But while the budget would restore many of the cuts that the council made over the past two years, Shikada warned that the city will need to come up with additional funding sources to address the council's priorities, most notably affordable housing and the redesign of the rail tracks to separate them from roadways.
Shikada's proposal includes a $934.2 million operating budget, a 32.8% increase from the current year. The budget of the general fund, which pays for most city services other than utilities, would be about $237.8 million, an increase of 15.2% from the current fiscal year. The other sizable increases would come in the $351 million capital improvement plan, which would be $173.6 million more than the capital budget of the current year. This includes an ambitious $186.6-million upgrade of the water quality control plant, which serves Palo Alto, Stanford University, East Palo Alto, Mountain View, Los Altos and Los Altos Hills. The cost of this major project, which includes $144.7 million for secondary treatment upgrades and $16.9 million to help build an advanced water-purification facility, would be shared by all the agencies involved in the plant.
For the council, the Monday discussion marked a significant shift after two years of austerity and fiscal uncertainty. After cutting about $40 million from the budget in 2020 and restoring some services last year thanks in large part to federal grants, council members are now preparing to pass a budget that includes an increase of 58.85 staff positions over the current year.
Rather than debating service and staffing cuts, council members found themselves wrestling with a different question on Monday: How fast can positions be restored?
Mayor Pat Burt said the question should play a central role in the council's deliberations as it reviews the budget. The city has recently found it difficult to hire staff in a tight labor market, he noted. Given these conditions, Burt suggested delaying some staffing decisions until council members have a better idea of both the city's long-term funding sources and its ability to actually fill the budgeted positions.
A key factor will be the result of the November election, when voters will likely have a chance to weigh in on two separate revenue measures, a business tax and a measure that would affirm Palo Alto's historic practice of transferring funds from its gas utility to the general fund. The council agreed last week that if the business tax passes, the revenues would be used to pay for affordable housing, redesign of rail crossings, public safety and improvements to University and California avenues. The utility measure, meanwhile, would bolster the city's general fund by another $7 million annually. The council would have broad discretion on how to spend these funds.
Even without passage of the ballot measures, the city's public-safety departments will be able to hire more staff. The police budget, which went from $40.8 million in 2021 to $43.1 million in 2022, is set to increase to $47.1 million in 2023 under Shikada's proposal. This includes four additional patrol officers and two dispatchers. Chief Financial Officer Kiely Nose said Monday that the budget increase would allow the police department to bolster a special unit that responds to calls involving psychiatric emergencies and to add positions to its investigative unit, which shrank to just two positions earlier this year.
In the fire department, the city would hire a deputy chief who manages recruitment, hiring, promotions and succession planning, according to the budget. The city also plans to hire three firefighter trainees who could be used to swiftly fill department vacancies as they arise.
"The labor market is fierce, and so (we're) developing programs to help us reach individuals at different stages or levels of experience," Nose said. "This is one that would allow us to establish some trainees that could ideally be candidates to move into full-fledged firefighter positions."
A healthy growth in revenues is part of the reason that the boost in staffing is possible. General fund revenues are projected to increase by $31.4 million next year, with every major category showing a healthy rebound. Hotel tax revenues, which dropped precipitously during the pandemic, are projected to increase by 115.9% in the next fiscal year, going from $8.5 million to $18.2 million. Sales tax revenues are expected to go up from $28.6 million to $32.6 million, a 15.6% increase.
While the details of Shikada's budget will be reviewed in the coming month by the council's Finance Committee, most council members indicated on Monday that they generally support his approach. Council member Eric Filseth observed that the headcount in the police and fire departments has declined by about 30% over the last 18 years. While some of that could be attributed to process and technology improvements, the trend also reflects the city's recent efforts to balance its budget by cutting back on public safety, a practice that preceded the pandemic.
"And we've seen some of the results," Filseth said. "People have noticed that traffic enforcement is reduced versus what it was several years ago. The first fire station brownout predated the pandemic."
But even though the revenue figures signal a remarkable turnaround after two years of economic pain, council members cautioned that Palo Alto will continue to face budget challenges. Council member Tom DuBois observed that the budget still relies in part on one-time funding sources such as the remaining $5.5 million from the American Recovery and Reinvestment Act.
"It really points to the importance of ballot measures," DuBois said, referring to the business and utilities taxes.
Council member Greg Tanaka pointed to broader economic challenges, including rising inflation. He urged staff to hire fewer full-time employees and to rely on contractors where possible.
"I do wonder if we could have such a large fixed cost that's harder to change later on," Tanaka said.
The one area of the budget that will almost certainly see a revision before it's finalized is funding for youth mental health. Last year, the council approved $50,000 for Youth Connect, a program by the nonprofit Youth Community Services that aims to forge collaboration among high school students and adults in the broader community. The funding was not, however, included in this year's budget, much to the consternation of the organization.
Mora Oommen, executive director Youth Community Service, urged the council to fund the program, which recently received a grant from Santa Clara County.
"It is disheartening to see the city's budget expanding in many areas while eliminating funding for youth mental health," Oommen said. "Cutting this funding is out of alignment with both local and national cries for more support for mental health of youth."
Most council members agreed that this funding should be restored, particularly in light of the toll that the COVID-19 pandemic has taken on youth mental health. Council member Greer Stone, a government teacher at Carlmont High School in Belmont, cited a recent study from the Centers of Disease Control and Prevention that found that 44% of high school students reported in 2021 that they "persistently felt sad or hopeless during the past year."
"Both as a council member and as a teacher who'd had to witness the deteriorating mental health of my own students in the last two years, I really can't imagine a more important issue to fund than youth mental health," Stone said.
Other council members also signaled support for funding Youth Connect. And no one on the council had any objections to boosting the police budget, though resident Bob Moss suggested that the additional funding should focus on emergency response for people who have physical or mental issues.
"We should be expanding the city's staff which has expertise in those areas for physical health, mental health, assisting people who have physical problems when there's a police call for them," Moss said. "Those are areas where we should be focusing any excess money or any excess resources."
TALK ABOUT IT
What do you think of how the city manager is proposing to spend revenues in the coming fiscal year? Talk about your ideas on Town Square, the community discussion forum at PaloAltoOnline.com/square.
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