Federal funds brighten Palo Alto’s bleak budget outlook

After a year of budget cuts, service reductions and staff layoffs, Palo Alto is preparing to get $12 million from the federal government — money that the city is banking on to smooth its path to economic recovery.

The money, which will be released through grants over the next two years, can be used to pay employee salaries, restore services that were slashed because of plummeting revenues over the past year and invest in critical infrastructure. The allocation is part of the $42.6 billion that the state of California and the various counties and cities in the state are set to receive through the American Rescue Plan, a $1.9-trillion stimulus bill that federal lawmakers approved earlier this month.

This total includes $8.3 billion for cities and smaller municipalities, as well as $7.6 billion for counties. Santa Clara County is slated to receive $373.9 million in relief, while San Mateo County would get $148.7 million.

Allocations to individual cities are based on the Community Development Block Grant formula, which considers factors such as population, poverty and housing needs. For smaller municipalities, the allocations are based on population.

Under the approved plan, Palo Alto stands to receive $12.5 million in federal aid, while Mountain View would get $14.8 million and Menlo Park would be eligible for $6.5 million. Atherton and Woodside are eligible for $1.3 million and $1 million, respectively, while Portola Valley could receive up to $860,000.

For Palo Alto, federal funds are expected to provide a measure of relief after a year during which its hotel- and sales-tax revenues have plummeted precipitously, prompting the City Council to make $40 million in budget cuts last spring and to eliminate about 80 full-time positions. The council has been planning for another $6 million in budget cuts in fiscal year 2022, which begins on July 1.

City Manager Ed Shikada said at the March 15 meeting of the council that he is still waiting for additional information about restrictions for the use of the federal funds, as well as requirements for timing.

“We will continue to monitor and will be reporting that information to the council,” Shikada said.

Shikada said the city is also looking for any opportunities that local nonprofits and businesses may have to take advantage of the programs that are part of the stimulus bill, which also included direct payments of $1,400 to individuals earning up to $75,000 and couples earning up to $150,000, extension of unemployment benefits and child tax credits, $128 billion in grants to education agencies and $350 billion in aid to state and local governments.

While the stimulus bill is expected to help the city balance its budget in the fiscal year 2022, the council is still looking at ways to cut costs in the current year, particularly from its capital improvement plan. The current budget includes $174.4 million for infrastructure spending, which includes $102.8 million for a new public-safety building, a project that the council approved last month after decades of planning.

In recent weeks, staff had identified about $2.7 million in cuts from this year’s capital plan, which includes savings in categories such as sidewalk repairs, City Hall renovations, maintenance of parking lots and enhancements to downtown garages. On Monday night, the council directed staff to trim an additional $2.5 million, though it did not specify which projects should be scaled back, deferred or scrapped entirely.

“I think we’re all sick of cutting services, which means we’ve really got to dig hard on the capital plan now,” Council member Eric Filseth said at the Monday meeting, noting that some projects would likely need to be postponed by many years.

Council member Greg Tanaka called the recent announcement of federal funding great news, though he also acknowledged that the stimulus aid is not enough to overcome the city’s ongoing financial challenges.

“Sure, we’re going to get money from the federal government, but our revenue is still down a lot, and there are a lot of needs that we have,” Tanaka said. “I think we need to start looking at this and try to do some value engineering, try to really prioritize what is truly needed.”

One near-term project that the council has shown no inclination to postpone is the completion of the Charleston-Arastradero street improvement project, which is about to enter its third and final phase. The council is preparing to approve later this spring $6.6 million in contracts for the project, which includes new median islands, bulb-outs, bike lanes, traffic signal improvements and street trees.

This third phase of the project is focusing on major intersections at El Camino Real, Middlefield Road, Louis Road and Fabian Way, according to staff.

Numerous residents, including bike advocates and students, urged the council on Monday to move ahead with the project, which they said would bring critical safety improvements to a busy corridor that serves 11 schools, including Gunn High and Fletcher Middle. Robert Neff, a longtime bike advocate, said these portions of the corridor are “long, long, long overdue for improvements.

“The goal of our bicycle network is to make it easy to get to destinations safely and comfortably on fairly direct routes,” Neff said. “These two sections will finally make important connections safer and more comfortable for all cyclists.”

The list of projects that could see less funding include improvements to the newly rebuild Junior Museum and Zoo, resurfacing of the synthetic turf at the Magical Bridge playground at Mitchell Park, the replacement of Fire Station 4 at Mitchell Park and the roof replacement at the Municipal Services Center on East Bayshore Road.

Find comprehensive coverage on the Midpeninsula’s response to the new coronavirus by Palo Alto Online, the Mountain View Voice and the Almanac here.