ALKALI PRODUCTS 07/07/2022 $197,670.00 92/3 12.5% Bulk Sodium Hypochlorite ITERIS, INC. 07/12/2022 $109,125.00 2.30.360(d) Traffic signal detection equipment R&B COMPANY 07/12/2022 $105,000.00 2.30.360(d) Pipes, Valves, Fittings TMT ENTERPRISES INC 07/15/2022 $150,000.00 250/3 Sand, Rock, and Gravel-Year 3 HILL BROTHERS CHEMICAL COMPANY 08/10/2022 $217,083.00 10/3 Magnesium Hydroxide MINSAIT ACS INC. 08/26/2022 $160,000.00 2.30.360(d) Equipment and services in support of the SCADA system equipment

ATTACHMENT A
Goods Contracts Awarded $85,000 through $250,000 per year July 1, 2022 through December 31,2022

Item 9
Attachment A Goods Contracts
Awarded $85,000-$250,000

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Contract Awarded To Award Date Award Amount
Bidding Exemption
or Number of Bids
Sent/Received
Description
CDW GOVERNMENT 11/07/2022 $77,566.17 2.30.360(j) CrowdStrike software and services CINTAS CORPORATION 07/26/2022 $42,000.00 2.30.360(j) Ops/Lab Uniform Rental Svcs CINTAS CORPORATION 08/02/2022 $50,000.00 2.30.360(j) Uniform Rental WGW OPS CINTAS CORPORATION 08/04/2022 $25,000.00 2.30.360(j) Electric OPS Uniform Rental CJW ARCHITECTURE 09/19/2022 $55,353.10 2.30.360(b2) ADA Design Services CROSS LAND SURVEYING, INC 11/03/2022 $50,000.00 2.30.360(i) Surveying Services DASHER TECHNOLOGIES 12/01/2022 $79,820.63 2.30.360(j) Network Monitoring tools of SecureWorks DIABLO BOILER AND STEAM INC 09/14/2022 $49,888.00 4/4 Ventura Unit 1 Boiler Replacement Project DLT SOLUTIONS LLC 08/29/2022 $37,224.30 3/3 AutoCAD
EDGEWORTH INTEGRATION LLC 12/16/2022 $34,740.69 4/3 Installation of card access on eight stairwell doors at City Hall
EDWARD MATHEWSON 10/04/2022 $25,000.00 2.30.360(g) Hearing Officer Services ENERGY AND ENVIRONMENTAL ECONOMICS 09/22/2022 $49,940.00 2.30.360(i) Study for Sustainability and Climate Action Plan EVOQUA WATER TECHNOLOGIES LLC 08/10/2022 $26,784.32 2.30.360(i) SDW Loadout Bay Odor Control Pilot Test GE DIGITAL LLC 12/21/2022 $29,759.07 2.300.900 Water Solutions PK 2008-iFIX 5.0 ESig GOVQA LLC 11/21/2022 $27,950.00 2.30.360(i) PD Subpoena Duces Tecum Module GRASSROOTS ECOLOGY 12/07/2022 $25,000.00 2.30.360(i) Grassroots Annual Contribution HERMES ROBOTICS INC 12/14/2022 $35,100.00 1066/3 Parking lot and garage sweeping services INFO TECH RESEARCH GROUP INC 07/26/2022 $56,160.00 2.30.260 (j) InfoTech Services INSIGHT PUBLIC SECTOR, INC. 10/27/2022 $72,120.00 2.30.360(j) FY23: Precisely Maint & Support for PB JACKSON LEWIS PC 07/20/2022 $35,000.00 2.30.360(g) Professional legal Services JACKSON LEWIS PC 07/26/2022 $30,000.00 2.30.360(g) Professional legal services JARVIS FAY LLP 07/27/2022 $25,000.00 2.30.360(g) Professional legal services JOHN AND CLAIRE INVESTIGATIONS 09/15/2022 $30,000.00 2.30.360(i) Pre-Employment Background Investigations

ATTACHMENT B
Service Contracts Awarded
Professional and General Services $25,000 through $85,000 per year and Public Works Contracts $85,000 through $250,000 per year July 1, 2022 through December 31, 2022

Item 9
Attachment B Service Contracts
Awarded $25,000-$85,000

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Contract Awarded To Award Date Award Amount
Bidding Exemption
or Number of Bids
Sent/Received
Description

ATTACHMENT B
Service Contracts Awarded
Professional and General Services $25,000 through $85,000 per year and Public Works Contracts $85,000 through $250,000 per year July 1, 2022 through December 31, 2022
JOHNSON CONTROLS SECURITY SOLUTIONS 08/03/2022 $28,866.99 3/3 Install 7 card readers, MSC-C JUNIOR CHEF STARS 07/05/2022 $45,000.00 2.30.360(i) Cooking Instructor Services KAPLAN KIRSCH & ROCKWELL, LLP 07/13/2022 $25,000.00 2.30.360(g) Professional legal services KEYSER MARSTON ASSOCIATES 09/22/2022 $40,101.00 2.30.360(i) Housing Element Site Suitability Study KIS 08/29/2022 $35,956.38 3/3 Barracuda Energize Updates Subscription KOFF & ASSOCIATES INC 10/27/2022 $50,000.00 2.30.360(i) Class and Comp Study KOFFLER ELECTRICAL MECHANICAL 10/18/2022 $60,000.00 732/2 Electric Motor Service LAW OFFICE OF ALAN SELTZER 10/04/2022 $25,000.00 2.30.360(g) Parking Hearing Officer Services LAW OFFICE OF CLARE M GIBSON 07/11/2022 $50,000.00 2.30.360(g) Professional legal services LAW OFFICE OF CLARE M GIBSON 07/20/2022 $50,000.00 2.30.360(g) Professional legal services LAW OFFICE OF CLARE M GIBSON 10/04/2022 $50,000.00 2.30.360(g) Professional legal services LN CURTIS & SONS 10/21/2022 $115,728.13 2.30.360(d) Rescue Auto Extrication Tools MICHAEL BAKER INTERNATIONAL INC 11/15/2022 $85,000.00 2.30.360(b2) Community Development Block Grant (CDBG) Program ONE WORKPLACE L.FERRARI, LLC 12/21/2022 $87,721.06 1185/2 PSB Furniture and Installation Serices PG&E 07/12/2022 $75,000.00 2.30.360(d) PG&E (Training Services) -Year 3 PIVOT INTERIORS INC. 11/29/2022 $150,265.99 2.30.360(j) Herman Miller Office furniture, project management
and assembly services
PREFERRED BENEFIT INSURANCE ADMINS 10/05/2022 $53,122.13 2.30.360(b2) VSP - Aug Sep Oct 2020 PRESTON PIPELINES INFRASTRUCTURE 10/20/2022 $153,230.00 1683/6 East Bayshore Potholing Rankin Stock Heaberlin O'Neal 08/29/2022 $25,000.00 2.30.360(g) Professional legal services Rankin Stock Heaberlin O'Neal 12/13/2022 $25,000.00 2.30.360(g) Professional legal services RINCON CONSULTANTS, INC. 09/22/2022 $184,837.10 2.30.360(h) 660 University Ave -Environmental Impact Report RINCON CONSULTANTS, INC. 11/29/2022 $97,227.50 2.30.020(b1) 3001 El Camino Real -Historical Resource Study SEDGWICK CLAIMS MANAGEMENT SERVICE 08/26/2022 $85,558.23 2.30.360(b2) Workers' Comp Claims Administration SEDGWICK CLAIMS MANAGEMENT SERVICE 10/27/2022 $44,000.00 2.30.360(i) Workers' Comp Claims Administration

Item 9
Attachment B Service Contracts
Awarded $25,000-$85,000

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Contract Awarded To Award Date Award Amount
Bidding Exemption
or Number of Bids
Sent/Received
Description

ATTACHMENT B
Service Contracts Awarded
Professional and General Services $25,000 through $85,000 per year and Public Works Contracts $85,000 through $250,000 per year July 1, 2022 through December 31, 2022
SHERPA GOVERNMENT SOLUTIONS LLC 11/16/2022 $44,260.00 1766/3 Budget Publishing Software SLOAN SAKAI YEUNG & WONG LLP 08/29/2022 $30,000.00 2.30.360(g) Professional legal services SOUTH BAY REGIONAL PUBLIC SAFETY 11/29/2022 $49,900.00 2.30.360(i) Joint Fire Academy STEPHANIE ELIZABETH HUGHES 11/01/2022 $79,820.00 2171/3 Technical Support Services for Water Quality Standards THE GALECIA GROUP 10/18/2022 $32,500.00 2.30.360(i) Consulting Services for AMH TMT ENTERPRISES INC 07/29/2022 $80,000.00 70/4 Offhauling Services for PW OPS TRANSCRIPTION PLUS LLC 11/08/2022 $50,000.00 519/8 Transcription Services USGS NATIONAL CENTER MS 270 08/01/2022 $62,013.00 2.30.360(n) USGS Agreement-Year 2 VNH BUILDERS 11/03/2022 $187,000.00 1265/1 Lytton Plaza fountain resurfacing WRA INC 12/13/2022 $79,800.00 2.30.360(b2) Matadero Creek Study

Item 9
Attachment B Service Contracts
Awarded $25,000-$85,000

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ATTACHMENT C
Excerpts from the Palo Alto Municipal Code
Chapter 2.30 – Contracts and Purchasing Procedures
Item 9
Attachment C Excerpts
from PAMC 2.30 -
Contracts and Purchasing
Procedures

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2.30.200 Procurement officer contract award authority.

The Procurement Officer may award and sign the following contracts:
(a) Public Works Contracts. Public works contracts, where the term does not exceed three years, and the contract priceand any price contingency established for change orders, but excluding sales tax or use tax, do not exceed $85,000.00 in the first contract year, and do not exceed the sum of $85,000.00 and any unexpended monies carried forward from a prior contract year, in any subsequent contract year.
(b) Contracts for Goods. Contracts to purchase goods, where the term does not exceed three years, and the contract price and any price contingency established for change orders, but excluding sales tax or use tax, do not exceed $85,000.00 in the first year, and do not exceed the sum of $85,000.00and any unexpended monies carried forward from a prior contract year, in any subsequent contract year.
(c) General Services Contracts. General services contracts, where the term does not exceed three years, and the contract priceand any price contingency established for change orders or additional services, but excluding sales tax or use tax, do not exceed $85,000.00 in the first contract year, and do not exceed $85,000.00 and any unexpended monies carried forward from a prior contract year, in any subsequent contract year.
(d) Professional Services Contracts. Professional services contracts, where the term does not exceed three years, and the contract price, and any price contingency established for additional services, but excluding sales tax or use tax, do not exceed the sum of $85,000.00 in the first contract year, and do not exceed the sum of $85,000.00 and any unexpended monies carried forward from a prior contract year, in any subsequent contract year.
(e) Software and Hardware Purchase, Licensing, Maintenance and Support Contracts.

Notwithstanding Subsection 2.30.200(c), the Procurement Officer may award and sign contracts other than general services agreements, including, without limitation, vendor-based standard form hardware and software purchase and licensing contracts, for the purchase of hardware and software, the licensing of software, and the maintenance and support of hardware and software, where the term of licensing or maintenance and support services does not exceed five years and the contract price, excluding sales tax or use tax, does not exceed $85,000.00 per year in the first contract year and does not exceed the sum of $85,000.00 and any unexpended monies carried forward from a prior contract year, in any subsequent contract year. The contracts referred to herein may include contracts for data storage services, which shall be subject to the city's information security policies, terms, conditions and other requirements established by the chief information officer with the concurrence and approval of the City Attorney.
(Ord. 5494 § 9, 2020: Ord. 5387 § 1 (part), 2016: Ord. 4827 § 1 (part), 2004) Item 9
Attachment C Excerpts
from PAMC 2.30 -
Contracts and Purchasing
Procedures

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2.30.210 City Manager contract award authority.

The City Manager may award and sign the following contracts:
(a) Public Works Contracts. Public works contracts, where the term does not exceed three years, and the contract price and any price contingency established for change orders, but excluding sales tax or use tax, do not exceed $250,000.00 in the first contract year, and do not exceed the sum of $250,000.00 and any unexpended monies carried forward from a prior contract year, in any subsequent contract year.
(b) Contracts for Goods. Contracts to purchase goods, where the term does not exceed three years and the contract price and any contingency established for change orders, but excluding sales tax or use tax, do not exceed $250,000.00 in the first contact year, and do not exceed the sum of $250,000.00 and any unexpended monies carried forward from a prior contract year, in any subsequent contract year.
(c) General Services Contracts. Contracts for services associated with the leasing or licensing of personal property other than hardware or software, where the term does not exceed seven years, and the contract price and any price contingency established for change orders, but excluding sales tax or use tax, do not exceed $85,000.00 in the first contract year, and do not exceed the sum of $85,000.00 plus any unexpended monies carried forward from a prior contract year, in any subsequent contract year.
(d) Contracts for Studies and Services Related to Private Development. Professional services contracts for: (1) the preparation of environmental assessments or other studies deemed necessary by the director of planning and development services for the processing of applications for private development projects, or (2) inspection and plan review services deemed necessary by the director of planning and development services to evaluate conformity of private development projects with applicable building codes, regardless of the cost or term thereof, provided the applicant for the private development project agrees, in writing, to bear responsibility for the entire contract cost, and the contract does not require the expenditure of city funds in any amount. (e) Rewards. The City Manager may offer and pay rewards where the amount of the reward does not exceed $25,000.00, in accordance with the procedures of Section 2.30.800. (f) Emergency Contracts. The City Manager is authorized to expend city funds for emergency contracts, as defined in Section 2.30.160, without limitation on the contract cost or amount and without following the contract solicitation and award procedures otherwise required by this chapter, provided that any procurement of goods and services obtained during an emergency declared by the Federal Emergency Management Agency shall comply with applicable FEMA Public Assistance Program's procurement orders, rules, regulations, guidelines and control procedures for cost reimbursement purposes. Expenditures made during an emergency must be reported to the Council at the next regular meeting if approval for such expenditures would otherwise have been made by the Council.

The City Manager may issue a verbal report to the Council before a written report is delivered. (g) Contracts to Rent, Lease, License, Acquire, Transfer or Purchase Interests in Real Property from Other Parties. Contracts for the rental, leasing, licensing, or purchase by installment interests in real property from other parties for a term of seven years or less, where the contract price does not exceed $85,000.00 per year, or to encumber or transfer any interest in real property from other parties for any term of years. The City Manager may enter into and sign a contract to acquire or purchase an interest in real property, where the contract price does not exceed $85,000.00. (h) Contracts to Rent, Lease, or License City Real Property to Other Parties. The authority granted under this Section is distinct from the authority of the director of community services to grant individuals and groups permits for the exclusive temporary use of buildings and facilities located in, and the areas of, city parks and open spaces, as described in Chapter 22.04 of this municipal code or in the park and open space regulations. The City Manager may award and sign contracts to rent, Item 9
Attachment C Excerpts
from PAMC 2.30 -
Contracts and Purchasing
Procedures

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lease or license city real property to other parties regardless of the price for a term not exceeding three years. Notwithstanding the preceding sentence, the City Manager may enter into and sign contracts for the rental, lease or licensing of real property at the Cubberley Community Center for terms of up to five years.
(i) Contracts to Provide Municipal Services to other Public Entities or Utilities. A contract to provide municipal services and functions to any other public agency, public utility or other public entity in any amount for a term not exceeding three years, provided the contract is in compliance with all Council- adopted policies covering such contracts. The authority granted herein does not include the authority of the City Manager to add permanent employee positions. (j) Contracts Providing for Indemnity or Risk of Loss. The City Manager, with the concurrence and approval of the City Attorney and the insurance risk manager, may enter into and sign contracts, otherwise within the limits of his or her authority under Section 2.08.140 of this municipal code, that provide for the city or its officers or employees to defend, indemnify, or assume the risk of damage, loss, or liability for, or subrogate to any other contracting party respecting claims, demands, actions, losses or liabilities arising from the city's performance or non-performance under the contract. (k) Wholesale Utility Commodities and Services Contracts. Wholesale utility commodities and services contracts, where the term does not exceed five years and the contract price does not exceed $250,000.00 in any contract year.
(l) Software and Hardware Purchase, Licensing, Maintenance and Support Contracts.

Notwithstanding Subsection 2.30.210(c), the City Manager may award and sign contracts other than general services agreements, including, without limitation, vendor-based standard form hardware and software purchase and licensing contracts, for the purchase of hardware and software, the licensing of software, and the maintenance and support of hardware and software, where the term of licensing or maintenance and support services does not exceed seven years and the contract price, excluding sales tax or use tax, does not exceed $85,000.00 per year in the first contract or fiscal year and does not exceed the sum of $85,000.00 and any unexpended monies carried forward from a prior fiscal year, in any subsequent contract or fiscal year. The contracts referred to herein may include contracts for data storage services, which shall be subject to the city's information security policies, terms, conditions and other requirements established by the chief information officer with the concurrence and approval of the City Attorney.
(m) Other Contracts. All other types of contracts for which the contract term does not exceed three years and the total expenditure by the city does not exceed $85,000.00 in the first contract or fiscal year, and does not exceed the sum of $85,000.00 and any unexpended monies carried forward from a prior fiscal year, in any subsequent contract or fiscal year. (Ord. 5494 §§ 3, 10, 2020: Ord. 5387 § 1 (part), 2016: Ord. 4827 § 1 (part), 2004) Item 9
Attachment C Excerpts
from PAMC 2.30 -
Contracts and Purchasing
Procedures

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2.30.360 Exemptions from competitive solicitation requirements.

The following are exemptions from the informal and formal competitive solicitation requirements of this chapter, except as otherwise provided. These exemptions will be narrowly interpreted and applied.

The department requesting an exemption shall provide all relevant information supporting the application of the exemption to the Procurement Officer. Based upon this information, the Procurement Officer shall make a recommendation to the City Manager and the City Manager shall determine whether an exemption from the competitive solicitation requirements applies. Nothing herein is intended to preclude the use of competitive solicitations, as practicable. (a) Emergency Contracts, provided that any procurement of goods and services obtained during an emergency declared by the Federal Emergency Management Agency shall comply with applicable FEMA Public Assistance Program's orders, rules, regulations, guidelines and control procedures for cost reimbursement purposes.
(b) Whenever solicitations of bids or proposals would for any reason be impracticable, unavailing or impossible, provided that in the case of a public works project, the project is not otherwise required by the charter to be formally bid. These situations are those where solicitations of bids or proposals would not be useful or produce any operational or financial advantage for the city. Situations where solicitations of bids or proposals would be impracticable, unavailing or impossible, include, without limitation, the following:
(1) Contract specifications cannot be drawn in a way that would enable more than one vendor, consultant or contractor to meet them;
(2) Due to circumstances beyond the control of the city, the time necessary to use the competitive solicitation process, procedures and requirements would result in a substantial economic loss to the city or the substantial interference with a required city operation; (3) Special conditions attached to a grant, donation or gift requires the use of particular goods and/or services.

All requests for exemptions under this subsection shall be supported by written documentation (facsimile or electronic mail may be used), approved by the department head and the Procurement Officer.
(c) Where competitive bids or requests for proposals have been solicited and no bid or proposal has been received, or where no bid or proposal meeting the requirements of the invitation to bid or request for proposals has been received, provided that, in the case of a public works project, the project is not otherwise required by the charter to be formally bid. (d) Contracts for goods, wholesale commodities and services, general services or professional services available from only one source, where the Procurement Officer has determined, in writing, there is no adequate substitute or equivalent provider. Examples of acceptable sole source acquisitions or purchases may include, without limitation: equipment or services for equipment, for which there is no comparable competitive product or service except that provided by the equipment manufacturer, distributor or dealer; proprietary products sold directly by the manufacturer; a component or replacement part, for which there is no commercially available substitute and which can be obtained only from the manufacturer; goods where there is only one authorized distributor in the area; and goods where compatibility with goods in use by the city is an overriding consideration. All requests for sole source acquisitions or purchases shall be supported by written documentation (facsimile or electronic mail may be used), approved by the office or department head, and forwarded to the Procurement Officer.
(e) Contracts for goods where, pursuant to Section 2.30.900, the City Manager has determined that standardization of the supplies, materials or equipment is permissible. (f) Placement of insurance coverage and surety bonds.

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Attachment C Excerpts
from PAMC 2.30 -
Contracts and Purchasing
Procedures

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(g) Legal services contracts, including, without limitation, the services of outside counsel, consultants and other experts needed for litigation, administrative or other legal proceedings. (h) Professional services contracts for private development related studies and services whenever the services are funded wholly by private developers.
(i) Professional services contracts, where the estimated total expenditure by the city, regardless of term, does not exceed $50,000.00.
(j) Cooperative purchases, with one or more other public agencies or through a cooperative purchasing agency, provided: (i) the services are solicited using methods substantially similar to those required by this chapter, as determined by the Procurement Officer; and (ii) the contract is consistent with the requirements specified in this municipal code. (k) The use of another governmental or public agency's contract or substantially the same contract terms provided: (i) the agency uses a solicitation method substantially similar to the method required by this chapter; (ii) the contract is consistent with the requirements specified in this municipal code; and (iii) the Procurement Officer determines that the city will realize overall value to utilizing the other agency's contract or contract terms compared to the city performing its own solicitation. (l) Contracts with, or solicited on the city's behalf by, Northern California Power Agency, Transmission Agency of Northern California, and Western Area Power Administration to procure wholesale utility commodities and services that meet the requirements of Section 2.30.340(d) or

2.30.360(k).
(m) Contracts with Pacific Gas and Electric Company and the California Independent System Operator Corporation for energy transmission services to the extent necessary and expedient to provide for the general health, safety and welfare of the city's utility customers. (n) Contracts with any public agency or governmental body to construct a public work, where the Procurement Officer determines the public agency or governmental body has used methods similar to those required by this chapter to contract for the public work. (o) Contracts with any public utility holding a certificate of public convenience and necessity or any entity holding a cable service or video service franchise pursuant to chapter 2.10 of this municipal code to construct a public works, where such works involves property of such public utility or cable service or video service franchisee and is otherwise of direct concern to both the city and such public utility or cable service or video service franchisee, provided that the project is not otherwise required by the charter to be formally bid.
(p) Contracts with private developers to construct public improvements in connection with their development projects, even if the city contributes funds to the improvement project, provided that the projects are not otherwise required by the charter to be formally bid. (q) Projects, where the public work is performed by the city with its own employees. (r) Contracts, where the estimated total expenditure by the city does not exceed $10,000.00. (s) Contracts with entities to procure at wholesale prices utility commodities and services under a city "feed-in tariff" energy program that meets the requirements of Section 2.30.340(c). (t) Professional services contracts in relation to personnel matters for: recruitment consultants, workplace investigations, threat assessments, conflict intervention, and industrial safety. (Ord. 5494 § 21, 2020: Ord. 5387 § 1 (part), 2016: Ord. 5148 § 2, 2012: Ord. 5081 § 1, 2010: Ord. 4827 § 1 (part), 2004)
Item 9
Attachment C Excerpts
from PAMC 2.30 -
Contracts and Purchasing
Procedures

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PART 10 – STANDARDIZATION

2.30.900 Standardization.

Where the City Manager has determined that it is required by the health, safety or welfare of the people or employees of the city, or that significant costs savings have been demonstrated, the standardization of supplies, materials or equipment, including, without limitation, information technology property, for purchase or to be used in a public works project is permitted and the supplies, materials or equipment specifications may specify a single brand or trade name. The City Manager may consider the following factors in determining to standardize on a single brand or trade name:
(a) Repair and maintenance costs would be minimized;
(b) User personnel training would be facilitated thereby; (c) Supplies or spare parts would be minimized;
(d) Modifications to existing equipment would not be necessary; (e) Training of repair and maintenance personnel would be minimized; and (f) Matching existing supplies, materials or equipment is required for proper operation of a function or program.
(Ord. 5494 § 40, 2020: Ord. 5387 § 1 (part), 2016: Ord. 4827 § 1 (part), 2004) Item 9
Attachment C Excerpts
from PAMC 2.30 -
Contracts and Purchasing
Procedures

Item 9: Staff Report
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1 www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city- council-agendas-minutes/2022/20220205/20220205pccsm-retreat.pdf Item No. 10. Staff Report Page 1 of 2
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CITY COUNCIL

STAFF REPORT
From: City Manager
Report Type: INFORMATION REPORTS
Lead Department: City Manager
Meeting Date: February 6, 2023

TITLE
2022 City Council Priorities- Major Project Quarterly Update

INFORMATION
This is an informational report; no action is needed. This report provides progress updates on the 2022 City Council Priorities and associated workplan elements approved by the City Council in April 2022.

BACKGROUND
Each year, the City Council reviews its priorities for the upcoming calendar year at its annual Council Retreat. A Council priority is defined as a topic that will receive significant attention during the year. The Palo Alto City Council convened to set its 2022 priorities on February 5, 20221, informed in part by community feedback through an online survey, e-mails to Councilmembers, and public participation during the City Council retreat. The City Council adopted four priorities for 2022, including:
• Economic Recovery and Transition (ERT),
• Climate Change - Protection and Adaptation (CCPA),
• Housing for Social and Economic Balance (HSEB), and
• Community Health and Safety (CHS).

The major workplan elements for each priority are listed in Attachment A, individual project progress updates can be found in Attachment B. These workplan elements, or “major projects”, provide context and enumerate the efforts underway to advance Council priorities. In addition to these major projects, there is a great deal of work being completed on other high-priority projects as directed by the City Council in addition to delivering 24/7 core services. In this time of resource challenges, the City continues to focus on maintaining core city services and managing the vulnerabilities and risks associated with available resources while pursuing the major projects listed in this report.

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ANALYSIS
Based on the City Council’s four 2022 adopted priorities, the following discussion presents the major workplan elements involved. The attached status update tracking table includes the following columns:
• Project Target Start- indicates in which calendar quarter the project is targeted to begin.
• Project Status- indicates whether a project is substantially complete, ongoing, not started, behind schedule, or dropped. Dropped projects may no longer be feasible or relevant. • Next Review Target Date- indicates in which calendar quarter the project can be expected to be reviewed by a legislative body.
• Not Yet Resourced- Projects not yet resourced are still considered priorities but resources are not currently available or are otherwise “on hold.”
While actual completion dates will vary, the workplan communicates the breadth and volume of concurrent activities. Projects that have been identified as priorities but where resources are not currently available will be considered as opportunities for new resources arise. A summary update on each project can be found in Attachment B. The numbering of the major projects is consistent with the numbering presented and approved by the City Council on April 4, 20222 for ease of tracking through the two documents. Of the 65 identified major projects supporting Council priorities, 14 have been completed, 38 are ongoing, 10 are either behind schedule or not started, and 3 have been placed on hold or dropped.

Completed Ongoing ￿Behind
Sched/ Not
Started
On Hold/
Dropped
Total
ERT: Economic Recovery &
Transition
3 8 ￿0 2 13
CCPA: Climate Change
Protection & Adaptation
2 6 ￿0 0 8
HSEB: Housing for Social &
Economic Balance
7 7 ￿9 1 24
CHS: Community Health &
Safety
2 17 ￿1 0 20
TOTAL 14 38 ￿10 3 65
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FISCAL/RESOURCE IMPACT
Although there are no additional direct resource impacts for the projects described as occurring during the 2022 calendar year, several projects in this report are identified as either not yet being resourced or temporarily ‘on hold’. To appropriate resources for such projects, staff would need to be reallocated from existing work to those projects and additional appropriation actions would likely be necessary.

STAKEHOLDER ENGAGEMENT
The City Council received and provided input on community engagement plans furthering Council priority workplans in March 20223. Council input was incorporated into final plans for calendar year 2022. Staff anticipates returning to the City Council in March 2023 with community engagement plans based on Council adoption of new 2023 Priorities. The status report in the attachment includes various levels of community engagement and communications, based on each distinct project within each priority area.

ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA) because the process for Council Priority-Major Project Updates is a continuing administrative or maintenance activity. CEQA Guidelines section 15378(b)(2).

ATTACHMENTS
Attachment A:

APPROVED BY:

Ed Shikada, City Manager
Report #: 2301-0822
3https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas- minutes/city-council-agendas-minutes/2022/20220314/20220314pccsm-amended-final- revised-ppt.pdf
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Attachment A: 2022 Major Project Status by Council Priority Calendar Year (CY) 2022 City Council Priorities: Major Projects by Priority Area Target
Start
Status
Next
Revie
w
Target
Date
Not Yet
Resourced
Priority Area, Project Number, and Project Name
ERT ‐ ECONOMIC RECOVERY AND TRANSITION
CY23Q1/Q2 On  Hold CY23Q2  FC ‐ ERT001 ERT1.  Downtown Business Improvement District (BID) Pre‐CY22 Completed ‐ ERT002    ERT2. Economic Development Request for Proposal (RFP) CY22Q1/Q2 Ongoing CY23Q2 ‐ ERT003 ERT3.  Economic Development Committees for Downtown and California Avenue CY22Q3/Q4 Completed CY24Q2 ‐ ERT004 ERT4.  Retail and Retail‐Like Land Uses and CUP Thresholds (to be merged w/ERT12) CY22Q1/Q2 Ongoing CY23Q3  PTC ‐ ERT005 ERT5.  University Avenue Streetscape Des ign Project CY22Q1/Q2 Ongoing CY223Q1  CC ‐ ERT006 ERT6.  California Avenue Closure and feasibility study (Car‐Free Streets) CY22Q1/Q2 Ongoing CY23Q1  CC ‐ ERT007 ERT7.  Ramona Street Closure and feasibility study (Car‐Free Streets) Pre‐CY22 Ongoing ‐ ERT008 ERT8.  Build Out Fiber Backbone as Foundation for Fiber‐to‐the‐Premises (FTTP) CY22Q3/Q4 Ongoing CY23Q3  CC ‐ ERT009 ERT9.  Electronic Plan Review RFP to integrate with Accela C
Y22Q3/Q4 Completed CY23Q2  CC ERT010 ERT10.  Development of New Parking Facilities in the University Avenue Downtown (potential BMH site) On Hold ERT011 ERT11.  California Avenue Subscription Parking Program (Commercial Uses) CY22Q3/Q4 Ongoing CY24Q2  CC ERT012 ERT12.  Citywide Retail Recovery Ordinance CY22Q1/Q2 Ongoing CY24Q2  PTC ERT013 ERT13.  Retail Preservation (merge w/ERT12) CCAP ‐ CLIMATE CHANGE: PROTECTION AND ADAPTATION
CY22Q3/Q4 Ongoing CY23Q2  CC ‐ CCPA001 CCPA1.  Municipal Code Amendments to Facilitate PV, ESS, EVCS and Hea t Pump (Water/Furnace) Installations (see CY22Q1/Q2 Ongoing ‐ CCPA002 CCPA2.  Permit/Inspection Streamlining for Electrification Projects (see also CCPA001 & 005) Pre‐CY22 Ongoing CY23Q1  CC ‐ CCPA003 CCPA3.  Valley Water Purified Water Facility at LATP Area B CY22Q1/Q2 Ongoing CY23Q1  CC ‐ CCPA004 CCPA4.  Sustainability/Climate Action Plan (S/CAP) update CY22Q1/Q2 Completed CY23Q2  CC ‐ CCPA005 CCPA5.  Residential Home Electrification Strategy (see also CCPA001 & 002) CY22Q1/Q2 Ongoing CY23Q1  UAC ‐ CCPA006 CCPA6.  Grid Modernization to Prepare for Electrification C
Y23Q1/Q2 Ongoing CY23Q2  CC ‐ CCPA007 CCPA7.  Advanced Metering Infrastructure (AMI) CY23Q1/Q2 Completed CY23Q2  CC ‐ CCPA008 CCPA8.  Commercial Electrification Retrofit HSEB ‐ HOUSING FOR SOCIAL AND ECONOMIC BALANCE
Pre‐CY22 Completed ‐ HSEB001 HSEB1.  HomeKey Application CY22Q1/Q2 Completed ‐ HSEB002 HSEB2.  Parking in Lieu Downtown Office Parking Ban CY22Q1/Q2 Completed ‐ HSEB003 HSEB3.  SB35 Objective Standards Ordinance Pre‐CY22 Ongoing CY23Q4  CC ‐ HSEB004 HSEB4.  North Ventura Coordinated Area Plan (NVCAP) CY22Q1/Q2 Ongoing CY23Q2  PTC ‐ HSEB005 HSEB5.  Housing E lement  Update Pre‐CY22 Ongoing HSEB006 HSEB6.  Respond to Grand Jury Recommendations 9b, 10a, 12b CY22Q1/Q2 Completed ‐ HSEB007 HSEB7.  SB‐9 Urban Lot Split Interim Ordinance / SB‐9 Historic Resources Policy Discussion & Follow‐up Action CY22Q1/Q2 Completed ‐ HSEB008 HSEB8.  City/Sobrato Ad Hoc Discussion Regarding 340 Portage (& Related Code Interpretation) CY22Q1/Q2 Ongoing CY23Q2  CC ‐ HSEB009 HSEB9.  Accessory Dwelling Unit Regulations (Ord inance Update) CY22Q1/Q2 Behind CY23Q3  CC ‐ HSEB010 HSEB10.  Downtown Housing Master Plan CY22Q1/Q2 Completed ‐ HSEB011 HSEB11.  Renter Protection ‐ Tenant Relocation Assistance Pre‐CY22 Completed ‐ HSEB012 HSEB12.  Safe Parking Program Pilot Program CY22Q3/Q4 Ongoing ‐ HSEB013 HSEB13.  LifeMoves Operating/Lease Agreement Pre‐CY22 Not  Started ‐ HSEB014 HSEB14.  SB‐9 Permanent Ordinance (Objective Standards / Urban Lot Splits) CY22Q3/Q4 Ongoing CY23Q2  CC ‐ HSEB015 HSEB15.  Renter Protection ‐ Rental Registry Pre‐CY22 Not  Started X HSEB016 HSEB16.  Renter Protection ‐  Just Cause Eviction Pre‐CY22 Not  Started CY23Q2  CC HSEB017 HSEB17.  Grand Jury Report Recommendation #3 CY23Q3/Q4 Not  Started X HSEB018 HSEB18.  Retail and Residential Parking Adjustment CY23Q3/Q4 Not  Started X HSEB019 HSEB19.  PHZ/PC Amendment to Allow Greater Height CY23Q3/Q4 Not  Started X HSEB020 HSEB20.  Inclusionary Housing Program CY23Q3/Q4 Not  Started X HSEB021 HSEB21.  Streamline Application Pre‐Screening Processing CY23Q3/Q4 Not  Started X HSEB022 HSEB22.  Commerical Office Zoning Adjustments Dropped X HSEB023 HSEB23.  Residential Zoning Name Change CY23Q3/Q4 Ongoing CY23Q4  CC HSEB024 HSEB24.  Grand Jury Repor t  Recommendations #4 and #8 CHS ‐ COMMUNITY HEALTH AND SAFETY
CY22Q1/Q2 Ongoing CY23Q1  CC ‐ CHS001 CHS1.  Palo Alto Animal Shelter Services Review CY22Q1/Q2 Ongoing ‐ CHS002 CHS2.  Cubberley Next Steps
CY22Q1/Q2 Ongoing ‐ CHS003 CHS3.  Improve Fire Safety in Foothills CY22Q3/Q4 Ongoing CY23Q2  CC ‐ CHS004 CHS4.  Computer Aided Dispatch (CAD) Upgrade CY22Q1/Q2 Ongoing ‐ CHS005 CHS5.  Complete Reopening of Libraries CY22Q3/Q4 Ongoing ‐ CHS006 CHS6.  Hire Ahead up to Five Police Officers Pre
‐CY22 Completed ‐ CHS007 CHS7.  Rinconada Park Improvement Project CY22Q1/Q2 Completed ‐ CHS008 CHS8.  Tree Protection Ordinance Update Pre‐CY22 Ongoing CY23Q1  CC ‐ CHS009 CHS9.  Public Safety Building Capital Project CY22Q1/Q2 Ongoing CY23Q1  CC CHS010 CHS10.  Newell Road Bridge Replacement (PE‐12011) Pre‐CY22 Ongoing CHS011 CHS11.  Monitor and Respond to SFO/FAA Airplane Noise Issues CY22Q1/Q2 Ongoing CY23Q1  CC CHS012 CHS12.  Provide and Promote Use of Unleaded Fuel at Palo Alto Airport Pre‐CY22
Ongoing ‐ CHS013 CHS13.  Sewer System Replacement Project 30 CY22Q1/Q2 Ongoing CY23Q1  CC CHS014 CHS14.  Evaluate Gym Feasibility CY22Q3/Q4 Ongoing CY23Q3  CC ‐ CHS015 CHS15.  Emergency Plans Updates CY22Q3/Q4 Ongoing CY23Q1  CC ‐ CHS016 CHS16.  Gas‐Powered Leaf Blower Amendment CY22Q1/Q2 Ongoing CY23Q1  ARB ‐ CHS017 CHS17.  Fire Station 4 Project CY22Q1/Q2 Ongoing ‐ CHS018 CHS18.  Sewer System Laterals Repair and Replacement throughout the City CY22Q1/Q2 Ongoing ‐ CHS019 CHS19.  Water Main Replacement Project 28 CY23Q1/Q2 Not  Started X CHS020 CHS20.  Seismic and Res iliency Ordinance Total (65)
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Attachment A - 2022
Major Project Status by
Priority

Item 10: Staff Report
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Major Project Progress by Council Priority

ERT - ECONOMIC RECOVERY AND TRANSITION
ERT1. Downtown Business Improvement District (BID)
Status: On Hold Progress: 30%
Project: Work with the Chamber of Commerce and Palo Alto Downtown Business and Professional Association (PADBPA) on the FY 2023 program and transfer of BID management.

Update: This item is currently on hold pending discussion of desired use of funds by the BID with the business community. Once that is resolved, Staff will resume work on this item. Staff anticipates working in partnership with the Chamber to re-establish support for the BID, explore options for the future of BID management, and re-instituting the BID levy. On June 6, 2022 Council voted not to levy assessments against businesses within the Downtown Palo Alto Business Improvement District for FY 2023.

ERT2. Economic Development Request for Proposal (RFP)
Status: CompletedProgress: 100%
Project: Complete a Request for Proposal (RFP) for economic development studies in alignment with the draft scope approved by the City Council in 2021.

Update: The contract for the development of a near-term and longer-term Economic Development Strategy was brought before the City Council on September 12, 2022 and approved unanimously.

Streetsense was the firm selected. Streetsense participated in a study session with the City Council on November 7 and will be returning for an additional study session to discuss next steps in the establishment of a Comprehensive Economic Development Strategy in February 2023.

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Major Project Progress by
Council Priority

Item 10: Staff Report
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ERT3. Economic Development Committees for Downtown and California Avenue Status: On TrackProgress: 60%
Project: Collaboratively partner with the Palo Alto Chamber of Commerce to create and support committees focused on economic development for the Downtown and California Avenue commercial cores.

Update: Staff is working on the establishment of Economic Development Committees, one focused on the University Avenue downtown area and another for the California Avenue area. Outreach to potential members of the committees was conducted in 2022, and work to establish a regular roster of participants and cadence for meetings continues.

ERT4. Retail and Retail-Like Land Uses and Conditional Use Permit (CUP) Thresholds Status: CompletedProgress: 100%
Project: Codify interim retail ordinance regulations with minor modifications related to permitted and conditionally permitted retail land use.

Update: City Council extended the interim ordinance through June 2024 and directed the alignment of this effort to coincide with ERT12, these are now combined into one project.

ERT5. University Avenue Streetscape Design Project
Status: On TrackProgress: 20%
Project: Complete data collection, develop concept alternatives, and prepare cost estimates, while implementing the community engagement strategy approved by Council in the consultant contract.

Update: Staff has completed data collection and field surveys and has begun community engagement with focus group meetings and initial concept development. Staff is planning additional outreach, community workshops, concept alternatives development and preliminary cost estimates in the next few months.

ERT6. California Avenue Closure (Car-Free Streets)
Status: On TrackProgress: 50%
Project: Council has asked staff to return with a short-term recommendation on an interim design strategy for California Avenue to explore whether the streets should remain closed or should open to vehicular traffic. A longer-term recommendation is pending a consultant feasibility study.

Update: Work on a short-term recommendation on an interim design strategy is underway, and staff anticipates returning to City Council with a progress update in the first quarter of calendar year 2023.

This update will include results of preliminary community engagement completed to date. A longer-term recommendation is anticipated after evaluating the impacts of interim design changes.

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Major Project Progress by
Council Priority

Item 10: Staff Report
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ERT7. Ramona Street Closure (Car-Free Streets)
Status: On TrackProgress: 50%
Project: Council has also asked staff to return with a short-term recommendation on whether Ramona should remain closed or should open to vehicular traffic. A longer-term recommendation for Ramona is also pending a consultant feasibility study.

Update: Staff anticipates that the work for Ramona will be in tandem with the work for California Ave., building on lessons learned from the pandemic and preliminary engagement. As with California Ave., this work is underway, and staff anticipates returning to City Council with a progress update in early 2023. This update will include results of preliminary community engagement completed to date. A longer-term recommendation is anticipated after evaluating the impacts of interim design changes.

ERT8. Build Out Fiber Backbone as Foundation for Fiber-to-the-Premises (FTTP) Status: On TrackProgress: 25%
Project: Explore FTTP effort by engaging Palo Alto residents and businesses to understand the value placed on broadband and fiber, report on survey results and other engagement completed and provide recommendations on next steps.

Update: Staff gained Council input in August 2022 and presented options for next steps to the Utilities Advisory Commission on November 2, 2022. Staff incorporated their feedback and direction into the discussion at City Council on December 19, 2022. The City Council approved moving forward with FTTP on December 19, 2022, and staff is currently working through the necessary resources to implement Council direction.

ERT9. Electronic Plan Review RFP to integrate with Accela Status: On TrackProgress: 65%
Project: Conduct a Request for Proposals (RFP) to secure a vendor to provide electronic plan review services that integrates with the City's Accela permitting system.

Update: A Request for Proposals (RFP) was posted on August 22, 2022; vendor selection is targeted for the end of February 2023. Extension of existing Electronic Plan Review software was approved through end of 2023. The City Council action to award the new contract is expected to be brought forward in late Fiscal Year 2023.

ERT10. Development of New Parking Facilities in the University Avenue Downtown (potential BMR site)
Status: CompletedProgress: 100%
Project: Issue a Request for Information (RFI) from private partners regarding development of parking using parking in-lieu fees; potentially in conjunction with an affordable housing project, as directed by the City Council December 6, 2021 (CMR #13633).

Update: Staff issued a Request for Information (RFI) on December 28, 2022 (https://pbsystem.planetbids.com/portal/25569/bo/bo-detail/100949). This RFI will close on March 7, Item 10
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Major Project Progress by
Council Priority

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2023. After submitted packages are evaluated, staff will return to the City Council in the Spring 2023 with an evaluation of the responses and discussion of next steps.

ERT11. California Avenue Subscription Parking Program (Commercial Uses) Status: On HoldProgress: 0%
Project: Explore opportunities to allow for some intensification of land uses along California Avenue using a new subscription-based program. Such a program would be subject to available public parking resources in the California Avenue area and designed to alleviate parking construction requirements on businesses in the California Avenue area.

Update: Staff is evaluating the need for this program in light of recent changes to State law (AB 2097).

New commercial and residential land uses on California Avenue within ½ mile of qualifying public transit (Caltrain) are exempt from parking requirements. Staff is reviewing the law to confirm that a change in land use to a more intensive parking requirement qualifies as exempt under the law.

ERT12. Citywide Retail Recovery Ordinance
Status: On Track Progress: 25%
Project: Direction to staff and the Planning and Transportation Commission (PTC) to quickly evaluate and propose changes to enable Diverse Retail Uses in more retail sites, including food, medical, educational, financial, and professional office uses citywide or by district, and evaluate ways the City can curate a strong retail mix.

Update: As part of the development of a comprehensive economic development strategy (ERT2), Streetsense will conduct a retail market analysis. Data gathering, including stakeholder interviews, are underway. The report will outline retail best practices and recommendations and is expected to be completed in the summer of 2023. In addition to Streetsense, Michael Baker International consulting firm is also concluding its findings on retail preservation and commercial district-level specific retail recommendations. As this work develops, next steps will include returning with draft regulations for Planning and Transportation Commission (PTC) and Council review.

ERT13. Retail Preservation
Status: On TrackProgress: 25%
Project: Direction to staff and the PTC to evaluate and propose the geography of the Retail Preservation ordinance.

Update: As part of the Citywide Retail and Recovery effort, a consultant is reviewing the City’s retail preservation policy and identifying potential implications that support or hinder the City’s policy interests and recommendations for change as appropriate. Consultant work is underway and expected to be shared with the PTC by end of the second quarter of 2023.

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Major Project Progress by
Council Priority

Item 10: Staff Report
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CCAP - CLIMATE CHANGE: PROTECTION AND ADAPTATION
CCPA1. Municipal Code Amendments to Facilitate PV, ESS, EVCS and Heat Pump (Water/Furnace) Installations
Status: On TrackProgress: 75%
Project: Identify municipal code amendments that may impede installation of electrification systems and recommend changes after public review before the Utilities Advisory Commission (UAC) and Planning and Transportation Commission (PTC) and transmit recommendations to the City Council.

Update: PTC reviewed the recommendation in December 2022, and it will be considered by Council in March/April 2023.

CCPA2. Permit/Inspection Streamlining for Electrification Projects Status: On TrackProgress: 75%
Project: Implement a variety of measures to streamline application processing and ensure consistency in plan review and inspection services.

Update: On January 10, 2022, Council adopted procedures for streamlining application review for Electric Vehicle Charging Stations (EVCS) and they have been posted to the website. Implementation of the Solar App+ Pilot Program launched in 2022 and the online heat pump water heater replacement permit for single family homes launched in 2023. Staff anticipates making additional application and inspection checklists available this year, as well as further refinements to the permitting process and more information posted to the website. For the City’s new electrification checklists and residential electrification portal, go to www.cityofpaloalto.org/goelectric. Staff continues to share these resources with the community to encourage switching to electric appliances and other home efficiencies to reduce greenhouse gas emissions, and further the City’s climate action goals.

CCPA3. Valley Water Purified Water Facility at LATP Area B Status: On TrackProgress: 20%
Project: In partnership with Valley Water, discuss the project at a Council study session, and negotiate agreements between the City and Valley Water necessary for the project to proceed.

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Major Project Progress by
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Item 10: Staff Report
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Update: A Council study session was held on September 22, 2022, to provide a status update on the City’s efforts with Valley Water and the City of Mountain View. The purpose of the project is to improve the quality of recycled water produced by the City and increase water reuse at the regional level. In early 2023, staff will return to Council with the related funding and draft lease agreements.

CCPA4. Sustainability/Climate Action Plan (S/CAP) update Status: On TrackProgress: 95%
Project: Conclude the work of the S/CAP Ad Hoc Committee and complete the S/CAP update in fall 2022, with Council approval of the S/CAP Goals and Key Actions and strategy for residential electrification and expected Council adoption of the full S/CAP update and CEQA document in spring 2023.

Update: Council meetings on September 27, 2022, and October 3, 2022, included comprehensive discussions on the S/CAP update and the S/CAP Ad Hoc Committee’s work and recommendations, including results of community engagement efforts to date. Council accepted the full set of the draft S/CAP Goals and Key Actions; approved multiple actions allowing the new Advanced Heat Pump Water Heater Pilot Program to commence; and adopted a new goal to achieve carbon neutrality by 2030. Staff is working to complete CEQA review of the S/CAP and will bring a 3-Year Workplan to Council for approval in the Spring of 2023.

CCPA5. Residential Home Electrification Strategy
Status: CompletedProgress: 100%
Project: In parallel with the overall S/CAP process, the S/CAP Ad Hoc Committee and four working group teams will develop a strategy to advance residential electrification for Council’s approval and begin implementation of a pilot program by late 2022.

Update: Implementation is underway for the Advanced Heat Pump Water Heater program, with a goal of 1,000 units by the end of 2023. As a preliminary step to gain interest in this pilot program, staff continues to implement initial community engagement and communications efforts, including an interest form for the program. To date over 200 residents have submitted their interest in the pilot program. Staff and the S/CAP Ad Hoc Committee will be presenting Council additional residential electrification activities for 2023-2025 in the Spring of 2023.

CCPA6. Grid Modernization to Prepare for Electrification Status: On TrackProgress: 70%
Project: Staff anticipates providing an update during the first half of 2022 for the City’s planned grid modernization including the development of the systematic grid modernization project and incorporation of Goals and Key Actions for preparing the grid for widespread electrification in support of the S/CAP goal of an 80 percent carbon reduction by 2030.

Update: The Grid Modernization Study has concluded. Staff anticipates providing an update to the Utilities Advisory Commission and other key stakeholders in the first quarter of 2023. A plan and timeline for implementation will be developed by the end of the first quarter of 2023.

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Major Project Progress by
Council Priority

Item 10: Staff Report
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CCPA7. Advanced Metering Infrastructure (AMI)
Status: On TrackProgress: 35%
Project: Continue working to implement advanced metering, including the set-up and detailed design of the infrastructure project. Through CY 2022, approximately 50% of the work related to integration of the back-end billing system will be completed and approximately 1,000 meters will be installed and tested, with full deployment being completed by the end of CY 2024.

Update: 1.23.23 The project is in the Beta phase, which includes installation of 1,000 – 2,500 electric, gas, and water AMI meters depending on availability of electric meters. As part of the Beta phase, an analysis of manual meter reads versus AMI meters will be conducted. Additional installation of AMI meters will facilitate gathering more data for transformer load analysis. Staff is targeting transformers with the greatest number of homes with electric vehicles and energy storage to assess the accuracy of the transformer load estimates. The Beta phase is tentatively scheduled from January through June 2023. Depending on the availability of electric meters, full implementation of the program is expected to begin in the summer of 2023 through beginning of 2025.

CCPA8. Commercial Electrification Retrofit
Status: CompletedProgress: 100%
Project: As part of the upcoming building code update to advance commercial electrification efforts; the City has entered into a contract with a private energy services provider to run a limited number of pilot projects with commercial kitchen electrification and electrification of commercial air conditioning (specifically rooftop packaged heating, ventilation, and air conditioning (HVAC) units).

Update: A business pilot program for electrification of commercial kitchens and heating, ventilation, and air conditioning (HVAC) units is currently underway and early projects are being evaluated. The results will be used to inform a future larger-scale “advanced pilot program” for rooftop HVAC. This complements other progress on commercial electrification. The Council adopted an all-electric commercial building mandate in October 2022 for new construction. Staff and the S/CAP Ad Hoc Committee will bring an S/CAP Update to Council in the Spring of 2023 which will include additional planned commercial electrification activities and studies.

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HSEB - HOUSING FOR SOCIAL AND ECONOMIC BALANCE
HSEB1. HomeKey Application
Status: CompletedProgress: 100%
Project: Complete, submit, and support review of an application with LifeMoves, to the State of California for the development of housing on a portion of the City’s LATP site.

Update: The City and LifeMoves publicly received a $26.6M Homekey award notification on August 24, 2022. Staff is finalizing the agreement with the State for funding while also moving forward on a variety of agreements with LifeMoves, Santa Clara County Office of Supportive Housing, and the Santa Clara County Housing Authority in relation to building and operating the shelter.

HSEB2. Parking in Lieu Downtown Office Parking Ban
Status: CompletedProgress: 100%
Project: Consideration of an ordinance prohibiting office development above ground floor from participating in the City's Downtown Parking In Lieu program.

Update: Staff is working with Rail Committee in performing additional studies and refinement of underpass alternatives as directed by the Council. Staff will report to Council for approval as recommended.

HSEB3. SB35 Objective Standards Ordinance
Status: CompletedProgress: 100%
Project: Convert existing subjective development standards to objectives standards for qualifying housing and mixed-use housing projects.

Update: The Ordinance was adopted (PAMC 18.24) in June 2022, converting existing subjective development standards to objective standards for qualifying housing and mixed-use housing projects.

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HSEB4. North Ventura Coordinated Area Plan (NVCAP)
Status: On TrackProgress: 65%
Project: Create a coordinated area plan for North Ventura to facilitate development of a walkable, mixed-use neighborhood with multifamily housing, commercial services, and well-defined connections to transit, bicycle, and pedestrian facilities.

Update: Council approved a contract amendment with existing consultant in June 2022 to create a coordinated area plan for North Ventura. The Plan will facilitate development of a walkable, mixed-use neighborhood with multifamily housing, commercial services, and well-defined connections to transit, bicycle, and pedestrian facilities. Council provided additional direction on November 14, 2022 regarding the preferred plan. CEQA technical studies have commenced. An administrative draft of the plan was submitted to staff to review in December 2022.

Staff will hold public meetings with the Planning and Transportation Commission and Architectural Review Board in February through July 2023 and prepare and publish the CEQA document and Draft Plan. Council certification of the CEQA document and Plan adoption is targeted for August 2023. The Plan must be adopted by December 1, 2023 to avoid forfeiting grant funding.

HSEB5. Housing Element Update
Status: On TrackProgress: 80%
Project: Prepare for Council adoption and California Department of Housing and Community Development (HCD) certification of an updated housing element that advances the City's housing policy interests, meets applicable state housing requirements, and demonstrates compliance with the City's regional housing needs assessment. The Housing Element will incorporate prior Council direction on other housing topics, including outstanding items from the 2018/2019 Housing Work Plan and recent renter protection policy initiatives adopted by the City Council. The Housing Element will include an implementation schedule to complete various policies over the next eight-year housing cycle.

Update: A draft Housing Element was released on December 23, 2023 and is now subject to a 90-day review before the state Housing and Community Development (HCD) department. Concurrent with this review, an environmental analysis is underway in accordance with the CEQA. The PTC is expected to make a recommendation on the draft housing element to Council in March 2023. Council review expected in the second or third quarter of calendar year 2023 depending on how extensive HCD’s comments are and timing of the environmental analysis.

HSEB6. Respond to Grand Jury Recommendations #9b, #10a, #12b Status: On TrackProgress: 66%
Project: Explore efforts to streamline affordable housing projects, consider -as part of the budget process and fiscal sustainability efforts- additional resources necessary to help the City achieve/advance its affordable housing goals, and discuss with Santa Clara County the possibility of entering a memorandum of understanding to leverage Measure A funds. One position was added in the FY 2021 Preliminary Q1 Financial Status Report to support citywide housing and unhoused initiatives.

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Update: Recommendation 9b of the report stated that the City explore combining the Planning and Transportation Commission and Architectural Review Board into a single review in order to streamline processes. In June 2022, Council approved an ordinance to streamline 100% of affordable housing projects by eliminating the legislative review component. Other qualifying projects that meet the City’s Objective Standards are required to have only one courtesy review. This recommendation is complete.

Recommendation 10a calls for an Affordable Housing Manager responsible for ensuring the City meets its housing target and coordinates among key stakeholders. This recommendation was considered during the FY 2023 budget process, but no position was added. This recommendation is complete.

Recommendation 12b requires further analysis and outreach to discuss with Santa Clara County the possibility of entering a memorandum of understanding to leverage Measure A funds. Discussions have not yet started.

HSEB7. SB-9 Urban Lot Split Interim Ordinance / SB-9 Historic Resources Policy Discussion and Follow- up Action
Status: CompletedProgress: 100%
Project: Prepare interim and emergency ordinances establishing objective development standards for R1 urban lot splits (subdivision) authorized by SB 9 and present and provide information regarding potential implications for potentially historic resources.

Update: Council adopted interim and emergency ordinances in December 2021 establishing objective development standards for R1 urban lot splits (subdivision) authorized by SB 9, with follow up meetings in early 2022. Staff provided information regarding potential implications for potentially historic resources, which led to Council authorizing implementation of a Comp Plan policy to update the Historic Inventory to include properties previously found eligible for National and California registers (not yet commenced). The Interim ordinance continues to be in effect for a second year.

HSEB8. City/Sobrato Ad Hoc Discussion Regarding 340 Portage (& Related Code Interpretation) Status: CompletedProgress: 100%
Project: Engage representatives of the Sobrato Organization in discussions about possible redevelopment of 340 Portage.

Update: At the recommendation of Council, an ad hoc committee was formed to explore potential shared redevelopment interests for the project site with Sobrato Organization representatives. After six months of meetings, a Council study session was held on August 1, 2022, to receive public input on Initial Negotiated Terms and Conduct a preliminary screening for anticipated Development Agreement and associated zoning. On October 12 and 26, the Planning and Transportation Commission held public study sessions enabling public comments on the Draft EIR for the Development Agreement, Planned Community Zoning, and Tentative Map, to allow redevelopment of the 14.65-acre site. The work of the City/Sobrato ad hoc has concluded; this item will be processed through the entitlement application.

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HSEB9. Accessory Dwelling Unit Regulations (Ordinance Update) Status: On TrackProgress: 75%
Project: Prepare an ordinance(s) that responds to changes required by HCD to ensure the City's local Accessory Dwelling Units (ADU) regulations comply with State law; propose other ordinance modifications based on Council direction for additional community outreach.

Update: The project calls for the preparation of an ordinance(s) that responds to changes required by HCD to ensure the City's local Accessory Dwelling Units (ADU) regulations comply with State law; propose other ordinance modifications based on Council direction for additional community outreach.

The Planning and Transportation Commission reviewed a draft ordinance in September 2022 but requires another review to consider HCD’s recent, December 2022, comment letter. Staff anticipates PTC review in March with a City Council meeting in the second quarter of calendar year 2023.

HSEB10. Downtown Housing Master Plan
Status: Behind ScheduleProgress: 1%
Project: Council to consider accepting an $800K grant from Metropolitan Transportation Commission (MTC) to develop a downtown housing master plan intended to spur greater housing production in proximity to fixed transit centers.

Update: In April 2022 Council authorized the City Manager to accept an $800K grant from Metropolitan Transportation Commission (MTC) to develop a downtown housing master plan intended to spur greater housing production in proximity to fixed transit centers. Council also initiated a planning process, directing staff to return to Council to identify goals for a Downtown Housing Plan. An RFP will be re- released in February 2023 and a consultant contract award is expected to be presented to Council in June 2023. This project has been delayed due to insufficient responses to the initial RFP and recognition that additional funds may be required to initiate the assignment.

HSEB11. Renter Protection - Tenant Relocation Assistance Status: CompletedProgress: 100%
Project: Enhance property-owner provided financial assistance to renters subject to no-fault evictions in developments with 10 or more units.

Update: January 31, 2022, Council adopted ordinance 5543 lowering the threshold from 50 units to 10 units. Enhanced property-owner provided financial assistance to renters subject to no-fault evictions in developments with 10 or more units.

HSEB12. Safe Parking Program
Status: CompletedProgress: 100%
Project: Prepare an ordinance that codifies interim safe parking regulations with recommended adjustments learned from the current pilot program.

Update: Adopted an interim ordinance amending Title 18 (zoning) of Palo Alto Municipal Code to temporarily allow overnight safe parking as an ancillary use to churches and religious institutions.

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HSEB13. LifeMoves Operating/Lease Agreement
Status: On TrackProgress:75%
Project: In collaboration with the City’s partner for its Project HomeKey application, negotiate and reach agreement on an operating agreement and/or lease agreement to memorialize the partnership and operating and financial terms.

Update: Staff completed a letter of intent with the County, LifeMoves, and Santa Clara County Housing Authority outlining a variety of agreements, including:
•Temporary Right of Entry with LifeMoves (if needed) to begin construction; • Agreement with County of Santa Clara Office of Supportive Housing to manage the post- construction service agreement and pass through of the City’s annual contribution toward shelter operations to LifeMoves. It also includes ongoing monitoring of operational performance (services and financial) in partnership with the City, and •Agreement with Santa Clara County Housing Authority to assist with advising in pre- and during construction phases to help the City monitor construction financing, budget, schedule and deliverables; there is also agreement that the Housing Authority will assist the City post- construction with review and monitoring of asset management and maintenance.

HSEB14. SB-9 Permanent Ordinance (Objective Standards / Urban Lot Splits) Status: Not StartedProgress: 0%
Project: Prepare an ordinance to codify SB-9 objective development and urban lot split standards based on additional public outreach and public hearings before the PTC.

Update: Prepare an ordinance to codify SB-9 objective development and urban lot split standards based on additional public outreach and public hearings before the Planning and Transportation Commission.

Interim ordinance remains in effect, a limited number of SB9 project applications received. Outreach has not begun.

HSEB15. Renter Protection - Rental Survey
Status: On TrackProgress: 5%
Project: Begin discussion with Policy and Services Committee to expand, redesign, and recommend an implementation strategy for an updated rental survey including, proposed fees, resources, and a timeline.

Update: On September 13, 2022, the Policy and Services Committee was presented with recommendations to expand, redesign, and recommend an implementation strategy for an updated rental survey including proposed fees, resources, and timeline. An RFP will be released in February 2023 informing the process for resource allocation. Staff will return to the Committee by late Spring 2023 with additional information on utilization of data collected and updates on resources necessary to implement the program.

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HSEB16. Renter Protection - Just Cause Eviction
Status: Not StartedProgress: 0%
Project: Prepare an ordinance to amend just cause eviction regulations to include properties built within the last 15 years, excluding units occupied less than a year or single-family homes not owned by a corporation or renters who live in a duplex when one unit is owner occupied.

Update: This project has not been resourced.

HSEB17. Grand Jury Report Recommendation #3
Status: Not StartedProgress: 0%
Project: Submit a recommended communication strategy to the City Council to increase community support for affordable housing.

Update: Implementation of this recommendation is expected by early to mid-2023. Revisions and upgrades to the City’s housing related webpages are underway with completion anticipated by the end of first quarter 2023.

HSEB18. Retail and Residential Parking Adjustment
Status: Not StartedProgress: 0%
Project: Return to Council with an ordinance for the special commercial (CS) and CDC zones to reduce rental housing parking requirements to one space/unit and allow a maximum 1,500 square feet or retail use when more is required by the City's Retail Preservation Ordinance; these changes are intended to facilitate a 15% and 20% inclusionary requirement for rental housing in these districts respectively.

Update: This project has not been resourced.

HSEB19. PHZ/PC Amendment to Allow Greater Height
Status: Not StartedProgress: 0%
Project: Amend the code to allow greater height for Planned Home Zone (PHZ) projects beyond 50 feet and encroach into transitional height limits.

Update: This project has not been resourced and will likely advance by way of a private application to implement the legislative change needed to approve a PHZ project.

HSEB20. Inclusionary Housing Program
Status: Not StartedProgress: 0%
Project: Engage the PTC and explore possible zoning amendments or other factors that could support a future 20 percent inclusionary requirement for ownership and rental housing.

Update: This project has been incorporated into the draft Housing Element as a future work item and is not yet resourced.

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HSEB21. Streamline Application Pre-Screening Processing Status: Not StartedProgress: 0%
Project: Council direction to look at ways to streamline the pre-screening process.

Update: This project has been incorporated into the draft Housing Element as a future work item and is not yet resourced.

HSEB22. Commercial Office Zoning Adjustments
Status: Not StartedProgress: 0%
Project: Adjust commercial zoning standard to further incentivize housing and disincentivize office development including, but not limited to, the CC2 district Update: This project has been incorporated into the draft Housing Element as a future work item and is not yet resourced.

HSEB23. Residential Zoning Name Change
Status: DroppedProgress: N/A%
Project: Review changes to the designation of R- 1 Zoning to reflect the current zoning allowances for two Accessory Dwelling Units per parcel.

Update: Review changes to the designation of R-1 Zoning to reflect the current zoning allowances for two Accessory Dwelling Units per parcel. Project is not feasible at this time.

HSEB24. Grand Jury Report Recommendations #4 and #8
Status: On TrackProgress: 50%
Project: Update format of future comprehensive plan and housing element annual reports; conduct a ‘lessons learned’ analysis of the NVCAP process.

Update: Recommendation #4 calls for a “lessons learned” analysis from the 4-year North Ventura Coordinated Area Plan (NVCAP) planning process. Create an improved process to bring residents to a shared understanding of the needs and complexities of affordable housing development and include direct involvement of Palo Alto elected leaders in community outreach. Complete analysis pending conclusion of NVCAP process.

Recommendation #8 has been completed, the City has published at least two years of Housing Element Annual Updates and cover memos. Instead of separating the Comprehensive Plan Updates as recommended by the Grand Jury Report, for the 2023 reporting period, staff will explore opportunities to improve readability and format to achieve the report recommendation.

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CHS - COMMUNITY HEALTH AND SAFETY
CHS1. Palo Alto Animal Shelter Services Review
Status: On TrackProgress: 20%
Project: In collaboration with the City’s current service provider Pets in Need (PIN), work to review services, infrastructure needs, and determine next steps such as contract negotiations and approvals.

Council directed staff to proceed with negotiating a long-term contract with Pets in Need for animal services on February 14, 2022.

Update: In collaboration with the City’s current service provider Pets in Need (PIN), work to review services, infrastructure needs, and determine next steps such as contract negotiations and approvals.

The PIN Contract has been extended to May 2023; and progress has been made on negotiating a Term Sheet framework for a new Agreement. Staff expects to present a proposed Term Sheet to Council in February 2023.

CHS2. Cubberley Next Steps
Status: On TrackProgress: 10%
Project: Return to the Council for direction on next steps regarding use of the Cubberley Community Center, specifically the City-owned portion and implementation of direction. Council considered February 14, 2022.

Update: Updates on next steps regarding use of the Cubberley Community Center include communication with PAUSD on potential land acquisition and other options for the Cubberley site. Staff is determining next steps for repair of Cubberley Gyms A and B, which have been closed since February 2022 due to damage caused by water line breaks.

CHS3. Improve Fire Safety in Foothills
Status: On TrackProgress: 75%
Project: Staff is working on various efforts related to improving the City’s planning in collaboration with Santa Clara County and other allied agencies and entities. Efforts include not only emergency planning, but also early warning technology, and updating operational and procedural elements within the City organization to mitigate the risks associated with a fire in the foothills.

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Update: The Office of Emergency Services (OES) continues to participate in the South Bay Incident Management Team (SB-IMT), lead a multi-departmental Foothills Fire Management Plan group, and lead the Silicon Valley Homeland Security Coordination Group (SV-HSCG). Equipment improvements include early fire detection, thanks to partnership with alertwildfire.org. OES is also working on the deployment of solar battery back-up improvements in key locations to keep equipment online when electricity may be disrupted or disconnected during a fire.

Regional Evacuation Planning: OES, Fire, Police are coordinating with Santa Clara County Fire Department and other stakeholders (including Stanford University) on evacuation planning and deployment of new systems, such as ZoneHaven.

Utilities Wildfire Mitigation Plan: Undergrounding of electric lines and other safety improvements.

Public Works, Community Services Department, Fire Department: ongoing work to reduce flammable vegetation and other “fuels” in the foothills.

CHS4. Computer Aided Dispatch (CAD) Upgrade
Status: On TrackProgress: 20%
Project: The Police Department is working with its consortium partners (Mountain View and Los Altos) to identify a new CAD system to replace the legacy system version. Staff will return to Council with a recommendation for purchasing a new CAD system.

Update: The Police Department is working with its consortium partners (Mountain View and Los Altos) to identify a new CAD system to replace the legacy system version, the RFP will be completed by March 2023. Staff will return to Council with a recommendation for purchasing a new CAD system by Summer 2023.

CHS5. Complete Reopening of Libraries
Status: On TrackProgress: 90%
Project: Further open libraries to include weekend and additional open days in alignment with service levels authorized as part of the annual budget. At the time of writing this report, adopted service levels remain below levels prior to the onset of the pandemic.

Update: On May 10, 2022 the Library expanded hours, both Mitchell Park and the Rinconada Library to five days a week; and the Children’s, Downtown and College Terrace Libraries opened three days a week. On June 20, 2022, the City Council adopted the FY23 budget to restore additional hours to the Library. This includes adding a fourth day of service to the Children’s, College Terrace and Downtown Libraries; and a sixth day to Mitchell Park and Rinconada Libraries; and the hiring of additional staff.

The Library is working with the Human Resources Department to fill vacancies and move forward with the expansion of library hours. On January 22, Rinconada Library expanded its hours and is now open 10AM-6PM on Sundays. Beginning January 20, Mitchell Park Library expanded its hours on Friday and Saturday, and is now open from 10 AM-6 PM on these days. Once staff recruitments are completed, the Library will be expanding hours at Downtown, Children's, and College Terrace branches to four days per week. Mitchell Park will also begin offering Sunday hours.

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CHS6. Hire Ahead up to Five Police Officers
Status: On TrackProgress: 10%
Project: As authorized by Council as part of the FY 2022 Mid-Year Budget review, maintain a pipeline of recruits for police officer staffing including up to an additional five officers via a hire-ahead program.

Update: Currently, the Police Department has five Full Time Equivalent (FTE) Police Officer positions that are vacant. Once the vacancies are filled, the next priority will be on the hire-ahead program for the recruitment of an additional five officers.

CHS7. Rinconada Park Improvement Project
Status: CompletedProgress: 100%
Project: Complete Rinconada Park project, and in partnership with Community Services Department and City Manager’s Office organize a joint Rinconada Park/Palo Alto Junior Museum & Zoo completion community event in Spring 2022.

Update: In partnership with Community Services Department and City Manager’s Office, organized a joint Rinconada Park/Palo Alto Junior Museum & Zoo community event in May 2022.

CHS8. Tree Protection Ordinance Update
Status: CompletedProgress: 100%
Project: Following community engagement and technical review, adopt Tree Protection Ordinance Update to complement current policy documents, strengthen requirements and procedures for when protected tree removals are proposed, and comply with new state legislation.

Update: On June 6, 2022, Council adopted an ordinance amending Title 8 of the Palo Alto Municipal Code to expand tree protection to include additional protected tree species, revise grounds for tree removal, and make clarifying changes. Additional considerations were referred to the Planning and Transportation Commission and the Parks and Recreation Commission.

CHS9. Public Safety Building Capital Project
Status: On TrackProgress: 63%
Project: Continue construction of the new facility in the California Avenue area including build and fixtures, furniture, and equipment, with the Public Safety Building construction scheduled to be completed in fall 2023.

Update: Construction of the new Public Safety Building (PSB) facility on California Avenue is scheduled to be completed in Fall 2023, followed by furniture and equipment installation, communication testing and setup. Move-in timelines project the PSB to be fully operational in early 2024.

CHS10. Newell Road Bridge Replacement (PE-12011)
Status: On TrackProgress: 80%
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Project: Complete design and right-of-way acquisition, obtain regulatory permits, and seek programming of construction funding by Caltrans to allow construction to begin in calendar year 2023.

Update: Staff expects 90% design and cost estimates to be completed at the end of February 2023 and will work with Caltrans to approve an updated cost estimate and accelerate construction funding to Fiscal Year (FY) 2024 (from FY 2026). Staff is also working with Caltrans to secure additional right-of-way needed during construction. Regulatory permits for work in the creek are also required. A joint permit application was submitted in August 2022 with the San Francisquito Creek JPA Reach 2 project, to include Newell Road Bridge, Pope/Chaucer Bridge, and creek widening in this review. Completion of permitting is estimated for September 2023. With these remaining steps ahead, staff anticipates bidding the project in late 2023 to start construction in early 2024.

CHS11. Monitor and Respond to SFO/FAA Airplane Noise Issues Status: On TrackProgress: 75%
Project: Complete consultant review of SFO Ground Based Augmentation System (GBAS) proposal and consider submitting a comment letter, while tracking other issues that may arise.

Update: The consultant review of SFO’s Ground Based Augmentation System (GBAS) proposal was completed in spring 2022. Following a third community meeting hosted by Palo Alto, a letter was sent to SFO expressing the City’s concerns about the proposal. Council held a study session in August 2022 to discuss updates. Staff has continued to work with community members on their concerns regarding SFO noise issues over the City and is awaiting additional information on the GBAS project expected in February 2023.

CHS12. Provide and Promote Use of Unleaded Fuel at Palo Alto Airport Status: On TrackProgress: 50%
Project: Complete upgrades at airport facilities to provide for the sale of unleaded fuel, bring unleaded fuel to the airport, and work with users to promote use of the fuel.

Update: The planning stages for the tank upgrade have been completed and permitting is nearly finalized. The tank lining is scheduled to be completed in February 2023. The entire process including testing will take approximately 40 days. A premanufactured skid for the piping and pump system has been ordered, but delivery is not expected until April due to supply chain issues. Airport staff has been coordinating with the fixed based operators who sell fuel to ensure that their trucks are available to dispense the fuel when it arrives. Airport staff has also been communicating with pilots on the timeline and encouraging them to obtain the necessary supplemental type certificate for their aircraft.

CHS13. Sewer System Replacement Project 30
Status: On TrackProgress: 90%
Project: Construction is anticipated to begin on this project on March 28, 2022 and complete in the fall of 2022.

Update: The contract associated with the project was extended due to unforeseen field conditions which placed completion to February 2023. The contractor was requested to replace more laterals by an open Item 10
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trench method than initially anticipated which caused longer lead times. Work along the E. Charleston Corridor was completed in April, and now work is being performed in the Ventura area (east side of El Camino Real).

CHS14. Evaluate Gym (Recreation Wellness Center) Feasibility Status: On TrackProgress: 30%
Project: The Parks and Recreation Commission and staff presented this item to Council on March 7, 2022. Council directed staff and the Parks and Recreation Commission to conduct public outreach on a new gym, including location, siting, gym features, cost estimates, funding timeline, demand assessment and prioritization of projects, and to investigate fundraising.

Update: The Parks and Recreation Commission Ad Hoc Committee and staff are finalizing a community engagement plan and public outreach is expected to begin in early 2023.

CHS15. Emergency Plans Updates
Status: On TrackProgress: 25%
Project: OES will be coordinating with the County on updates to emergency plans, including the Palo Alto Local Hazard Mitigation Plan (LHMP). See also CHS3.

Update: OES will be coordinating with the County on updates to emergency plans, including the Palo Alto Local Hazard Mitigation Plan (LHMP). See also CHS3. Council received a progress report on September 12, 2022. Extensive community engagement is planned in the coming months, with final recommendations and adoption of the plan targeted for 2023.

The Santa Clara County planning cycle for updating the Community Wildfire Protection Plan (CWPP) is also pending.

CHS16. Gas-Powered Leaf Blower Amendment
Status: On TrackProgress: 25%
Project: Specifically cite those that employ and those that operate gas-powered blowers in residential districts; modify citation authority that prevents immediate citation issuance upon violation.

Update: Gas-powered leaf blower amendments include citing employers of, and those that operate gas- powered blowers in residential districts, as well as modifying citation authority that prevents immediate citation issuance upon violation. A Council public meeting is planned for February 2023.

CHS17. Fire Station 4 Project
Status: On TrackProgress: 27%
Project: Following Council approval of the design contract currently scheduled for April 11, complete schematic design and begin design development stage on a schedule to allow construction to begin in Fiscal Year 2024.

Update: Design of the new Fire Station 4 is in progress. In December 2022, the schematic design was submitted for preliminary review by the Architectural Review Board and is pending a hearing date. A Item 10
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$5.2 million state budget earmark has been approved in support of the project. The project is on track to begin construction in the first quarter of FY 2025.

CHS18. Sewer System Laterals Repair and Replacement throughout the City Status: On TrackProgress: 25%
Project: Begin capital improvement work on repair and replacement activities citywide upon Council approval of contract agreement.

Update: Casey Construction is replacing sewer laterals and repairing sections of main, according to the schedule provided by the Water Gas Wastewater Operations Department. As part of the Sewer System Management Plan (SSMP), the City’s goal is to inspect and clean 3,300 sewer laterals annually out of the approximate 18,000 City owned sewer laterals. Currently there are approximately 188 sewer laterals on the priority 1 list to be replaced to minimize sanitary sewer overflows and reduce annual inspections.

CHS19. Water Main Replacement Project 28
Status: On TrackProgress: 54%
Project: Council approved this work item on February 28, 2022. Project to commence in May and anticipated completion in Spring 2023.

Update: The project is 54% complete in Barron Park neighborhood, El Camino Real, and Dinah Court/Wilkie Way. This project is anticipated to be completed in November/December of 2023. The first phase of the water main replacement project at Barron Park and adjacent El Camino work is nearly complete. Staff is currently working on Dinah Court near Wilkie Way, followed by Edgewood Drive.

Construction began on April 18, 2022.

CHS20. Seismic and Resiliency Ordinance
Status: Not StartedProgress: 0%
Project: Comprehensively update the City’s seismic rehabilitation ordinance with mandatory and voluntary measures to seismically strengthen vulnerable buildings.

Update: Project is expected to be resourced in early 2023.

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Item No. 4.. Page 1 of 2
1 6
5 9

City Council
Supplemental Report
From: Ed Shikada, City Manager
Meeting Date: February 6, 2023
Item Number: 4
TITLE
Supplemental Report to Consent Item 4, Townsend Public Affairs Contract

ANALYSIS
Staff is providing additional information on the Request for Proposals (RFP) process for the grants management and legislative advocacy services. In the original staff report, staff referenced that six firms had responsive proposals to this RFP and staff listed whether the proposal was for grant consulting services and or legislative services but did not reference which type of legislative services task the firms bid on. This additional information is provided below, and staff also references a brief note about each proposal for the Council.

Summary of Proposals by Proposed Service
Proposer Grant Consulting Federal Advocacy State Advocacy Alcalde & Fay X X
California Consulting X
Darnell Shaw Environmental, SPC X X
Engineering Solutions Services X
Townsend Public Affairs X X X
Van Scoyoc Associates X
Additional information about the proposals:
•Alcalde & Fay: bid on grant consulting and federal legislative services. The proposal demonstrated a strong understanding of the grant seeking climate as well as the Washington DC culture but did not demonstrate a strong ability to apply those services to Palo Alto’s needs.
•California Consulting Inc. bid on grant consulting services. This proposal was very short and did not identify specifics on helping Palo Alto through the entire grants process including compliance support.
•Darnell Shaw Environmental, SPC. bid on grant consulting and federal legislative services. This proposal demonstrated competence in the environmental space but did Item 4.

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not show an ability to address other Palo Alto priority areas such as housing and economic recovery.
•Engineering Solutions Services bid on grant consulting. This proposal demonstrated an ability to assist Palo Alto with pursuing some grants, but not for all the priority areas for Palo Alto (such as housing and economic recovery). The proposal also spoke less to assistance with grant compliance.
•Townsend Public Affairs, Inc. bid on grant consulting and state and federal legislative services. As mentioned in the original staff report, this proposal demonstrated strong relationships in the state and federal legislative advocacy realm with an ability to apply them to Palo Alto-specific needs. For grants consulting, this bidder demonstrated an ability to assist the City with grant searching, applications, and help on grant compliance. This bidder was the only proposal for state legislative services. For both state and federal legislative services, this bidder showed an ability to leverage relationships in Sacramento and Washington, DC for Palo Alto’s needs and an ability to easily have synergy between the teams doing state and federal advocacy. •Van Scoyoc Associates, Inc. bid on federal legislative services. This proposal demonstrated an ability to leverage relationships in Washington, DC for Palo Alto.

Next Steps
With the Council approval of the legislative workplan at the end of 2022, Council expressed interest in multiple touch points throughout the year regarding legislation. The first one planned is for the end of February/early March. This will allow the Council to discuss performance expectations with the provider approved for state and federal legislative services.

With the state legislative session underway, this selection and follow-up is time sensitive to allow the provider to receive guidance from Council and initiate advocacy in the current session.

APPROVED BY:

Ed Shikada, City Manager
Item #2302-0913
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CITY COUNCIL

STAFF REPORT
From: City Manager
Report Type: ACTION ITEMS
Lead Department: City Manager
Meeting Date: February 6, 2023

TITLE
Objectives to advance the 2023 City Council Priorities

RECOMMENDATION
Council approval of objectives to advance the 2023 Council Priorities.

BACKGROUND
On January 28, 2022, the Council held its annual retreat to approve the 2023 Council Priorities 1.

The Priority Setting Guidelines define a priority as a topic that will receive unusual and significant attention during the year. At the conclusion of the retreat, the City Council approved the following priorities:
•Economic Recovery and Transition
•Climate Change and the Natural Environment: Protection and Adaptation •Housing for Social and Economic Balance
•Community Health and Safety
The City Council then directed that staff return on February 6th with suggested objectives derived from Council comments at the annual retreat to achieve the strategic priorities.

ANALYSIS
Council Priorities guide resource allocation and staff workplans for the coming year. In recent years, staff has then identified major projects associated with each priority to be tracked and reported on. Successful completion of projects, programs and services is dependent on the work that follows, balancing among these and other priorities, needs and resource capacity. 1 City Council Retreat 1/28/23 https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=1492 Item AA1.

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Following the City Council’s work on January 28, staff compiled a summary of topics suggested by Councilmembers for discussion on February 6. In addition, staff quickly developed a listing of objectives that reflect actions that will be needed by Council in order to advance the priorities identified for 2023.

For each Council priority, staff tried to develop objectives that align with a Priority purpose, time-bound and measurable. Staff referred to SMARTIE principles: Specific, Measurable, Achievable, Relevant, Timely, Inclusive, and Equitable to outline the list of objectives for the coming 12 months.

For each Council Priority, staff has provided the following: (1) Councilmember feedback from Saturday January 28, 2023 Retreat, (2) Potential focus areas, and (3) “Objectives” largely defined as Council actions and engagement needed during calendar year 2023 advance the stated priorities. Council engagement may include a variety of forms, such as Council approval, committee/council ad hoc review and recommendations, legislative advocacy, regional board/committee representation, and budgetary actions. Should Council approve the objectives that follow, staff will use this list for tracking and reporting through 2023.

This is a very ambitious workplan. Staff have estimated that several objectives will require additional resource allocation in order to complete it in full as outlined. As noted in other financial reports, allocation of additional funding (contract or staffing) is not always a complete solution to overcome obstacles for completion. Timelines to procure consultant support, or the process to recruit, onboard, and train new staff delay the City’s ability to begin or maintain the pace of work on these projects, especially within the 12-month timeframe outlined.

Each objective has a few identifying characteristics, below is a guide to help understand the lists:
•“New:” reflects an action or project that is new to 2023 and was not on the 2022 workplan
•“(ERT#), (CHS#), (CCPA#), or (HSEB#)” reflects a reference to the project priority and project number as identified on the Council approved 2022 workplan. Not all numbers will be present as some projects were complete, or consolidated, or dropped •“$” reflects a project that requires additional resources to achieve and complete •“Q#” reflects the 2023 calendar year quarter estimated completion and/or to be completed by timeframe. Q1 is January-March, Q2 is April-June, Q3 is July-September, and Q4 is October-December.

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ECONOMIC RECOVERY AND TRANSITION
City Council retreat discussion: Areas of focus and priority discussed by Councilmembers included:
•Parklets
•Permitting
•A focus on retail and small business recovery locally
•Treatment of vacant property (reference to Oakland and San Francisco) Council actions/approvals anticipated in 2023:

Support economic recovery and business transition
CY
a) Adopt a Comprehensive Economic Development Strategy (ERT 2) $ Q2 b) Implement or upgrade electronic plan review software without interruption to the permitting process (ERT 9)
- Q3
c)New: Implement recommendations in Building and Permit Review Report conducted by the City Auditor
- Q3
d)New: Begin stakeholder engagement and implementation of new business tax (Measure K)
$ Q4
Focus on commercial corridors, Downtown and California Ave e)New: Begin implementation of next phase of parklet regulations to the community
$ Q1
f) Evaluate opportunities for New Parking Facilities in the University Ave Downtown and direct next steps (ERT 10)
- Q2
g) Align Business Improvement District (BID) priorities and investments to the Comprehensive Economic Development Strategy (ERT 1)
Q3/4
h) Advance development of a permanent car-free streets ordinance (selection of consultant support) (ERT 6 & 7)
$ Q3
i) Approve concept plan for University Ave streetscape and provide direction on capital project funding (ERT 5)
- Q4
j) Extend temporary closure for car free streets (ERT 6 & 7) - Q4 k) Provide direction on citywide retail zoning code changes (specifically retail preservation and neighborhood commercial district specific regulations and CUP thresholds) (ERT 4, 12, 13; expected 2024 Q2)
$ 2024
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CLIMATE CHANGE & THE NATURAL ENVIRONMENT
City Council retreat discussion:

Areas of focus and priority discussed by Councilmembers included:
•Flood protection
•Natural environment and biodiversity; adapt natural ways of protecting natural habitats (examples: bird safe glass, light pollution protection of critters and wildlife) •Naturalize Matadero Creek, protection and setbacks
•Youth engagement in initiatives, objectives, and goals Council actions/approvals anticipated in 2023:

Climate Change Protection
l) Implement Advanced Metering Infrastructure (AMI) through purchase of meters/equipment in February 2023 for installation(CCPA7) - Q1
m)New: Approve consultant to update Bike and Pedestrian Transportation Plan (Additional Bike/Ped Grade Crossings will be included in network discussions, schedule pending consultant selection)
- Q2
n) Approve municipal code amendments for advancing S/Cap goals (specifically facilitate photovoltaic, energy storage system, electric vehicle charging station, and heat pump (water/furnace) installations) (CCPA1)
- Q2
o) Approve S/CAP Update and 3-year workplan (CCPA4) - Q2 p)New: Begin first phase construction for grid modernization in summer 2023 (if needed) and consultant resources to plan for gas transition - Q4
q)New: Install first 1,000 heat pump water heaters through the advanced pilot program and approve expanded full-scale program
- Q4
r)New: Approve advanced pilot program for whole residential home electrification by the end of 2023 (targeted areas)
- Q4
s)New: Approve commercial rooftop HVAC electrification advanced pilot program
- Q4
t)New: Accept Electric Vehicle Strategic Plan $ Q4
u)New: Accept Reliability and Resiliency Strategic Plan $ Q4 v)New: Review preliminary draft S/CAP study discussing workplan resource needs and project funding opportunities
$ Q4
Climate Change Adaptation: flood protection
w)New: Advance the San Francisquito Creek Flood Protection capital project (Reach 2) as close to approval as possible by the end of 2023, through Council’s JPA representation and any Council approvals involved. (focus on securing funding, finalizing CEQA review, approval of project entitlements, and obtaining required construction easements)
- Q1
Q4
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x) Secure funding and approve construction for the Newell Bridge replacement project; advocacy with State legislators educating on project funding needs (previously CHS10)
$ Q4
Note: Wildfire safety and protection are referenced under the Community Health and Safety priority.

Natural Environment
y) Approve agreements with Valley Water purified water facility at LATP Area B (operations and maintenance) (CCPA3)
- Q3
z)New: Adopt appropriate changes to the revised Tree Protection Ordinance (to follow a review of impacts of the revised ordinance by PTC and PRC) - Q4

HOUSING FOR SOCIAL AND ECONOMIC BALANCE
City Council retreat discussion:

Areas of focus and priority discussed by Councilmembers included:
•Support housing needs as identified by the community (as opposed to following RHNA) •Focus on lower income housing units
•Intentional on where new housing units are developed
•Establish a housing committee
Council actions/approvals anticipated in 2023:

Advance Renter Protection Policies
aa)New: Approve access to rental units by establishing security deposit limits - Q2 bb) Provide protections to renters by considering expansion of the just cause eviction ordinance (HSEB16)
- Q3
cc) Implement a rental registry to inform future renter protection policies (timeline estimate, calendar year 2024 Q1) (HSEB15)
$ 2024
Advance Housing Plans
dd) Expand housing opportunities through the initiation of a Downtown Housing Plan: includes approval of project funding and a consultant contract (HSEB10)
$ Q2
ee) Advance local and state housing interests through a HCD-compliant Housing Element (iterative work process to start Q2) (HSEB5)
- Q4
ff) Advance vision for North Ventura Coordinated Area by adopting a coordinated area plan (financial impacts if not approved, $800,000 impact) (HSEB4)
- Q4
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gg) Create new affordable housing opportunities through funding such as a housing land trust, in particular, CalCHA (City Council referral) $ TBD
hh) Explore opportunities to regulate short term-rentals with Council committee (Council colleague’s memo)
$ TBD
Implement Housing Production Policies
ii) Codify permanent standards related to the City local SB9 implementation ordinance (HSEB 14)
- Q1
jj) Approve adjusted Accessory Dwelling Unit (ADU) regulations to facilitate production and meet HCD requirements (HSEB9)
- Q2
kk) Respond to various Grand Jury recommendations related to Housing 2 (HSEB 6, 17, 24)
- Q3
ll) Refine implementation of City’s SB9 objective development and urban lot split standards (HSEB 14)
- Q4
mm)New: Adopt an ordinance amending the development standards for Stanford-owned housing opportunity sites
- Q4
nn)New: Rezone carryover housing opportunity sites for by-right development when developed with 20% lower income affordable housing units - Q4
oo)New: Adopt an ordinance to implement revised development standards for certain properties located in the GM/ROLM to allow for densities up to 90 units/acre
- Q4
Support Unhoused Service Initiatives
pp) Begin construction in partnership with LifeMoves for Palo Alto Homekey project to provide transitional housing and services for unhoused residents (HSEB13)
- Q2
qq)New: Develop a citywide strategy to connect unhoused residents to housing and services
$ Q3
2 Grand Jury recommendations include:

Recommendation 12b: Santa Clara County MOU on Measure A monies for affordable housing.

Recommendation 4: NVCAP lessons learned process.

Recommendation 8: Improve readability and format of Housing Element Annual update and cover memos.

Recommendation 3: Research other cities affordable housing communication strategies, provide recommended strategy for Palo Alto, and update affordable housing info on City website Item AA1.

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COMMUNITY HEALTH AND SAFETY
City Council retreat discussion:

Areas of focus and priority discussed by Councilmembers included:
•Flood protection
•HSRAP funding increase
•Maintain a diverse definition of ‘health” (included but not limited to physical and mental)
•Airplane noise (establish airplane noise committee)
•Police presence in downtown cores (specifically on foot or bike presence) Council actions/approvals anticipated in 2023:

Mental & physical health and belonging
rr) Complete reopening libraries to budgeted level (remains below pre-pandemic levels) (CHS5)
- Q2
ss) Approval of multi-year agreement for provisions of animal shelter services (CHS1)
$ Q3
tt)New: Expand and enhance community special events with focus on inclusion (linked to activities in ERT)
$ Q3
uu) Approve agreement with PAUSD on long term use of the Cubberley property (CHS2)
- Q4
vv) Recreation Wellness Center Feasibility: Agreement on location, general design and features of a recreation wellness center and finalize an agreement with a new nonprofit responsible for raising funds for design and construction. (CHS14)
$ Q4
Invest in reliable safety infrastructure and systems
ww) Support visible police presence by ensuring stable staffing (recruiting and retention) through hiring ahead program (CHS6)
$ Q1 -
Q4
xx)New: Support a diverse community through extension of the Psychiatric Emergency Response Team (PERT) program services to the community through affirmation of continued City financial support $ Q2
yy) Update without interruption 911 dispatch system (CAD provider) once selected through procurement process (CHS4)
- Q3
zz)New: Begin construction of the Gas Main Replacement Project 24B - Q3/4 aaa) Approve updated Local Hazard Mitigation Plan and Community Wildfire Protection Plan to ensure safety of the community (CHS15) - Q4
bbb) Implement Foothills Fire Management Plan (includes fuel reduction, early detection system, community awareness application rollout) (CHS3) - Q4
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ccc) Approve actions needed to advance final construction phase of Public Safety Building and begin preparations for move-in (estimated move Q4 2023) (CHS9)
- Q4
ddd) Approve next steps for the rebuild of Fire Station No. 4 project (specifically design and entitlements) (CHS17)
- Q4
eee) Approve resources and consultant to study and develop seismic and resiliency ordinance (CHS20)
$ TBD
Reduction of noise and air quality pollution
fff) Update gas-powered leaf blower ordinance and enforcement plan (CHS16) - Q1 ggg) Implement a strategy for the provision and promotion of unleaded fuel at Palo Alto Airport (CHS12)
- Q4
hhh)New: Approval of quiet zone implementation (rail/train crossings) - Q4 iii)New: Engage with the SFO Roundtable on SFO's Ground Based Augmentation System (GBAS) project and other potential opportunities to decrease SFO noise impacts on Palo Alto (previous project was CHS11) $ TBD
Note: Flood protection activities including Newell Road bridge improvements are referenced under the Climate Change & Natural Environment - Protection & Adaptation priority

FISCAL/RESOURCE IMPACT
Council approval of Priority areas does not have an immediate fiscal impact. Resources will need to be allocated to non-resourced projects to implement Council Priorities. Opportunities to resource projects include Long Range Financial Forecast on February 6, 2023, Mid-Year Budget Review on February 13, 2023, and FY 2024 Budget Adoption in June 2023.

STAKEHOLDER ENGAGEMENT
Staff anticipates returning to the City Council in March 2023 with community engagement plans based on the selected 2023 Council priorities, adopted objectives to achieve these priorities and projects identified within each area. There are various levels of community engagement and communications to support each project.

ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because the Council discussion on 2023 Priority Objectives is a continuing administrative or maintenance activity. CEQA Guidelines section 15378 (b)(2).

APPROVED BY:

Ed Shikada, City Manager
Report #:
2302-0910
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