MAY 6, 2024
www.cityofpaloalto.org/budget
FY 2025 PROPOSED
OPERATING AND
CAPITAL BUDGETS &
2025-2029 CAPITAL
IMPROVEMENT PLAN
1 www.cityofpaloalto.org/budget
• Budget Conversations & Calendar
• City Vision & Council Priorities
• Economic Outlook & Budget Highlights
• Citywide Budget Overview
• General Fund Budget Overview
• Capital Budget and 5-Year Capital Improvement Program • Utility Funds
• Finance Committee & Community Conversations
AGENDA OVERVIEW
2 BUDGET CONVERSATIONS & CALENDAR
3 TONIGHT MAY 7 & 8 MAY 13 MAY 15 MAY 21 JUNE 17
Finance Committee Budget
Workshops:
Review the proposed
budgets and recommend
amendments
Study Session City Council:
Finance Committee check-in
with the City Council
Community
Budget Listening
Session
Finance Committee Budget Wrap-up:
Based on the input from the May
budget meetings, recommend final
adjustments to proposed budgets for
Council adoption
City Council: FY 2025 Proposed
Budget Overview:
Discuss guidance for Finance
Committee colleagues
City Council Budget
Adoption:
Adopt Operating & Capital
budgets (as amended by
the Finance Committee)
www.cityofpaloalto.org/councilpriorities 4
Vision
The government of the City of Palo Alto
exists to promote and sustain a superior
quality of life in Palo Alto. In partnership
with our community, our goal is to
deliver cost-effective services in a
personal, responsive and innovative
manner.
CITY VISION AND COUNCIL PRIORITIES
www.cityofpaloalto.org/budget
ECONOMIC OUTLOOK
• Economic uncertainty
• Plateauing inflation
• High interest rate
• Supply chain disruptions
• Tight labor market
• Global conditions
• Tempered to stagnant growth
• Cautious optimism with
positive assumptions
• Funding investments while
balancing fiscal stability & risks
• Enhancing organizational
resilience
• Delivering innovative services
5 PATH FORWARD
www.cityofpaloalto.org/budget
• Operating budget totals $1.03 billion ($303.5 million in General Fund) • Capital budget totals $359.7 million in FY 2025 and $1.6 billion over the five-year Capital Improvement Program (CIP)
• Two-year balancing strategy using one-time funds to resolve ($6.9M) shortfall in FY 2025. Partially solve projected deficit of ($9.7M) in FY 2026 to bring it to ($5.0M) • Service investments and Council Priorities supported by additional 20 FTEs, all funds • Measure K and L funding continues for critical services
PROPOSED BUDGET OVERVIEW
6 Use of one-time funding
• $9.6M Uncertainty Reserve recommended to:
• Offset shortfall in FY 2025 ($6.9M) and partially offset FY 2026 ($4.7M) • $5.0M deficit remains in FY 2026
• Maintain a 18.8% BSR ($1.0M above 18.5% target), down from 20% in FY 2024 Labor Agreements: terms for wages, benefits, and other terms and conditions of employment, through FY 2025 (Jan. 2025 for SEIU)
Capital Investments: Base transfer to Capital Improvement Fund ($13.7M in FY25) to reach pre-pandemic levels by FY26 ($16.7M) as planned starting with the 2023-27 CIP City's Pension & Other Post-Employment Benefits (OPEB): Proactive funding of long- term liabilities (pension and retiree medical) to accelerate funding target, reduce cost and liability, and enhance fiscal stability.
CITYWIDE BUDGET STRATEGIES
7 CAUTIOUS OPTIMISM & POSITIVE ASSUMPTIONS
8 REVENUES
• Positive
assumptions
• Sales Tax
• Property Tax
• TOT
• Document Deed
Transfer
EXPENDITURES
• Increased
vacancy
assumption from
3% to 5%
• Significant
investments in
services &
Council priorities
RISK
MITIGATION
• Budget
Stabilization
Reserve at 18.8%,
down from 20%
• Prefund Liabilities
• Infrastructure
Investments
Catch-up, Keep-up
ALL FUNDS SOURCES & EXPENSES
9 FY 2025 Sources $1.03 Billion FY 2025 Expenses $1.03 Billion
-
200
400
600
800
1,000
1,200
FY
2002
FY
2003
FY
2004
FY
2005
FY
2006
FY
2007
FY
2008
FY
2009
FY
2010
FY
2011
FY
2012
FY
2013
FY
2014
FY
2015
FY
2016
FY
2017
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
Citywide Total FTE General Fund FTE Pandemic
HISTORICAL FULL-TIME STAFFING COMPARISON
1,083 FTE Citywide
595 FTE GF
+20 FTE all funds
Great Recession
10 GENERAL FUND SOURCES & EXPENSESE
11 FY 2025 GF Revenues $303.5 Million FY 2025 GF Expenditures $303.5M
MULTI-YEAR GENERAL FUND BALANCING
• Measured approach to ongoing costs to limit one-time surpluses from exacerbating future deficits
• The importance of stability for the organization and community remains core. • Risk mitigation strategies (18.8% budget stabilization reserve in FY25 and prefund liabilities) • Reflects economic stagnation as outlined in the FY 2025-2034 Long Range Financial Forecast. 12 ($ in millions) FY 2024 FY 2025 FY 2026
Use of Uncertainty Reserve* ($4.4) ($6.9) ($4.7)
Use of BSR and DSD Reserve ($5.5) ($2.7) $0
Net Operating Margin $0 $0 ($5.0)
* Total use of the $16M Uncertainty Reserve, increased from $14M with $2M from BSR in FY25. 13 The Proposed Budget
adds $9.1M services with
20 full-time staff supporting
high-quality services &
Council Priorities.
FY 2025 PROPOSED BUDGET INVESTMENTS
14 Public Safety CSA
• Upstaffing Fire Engine 62 at Fire Station #2 to full- service, brings firefighting capacity from 4 to 5 stations. • Enhancing organizational resilience – add Police
Lieutenant, delete CSO, reclass Property & Evidence
Technicians and realign Fire Prevention.
• Funding police and fire equipment and vehicles.
Community & Library Services CSA
• Continued extended hours & days for library
branches and programming
• Resources for overnight warming locations (OWL),
summer concert series, adult and special interest
classes, and the Arts Center
FY 2025 PROPOSED BUDGET INVESTMENTS
15 Planning, Transportation & Infrastructure CSA
• Supplemental funding to continue Palo Alto Link.
• Investments in development center staffing to support economic recovery efforts, housing for social and economic balance, and Safe Routes to School.
• Resources for sustainability climate action plan (S/CAP) programming, and community awareness and climate
implementation outreach.
• Resources to support capital investments, water cross connection control program, advanced metering
infrastructure (AMI) meter project, and electric grid
modernization.
FY 2025 PROPOSED BUDGET INVESTMENTS
16 Internal Support & Administration CSA
• Proactive funding of long-term liabilities.
• Funding the adopted labor agreements.
• Reserving funds for property investments within the
City.
• Supporting organizational resilience with recruitment manager to augment talent recruitment and
acquisition, employee childcare pilot program (year 2), management fellow, grants administration, and
information technology staffing.
• Leadership and support from the City Manager’s Office for implementation of Council Priority projects
Builds on investments from FY 2024 in alignment with Measure K Priority Spending Investments Funded by Business Tax Revenue
17 Admin Total
FY 2024 $0.8M $0.8M $0.6M ** $0.4M $2.5M
FY 2025 $1.5M $1.5M $1.5M $0.3M $4.8M
FY 2026* $3.0M $3.0M $1.7M** $0.4M $8.1M
*Planned based on current revenue estimates
** Remaining funds to be appropriated for eligible expenses CAPITAL IMPROVEMENT PROGRAM (CIP) –
OVERVIEW 5-YR PLAN
18 CAPITAL IMPROVEMENT PROGRAM (CIP) –
OVERVIEW 5-YR PLAN
19 To be completed in FY 25: Automated Parking Guidance System, Public Safety Building and Homekey Palo Alto 5-Year CIP: Charleston/Alma Rail Crossing Safety Imp., Eucalyptus Tree Removal, Childrens Theatre Lighting, Fire Equip., Citywide Radio replacement
OTHER FUNDS
FY 2024 Adopted FY 2025 Proposed
Electric -5.0% 9.0%
Gas 8.0% 9.0%
Water* 5.0% 9% to 9.5%
Wastewater 9.0% 15.0%
Fiber 4.9% 2.6%
Refuse 0% 0%
Storm Drain 4.9% 2.6%
User Tax 2.8% 9.4%
Residential bill is estimated to increase $31.46 - $31.98/month Additional actions included in
the Proposed Budget address
non-General Fund activities
including but not limited to:
• Parking Funds (General Fund
support)
• Enterprise Funds, rate
changes to the right
20 *On April 24, 2024, the Finance Committee
recommended a revision to lower the
Proposed Water rate change. The FY 2025
Proposed Budget assumed 10%,
adjustments will be brought forward.
www.cityofpaloalto.org/budget
The community is encouraged to join the budget
conversations:
• Finance Committee Budget Hearings:
May 7 at 9:00 A.M.
May 8 at 9:00 A.M.
May 21 at 1:00 P .M. – Wrap-up
• Community Informational Session:
Learn about the City’s proposed budget
May 15 at 6:00 P .M.
• City Council Budget Adoption:
June 17 at 5:30 P .M.
All meeting details listed at www.cityofpaloalto.org/budget
JOIN THE BUDGET CONVERSATION
21 • Provide general guidance to Finance
Committee colleagues for their upcoming
detailed work reviewing the budget
documents
• Clarify understanding of budget process,
materials, and the City Council and
Finance Committee roles
• Budget and meeting details listed at
www.cityofpaloalto.org/budget
COUNCIL DISCUSSION
22