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Nose Under the Community Tent

By Paul Losch

About this blog: I was a "corporate brat" growing up and lived in different parts of the country, ending in Houston, Texas for high school. After attending college at UC Davis, and getting an MBA at Harvard, I embarked on a marketing career, mai...  (More)

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So Much Infrastructure, So Little Money

Uploaded: Mar 28, 2012
--Blue Ribbon Task Force on Infrastructure;

--How best to address the need for replacing our inadequate public safety building, currently in City Hall

--Acquiring the Birge Clark Post Office Building on Hamilton;

--What to do with the Municipal Services Center and the Animal Services Center along East Bayshore;

--Refurbishing the Golf Course in light of the levy project to control flooding at San Francisquito Creek.

So Much Infrastructure, So Little Money

There is no lack of opportunity and problems with the infrastructure in town. Much of it is self-inflicted, due to lack of upkeep and maintenance over many years. Some it stems from obsolescence or that the useful life of certain things is past the point of being rehabilitated. Some of it is due to changing circumstances that are not in Palo Alto's complete control. Some of it is opportunistic, but appears to have tremendous long term potential to improve the community.

We have got our hands full sorting out the priorities and timing here.

One thing I found useful when I was in Business School is a very simple maxim when choosing what investments to make: first make judgments about whether the idea is a good spending decision. Then, determine what financing strategies are possible to pay for attractive projects. It may be a good spending decision does not lead to a project because a financing strategy cannot be identified.

We certainly face both issues on the numerous infrastructure projects here in town. To use one example to illustrate the point: the Hamilton Avenue Post Office Building

This is clearly an unanticipated opportunity for the City. This downtown icon, which I doubt very many people would want to see torn down, is zoned to be used for public purposes: it cannot be sold off to a private real estate entity. It is near City Hall, the leased space to cover City employee overflow that we presently pay for could be replaced with a re-furbished PO building, saving on rent.

Great! So how where's the money to do what seems at this early stage like an attractive notion?

This is where it gets tricky. How to finance this potential project may be a strategy that is different than what can be done to do sidewalk repairs. Specifically, one avenue the City is investigating is what the savings from not paying leases can be "wrapped" into a bond whereby the savings would go toward paying down the bond that covers the purchase of and improvements to the building. The analysis at this point is at an early stage, but it would be a nice arrangement if savings from terminated leases could apply toward such a bond. I don't know if this will work out this way or not, although I hope it does.

The key message here is that there may be some things on the table right now that can be paid for independent of the general fund budget. And without having to try a general bond campaign such as what done for the libraries. There are funding silos, and one cannot shift money from one project to the other, it has to stick with a particular project.

I am no finance expert, but I have had enough exposure over the years in City affairs in Palo Alto to note that many people have a limited understanding that there are these different financing strategies, and the City needs to take advantage of them when the situation presents itself.

That said, I am doubtful that all the ideas/opportunities/problems around infrastructure can be adequately financed, even using some of the strategies that I have summarized here. It will take a great deal of community involvement (as our Mayor Yeh has called for) and some heavy lifting by City Council, City Staff, and City Commissions to make some choices around these various infrastructure needs.
What is it worth to you?


Posted by Sean, a resident of ,
on Mar 28, 2012 at 2:23 pm

"funding silos"

A term of art. Where are the funds to come from? How will such silos be completely divorced from the general fund? How many additional City jobs, along with their exhorbitant pensions, must be dedicated to administer these silos?

This is just another boutique pipe dream. Same old thing. Guess what? Palo Alto is facing a budget crisis!

Posted by Paul Losch, a resident of ,
on Mar 28, 2012 at 2:49 pm

Paul Losch is a registered user.


Let me give you an current example under way. Despite some change orders and seismic work that is greater than originally estimated, it looks like the Library/Community Center project will come in under original estimates and the amount that was approved in the bond.

This money can only be returned to the taxpayers, it cannot be shifted to help pay for something else.

I don't know exactly how the taxpayers get their money back, but that is what will happen.

I agree with you that the City is facing some difficult financial challenges. I attribute it to excessive deferred maintenance, and personnel costs (especially pensions for retiress.) Some of the general budget must be re-deployed to address our infrastrucutre problems, but capital projects can be addressed in various ways, not just from the general fund budget.

Hope this helps!

Posted by Sean, a resident of ,
on Mar 28, 2012 at 3:07 pm


Who will run the new library and whatever the old post office becomes? From what I can understand, it will be City employees. This means more City employees, along with their cadillac pensions. This means the general fund. What am I missing?

Posted by Paul Losch, a resident of ,
on Mar 28, 2012 at 3:24 pm

Paul Losch is a registered user.


We have existing library employees who will staff the new library. From what I been told, there are no additional staff being added.

Have you even worked in one place, and then your employer moves to another place? Same employees, just different place to go to work each day.

I would like to better understand the basis for your assertion that occupying these buidlings would lead to additional employees. From what I understand, the City is entering its budget cycle, head count again is again targeted to be reduced. Where possible and as needed, contractors will be utilized at a lower cost to the City.

Posted by Sean, a resident of ,
on Mar 28, 2012 at 3:54 pm


It's a much larger library. It will take more City employess to staff it, current staffing levels notwithstanding. The old post office is a new entity, should it become part of the City infrastructure.

Outside contractors are always subject to union demands, eventually. I fail to see where the free lunch is.

I understand that you, and many others, want to save an old building that we are used to, but does it make fiscal sense? Why not just allow the USPS to sell the thing, then try to convince the private investors to keep the basic look?

Posted by Marrol, a resident of ,
on Mar 29, 2012 at 10:39 am

I agree with you Paul. The financial challenges that the city faces definitely seems like an uphill battle. I'd like to add another basic premise of economics that should be considered and applied. In addition to making wise investments, which the post office building might prove to be, we simply have to spend less and make some reasonable sacrifices. It's all about setting financial priorities and having the courage to follow through with those commitments, and the willingness to say, no, when it's the fair and just thing to do.

Posted by common sense, a resident of ,
on Mar 29, 2012 at 10:50 am

Paul - the city has been saying for the past few years that hey have been eliminating staff; around 70+ positions were eliminated last year. This means there should be space freed up, and some consolidation should be occurring, and the city not needing to lease space. If each employee takes up between 150 - 200 square feet, then there should be about 10,000 - 14,000 square feet of space free.

Posted by Paul Losch, a resident of ,
on Mar 29, 2012 at 2:00 pm

Paul Losch is a registered user.

Common Sense,

I do not have the type of information that enables me to respond knowledgeably to your assertion.

I do know that many of the positions were for grounds maintenance at the parks and golf course in recent budget cycles--not much office space loosened up as a result of that move.

I conjecture that the nature of the positons eliminated or not filled will have some bearing on how much office or other space is not neeced going forward.

Posted by Wayne Martin, a resident of ,
on Mar 29, 2012 at 6:31 pm

Over the past ten years, I have tried to piece together some sort of infrastructure inventory that might provide some sense of just how many assets the City owns, and what the value/replacement value of that inventory might be. I have been frustrated in this attempt, since the City itself does not actually keep such an inventory itself. So, the best I have been able to do is come up with a back-of-the-envelope collection of assets which are mostly property, and water/gas/wastewater distribution piping that is buried under our streets.

All-in-all, I have come up with a number around $35B, but some of these numbers are cost-to-replace numbers, based on current prices. (For instance, concrete pipe generally costs out at $350-$500/linear foot.. As some point, this pipe might need to be replaced, so multiplying City-published lengths of pipe by these per/foot numbers generates a cost-to-replace number, sans inflation.)

The City has recently decided to claim that all of the standing buildings (such as the currently embedded ?police station?) are part of the infrastructure. One City Council Member claimed that the library was part of the infrastructure. We have seen a warping of vocabulary by the current/past Councils, and Staff, so that infrastructure turns out to be anything they want it to be?including a golf course and an airport!

The City owns about $20B of land (and possibly more) at current market prices. There is simply no reason that some of this property can not be sold off to provide for future need. The same is true for the City?s Utility, which has had management problems in past years. Assuming that the Utility could be sold for at least $1B, the yearly interest on this money, properly invested, would be at least $40M (and as much as $75M if you believe CalPERS money managers).

The idea that the taxpayers, and rate payers, should be gouged to
death?which the City can not even produce an estimate of the total asset base it owns is beyond belief. There simply is no reason that the City should not sell off some of this land?even though the new owners will no doubt be creating some problems for us all, once they take possession.

The only answer here is to reprioritize the level of so-called ?services?, start charging total cost for all use of public buildings, properties, and look at across-the-board reduction in salaries, and benefits. As mentioned above, selling the golf course, the airport and the PAU would put a lot of money in the City?s pocket, to pay for all of the infrastructure upgrades forever.

Posted by Sean, a resident of ,
on Mar 29, 2012 at 6:51 pm

"The only answer here is to reprioritize the level of so-called ?services?, start charging total cost for all use of public buildings, properties, and look at across-the-board reduction in salaries, and benefits. As mentioned above, selling the golf course, the airport and the PAU would put a lot of money in the City?s pocket, to pay for all of the infrastructure upgrades forever."

Not a bad concept, Wayne. Toss in Arastradero Preserve and Foothills Park, PACT, then we will have a real bankroll. Whoops! That is the fundamental problem. My bad. If the City has a bankroll, it will spend it on things like the old post office, extravagent pensions, etc.

If we want to stop going into hole, then we must first stop digging the hole. The old post office is just the latest version of digging the hole deeper. Surely, we can avoid doing that.

We need to get over our cravings for boutique appetites. Until that happens, there is no hope that our budget will ever get balanced, no matter how much money we have in our piggy bank!

Posted by pat, a resident of ,
on Mar 30, 2012 at 1:29 pm

Re funding silos: Aren?t they all filled with money from us, the taxpayers? If so, what difference does it make which silo the city takes money from?

Re staffing: Because the city caved in to those who demanded 5 libraries ? contrary to what two library directors recommended and contrary to what Allison Cormack (head of the YES on Measure N committee) preferred ? we now need more staff than if we had just one library.

From then-city auditor, Sharon Erickson, re the 2007 library audit: ?We focused on staffing because that?s where 77% of the cost is ? delivering services through 5 branches is more expensive than a single facility system. It requires duplication of effort ? the example we used on page 16 was Santa Clara which only needs 11 employees to staff customer service desks in its 80,000 square foot library, compared to Palo Alto that needs 14 employees to staff customer service desks in our total of 51,000 square feet (spread across 5 facilities).?

Infrastructure and staffing are tightly intertwined!

Posted by Wayne Martin, a resident of ,
on Apr 6, 2012 at 12:28 pm

> Infrastructure and staffing are tightly intertwined!

In the long run, City governments really are about delivering ?services??with ?infrastructure? providing the framework for the delivery of these services.

Sadly, there also don?t seem to be any realistic long-range financial models for the City, viewed along the lines of departments and ?services?. For instance, using the current costs of the library services provided, and the costs of the new building, it?s not hard to predict the library services could cost between $400M and $500M
over the next 30 years. With the clear shift from paper to ?Cloud-based? information distribution, it?s very unlikely that most libraries will see much utilization within ten years. Twenty years out is hard to predict, but given how far we have come in the last ten years, it is fair to suggest that people will not be ?going to the library? to find some bit of information. There is move afoot to create a National Public Digital Library, which will be available to everyone in the US.

Google and the Internet Archive have set the stage for the next generation of digital libraries, although the task of moving from p-books to e-books is overwhelming, and could well take a couple of decades. Unfortunately, we had some people looking backwards?not forwards?who were able to convince the voters that they needed to spend this vast sum of money on something that was not really necessary.

Virtually no one has looked at these shifts in personal reading habits. Moreover, with the circulation of the Palo Alto library being between 40% and 50% ----videos/AudioCDs, the expenditure of upwards of $100M to keep about 14% of the library patrons from renting videos like everyone else has to be seen as a very poor use of public money.

The following link provides some current data about shifts between p-books and e-books that are occurring in the publishing industry today?

Death of the Printed Book:
Web Link

It?s really hard to believe that in just ten years that electronic distribution won?t be the dominant mode of information delivery. Nonetheless, Palo Alto will be spending upwards of $100M on this Measure N library/community center complex. No one on the City?s side was looking ahead. They spent most of their energy vilifying those of us who were trying to educate people about what was about to happen, where printed books were concerned.

Posted by Bob, a resident of ,
on Apr 8, 2012 at 10:27 pm

Paul, please try to find out why the city is 're-doing Eleanor Pardee Park? There is nothing wrong with it!! This is a total waste of money. This$$$ is better spent elsewhere like the streets north of the Oregon Expressway, around the downtown area,nd in In Downtown North and Downtown South.

Posted by Paul Losch, a resident of ,
on Apr 9, 2012 at 1:46 pm

Bob in Crescent Park,

Please be more specific about your concerns around what is being done at Eleanor Pardee Park. Other than the recent removal of diseased eucaplytus trees and replaced by "saplings" I am not aware of efforts under way at this park.

Posted by Bob, a resident of ,
on Apr 9, 2012 at 10:06 pm

There is a 'community meeting' at Lucie Stern tomorrow night at 6:30-8:00 on the Eleanor Park rehab. It's quite extensive. Should include DSFNA, Community Center, Crescent Park and others. Hope you'll attend. Lots of info mailed to residents.

Posted by Bob, a resident of ,
on Apr 9, 2012 at 10:12 pm

Sorry, Paul. The meeting tomorrow night is on Rinconda Park- 6:30 p.m. Lucie Stern. There IS one forthcoming on Eleanor Pardee Park, but right now can't find he notice. Stand by.

Posted by Anon, a resident of ,
on Apr 17, 2012 at 8:45 am

My complaint about the downtown Post Office is that it should never be closed in the first place. All over the country, the USPS is trying to save money by consolidating urban post offices that make money. The problem the USPS has is rural/urban fringe post offices and delivery that cost vastly more than they bring in. If you look at the USPS as a business, it would be utterly foolish to shut down crowded, profitable stores in historic buildings in downtown/city centers, and leave open money-losing fringe/rural services.

I'm not arguing for shutting down those small post offices, by the way. The fact is that those rural post offices are often the only federal presence out there -- maybe not so smart to shut them. Thanks to Benjamin Franklin, the Post Office was a fixture from the beginning, and, is in the Constitution. Let's just accept the cost of rural postal service and move on.

Posted by John, a resident of ,
on Apr 25, 2012 at 9:21 pm

There's plenty of money. It just all goes to wages, pensions, and benefits.

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