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Major problems looming for the city’s budget

Palo Alto’s operating budget is stable for the moment. But there are problems
ahead of us that will make past budget cutting seem like a walk in the park
unless we find ways to significantly increase our revenues. Since 9/11 and
the dot.com bust, we have cut our annual payroll by $20 million and have
reduced our headcount to 1998 levels. Our sales taxes are inching upward.
But three major problems loom and the City needs to address them head on
in the 2007-08 budget.
As part of our solution to these problems, we must develop a comprehensive
revenue strategy.

In a few days, the Council will approve a budget for this coming year, 2006-07.
While this action balances our operating budget, it does not begin to address
a series of costs that will be major fiscal problems next spring.

Problem #1 is we are up to $200 million behind in taking care of our streets,
buildings, parks and other ‘capital assets’. The 1996-7 Adamson Report
estimated the backlog at $100 million. Now, a decade later, that backlog has
increased dramatically. Construction costs have gone up far faster than
expected – many bids today come in 50-100% over the Adamson estimates -
and it seems that every time we open up a wall or begin to repair a street, we
find the situation is worse than anticipated. As a result, our infrastructure
reserve will be depleted within three or four years.

Early this year, Council directed staff to come up with an additional $3 million
from our general fund, beginning in next year’s budget, to catch up on this
large and growing obligation.