At the Nov. 19 meeting of the City Council Finance Committee, the city's Chief Financial Officer Lalo Perez noted that the city's revenues are now higher than they were before the Great Recession of 2008. This includes a record high in documentary-transfer tax, which is derived from real-estate transactions and which spiked from $4.8 million 2012 to a $6.8 million in 2013, a 41 percent increase. Hotel-tax revenues rose by 11.3 percent, from $9.7 million to $10.8 million; sales taxes jumped by 15.8 percent from $22.1 million to $25.6 million; and property taxes increased by 8.3 percent, going from $26.5 million to $28.7 million.
"We continue to see revenues returning from the recession years, with strong growth in virtually all of our major tax revenues, particularly sales tax and transient-occupancy tax (also known as hotel tax)," David Ramberg, assistant director of the Administrative Services Department, told the Finance Committee.
Like other jurisdictions across the country, Palo Alto is now "in a solid recovery mode," a report from the department states.
"In the past year, there has been a rebound in economically sensitive revenue sources such as sales tax, which was driven by department store, electronics and auto sales," the report states. "Increased business and real estate activities within the city resulted in higher transient-occupancy tax and documentary-transfer tax revenues."
The trend is expected to continue in fiscal year 2014, which began on July 1. On Wednesday, the city released the financial results from the first quarter of 2014 (the Finance Committee is scheduled to discuss this report on Dec. 3). The numbers are even more stark. Sales taxes are up by 48 percent when compared with the first quarter of 2013, having risen from $3.7 million to $5.4 million. Hotel taxes, meanwhile, jumped from $1.3 million in the first quarter of 2013 to $2 million in the first quarter of 2014, a 57 percent increase.
The surging revenues helped offset a 31 percent dip in service fees, a trend related to the renovation of the city's golf course (which resulted in a dip in golf fees) and a $1.2 million decrease in plan-check fees, which indicates less building activity.
City officials also expect the documentary-transfer revenues to continue their upward climb. Joe Saccio, deputy director of Administrative Services, told the committee on Nov. 19 that the high number of real-estate transactions the city has been seeing in recent months is forcing the city to revise its projections.
"We are going to be raising it (projected documentary-tax revenues) in the midyear considerably, and it is going to exceed $6.8 million, we believe, based on what we're seeing now," Saccio said.
He noted that the number of real-estate transactions are up almost 10 percent from the prior year, and that property values involved in the transactions are exceeding the prior year's. It also doesn't hurt that the city has several new hotels preparing to open their doors, including at the downtown site of the recently shuttered Casa Olga and on the former Palo Alto Bowl site near the southern edge of the city.
The committee welcomed the financial news, with Vice Mayor Nancy Shepherd lauding the fact that revenues are now higher than they were before 2008 and Councilman Greg Schmid congratulating staff on the revenue outlook.
"We seem to be in the midst of a very nice period," Schmid said.
The committee's discussion came at a time when state and county officials are also shaking off the doldrums of the recent economic meltdown. The nonpartisan Legislative Analyst's Office released a report earlier this month that projects a $5.6 billion surplus in the state's budget reserve. Much like the city, the state has revised its expectations upwards in recent months. The report cited the "restrained state budget" that Gov. Jerry Brown and the Legislature agreed on for 2013-14 and notes that the office's "forecast of state revenue collections has increased since last year."
"Accordingly, we now find that California's state budget is even more promising than we projected one year ago," the LAO report states.
In Palo Alto, the brightening outlook is expected to give the city a big boost in addressing its backlog of infrastructure problems, which include more than $200 million in needed new facilities. These include a new police headquarters to replace the small and seismically unfit one at City Hall and the rehabilitation of two obsolete fire stations. A specially appointed Infrastructure Blue Ribbon Commission also identified about $42 million in needed maintenance, work that the new revenues are expected to help fund.
In addition to approving the Comprehensive Annual Financial Report, the committee agreed to transfer $8.9 million from the city's General Fund to the Infrastructure Reserve, bringing the total amount of surplus funds transferred between the two to $16.5 million since 2012. Even after the transfer, the city ended fiscal year 2013 with a General Fund reserve of more than $30 million.
"Those are healthy contributions to the infrastructure priority as set out by Infrastructure Blue Ribbon Commission and also the City Council," Ramberg told the committee. "Clearly, there is still a liability on the infrastructure side that must be addressed, but these are opportunities for us to contribute in the years that we've recently had and again this year."
It helped, Ramberg said, that the city had achieved greater savings than expected from City Hall staffing vacancies. Furthermore, recent negotiations with labor groups, which resulted in greater cost-sharing on medical expenses and new contributions for health care by employees, are expected to save the city nearly $9 million annually.
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