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Forecast shows Palo Alto revenues climbing after pandemic downturn

Original post made on Jan 11, 2023

A new financial forecast suggests that Palo Alto is well on its way to recovering from its pandemic doldrums. But growing labor costs, inflation and remote work are casting a cloud over city projections.

Read the full story here Web Link posted Wednesday, January 11, 2023, 9:54 AM

Comments (6)

Posted by NeilsonBuchanan
a resident of Downtown North
on Jan 11, 2023 at 10:23 am

NeilsonBuchanan is a registered user.

These projections are a great start for the new Council. I urge the Council to reach their own consensus for major opportunities and risks before the annual setting of new priorties. Thereafter, the Council's Finance Committee can focus on realities as they unfold.

Posted by Eric Filseth
a resident of Downtown North
on Jan 11, 2023 at 3:12 pm

Eric Filseth is a registered user.

I love the LRFF, but you do have to be aware of some the assumptions in it.

One involves the growth of labor expenses, a large element of City costs. Because labor contracts only last a couple of years at a time before renegotiation, labor expense increases aren’t known explicitly more than one or two years in advance. Everything beyond that is an assumption, and City LRFF convention for the out-years is to use 2% per year, basically a theoretical floor. Because City -revenues- normally grow faster than this, the out-years of LRFF’s almost always look great, just like this one does. But in reality only-2% labor expense growth hardly ever happens, let alone in high-inflation periods.

Those of us who were Excel-heads usually took the LRFF as a baseline, and experimented with our own extrapolations using a variety of alternative assumptions. The George Box aphorism, “All models are wrong, but some are useful,” absolutely applies here.

Posted by Annette
a resident of College Terrace
on Jan 14, 2023 at 7:21 am

Annette is a registered user.

About labor costs - here's an exceprt from a 12/16/22 news article about City salaries:

"The new contract, which runs from January 2023 to June 2025, includes three significant changes. First of all, it would approve a pair of 4% increases to all base salaries, the first of which would kick in on July 1, 2023, and the second on July 1, 2024."

Why not require that the LRFF abandon the 2% assumption for labor costs and instead use at least 3%.?? Other than possibly some short-term positive press, nothing good comes from making unsubstantiated rosy forecasts that are relied on for spending decisions only to have to face a harsh reality later in the fiscal year. We sure as heck don't want Palo Alto to follow the State's lead and go from touting a robust surplus to a serious deficit.

Posted by Tom DuBois
a resident of Midtown
on Jan 14, 2023 at 9:34 am

Tom DuBois is a registered user.

Annette - because it’s a floor for negotiation. If we used 3%, then labor groups would never accept less - it’s already budgeted, even in a year of deflation. Council is informed and aware of many of the assumptions as Eric Filseth pointed out.

Posted by Annette
a resident of College Terrace
on Jan 14, 2023 at 10:27 am

Annette is a registered user.

@Tom DuBois - thank you for that explanation.

Posted by Annette
a resident of College Terrace
on Jan 15, 2023 at 11:13 am

Annette is a registered user.

Questions for Tom DuBois.

First, please elaborate on this: "If we used 3%, then labor groups would never accept less . . ."

I ask because that sounds to me like labor groups come to the table with the expectation that the outcome will be at least a 2% pay increase and that expectation would only be higher if the City budgeted more money. That assumes a healthy economy, sufficient revenue streams, and the potential for compensation levels that are out of synch with what often happens in the private sector. In the private sector, sometimes finances are such that bonuses are not paid and salaries are frozen or held at a modest level.

How is it that what the City budgets for labor costs can be viewed by labor groups as a starting point?
Why should labor groups enter negotiations assuming any specific claim to City money?
Why not start at zero?
Where/how does merit enter the equation?
And are negotiated increases across-the-board regardless of pension classification?

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