When Palo Alto City Manager Ed Shikada first presented his budget proposal in late April, the document was littered with unpopular proposals, from closing three library branches and defunding the Palo Alto Art Center to reducing the police force and shutting down a fire station.
That proposal bore little resemblance to the budget that the City Council passed on Monday night. Buoyed by federal funds, the city's cash reserves and increasingly optimistic revenue projections, a divided council approved a budget for fiscal year 2022 that restores most of the cuts that had previously been considered. It also increases funding for local nonprofits and creates a $500,000 "uncertainty reserve" that the council will be able to tap into over the course of the year to address unforeseen issues.
To avoid the types of cuts that Shikada had proposed, the council majority agreed to balance the budget in part by tapping into 60% of the city's allocation from the American Rescue Plan Act of 2021, as well as by dipping into the city's Budget Stabilization Reserve.
The 2022 budget includes $209.2 million in expenditures, an increase of $12.2 million from the current fiscal year, which ends on June 30. While it includes an elimination of 87 full-time positions and 102 part-time positions, nearly all of these are positions that the council froze last year, when the city's revenues began to plummet and the council approved nearly $40 million in budget cuts.
But unlike last year, when the council was united in the face of the pandemic, members on Monday split into two camps. Four council members, Mayor Tom DuBois, Vice Mayor Pat Burt and council members Lydia Kou and Greer Stone, pointed to positive economic signs — including recent projections about rising sales- and document-tax revenues — and advocated for restoring services and advancing a long-awaited and repeatedly delayed infrastructure project: the rehabilitation of the Roth Building. Three of their colleagues — council members Alison Cormack, Eric Filseth and Greg Tanaka — favored a more fiscally conservative approach, including delaying the project long eyed as the site of a new city history museum.
The approved budget avoids some of the most contentious proposals in Shikada's budget, including a full "brownout" of Fire Station 2 in College Terrace and the closure of the Downtown, College Terrace and Children's libraries. The city is no longer looking to cut five police officer positions or eliminate popular Palo Alto Art Center programs such as Project Look and Cultural Kaleidoscope.
Some of these actions, however, may take some time to come about. Even though the council voted to reopen the three libraries that were slated for closure, staff warned that the Library Department doesn't have the personnel to operate these branches.
Library Director Gayathri Kanth said Monday that department has seven vacant positions.
"Those positions need to be filled before we would be able to open all the libraries," Kanth said.
Once the city recruits the needed staff — a process expected to take between three and six months — the libraries would be open three days per week. The Mitchell Park and Rinconada libraries would remain open six days per week.
Burt, who serves on the council's Finance Committee, had advocated during the committee's budget review for using 60% of the city's $13.7 million allocation from the federal government (Shikada had initially recommended 50%) and using the city's Budget Stabilization Reserve to close the gap. In making the motion to approve the budget, he acknowledged that the city still has many fiscal challenges ahead in the ensuing years.
"We are not projecting to restore the cuts fully that were made last year, even in the coming few years, without a stronger recovery than we're projecting and or help from a business tax or another source," Burt said.
Some of his colleagues agreed that the brightening financial outlook warrants a reconsideration of the proposed cuts. In explaining their support for the budget, Dubois pointed to the "rapidly changing economic environment" since late April, while Stone observed that where the city is "ending up right now is far better than where we began."
"It looked really bleak in the beginning and I think we made a lot of smart changes," Stone said.
Others, however, cautioned that the budget is too optimistic. Both of Burt's colleagues on the Finance Committee — Cormack and Filseth — have argued over the course of the review that the city is merely deferring difficult decisions by using one-time funding sources to close the gap. Cormack suggested that the city's revenues may not be returning to their prepandemic levels any time soon.
"I feel what the majority is going to do today is based on hope and it doesn't match my value of fiscal sustainability," Cormack said.
Tanaka agreed and noted that many employees will not be returning to the office full-time, with some opting for remote work and others shifting to a hybrid model. By avoiding cuts, he argued, the city is "stealing from the future to make it look better for today."
Tanaka also criticized the city's proposal for spending too much on employee compensation and singled out the city's managers and professionals — the only major labor group that does not have union representation. While the managers and professionals are the only employee group that is slated to receive no raises in the next fiscal year, Tanaka suggested that the proposed agreement with the group remains too generous.
Meanwhile, the city has failed in its mission to obtain $1.6 million in concessions from its labor unions. Last year, the Palo Alto Peace Officers' Association, which represents most police officers below management level, had agreed to defer its negotiated raises. This year, none of the public safety unions were willing to do so.
Tanaka pointed to the city's rising expenditures and unpredictable revenue sources as reasons to be cautious on the budget.
"The expectation that our revenue will come bouncing back — I don't know if it's realistic. I think it's hopeful," Tanaka said.