About Us

State of the City, 2004 (Continued) Page 2

At our local level too, we face significant uncertainty. Silicon Valley lags the state in recovering from
the recession, with full recovery perhaps 5 to 7 years away.

At the same time, the city has been hit with major involuntary cost increases. Pension and medical
costs have gone up in the past two years despite of our reducing direct salary costs. Union and
wage pressures continue. Finally, hundreds of thousands of dollars of unfunded mandates are
imposed on us annually by the state.

By now it is clear that state officials have been living beyond our means. Here at home, even with
our balanced city budget, we must consider whether we are living beyond our long-term means.

Much of our infrastructure was built between 50 to 100 years ago and now needs rebuilding. The
City Council here tonight has supported ongoing investment in our infrastructure. In the past five
years we have doubled our annual capital expenditures. Over the past four years, we have
committed $40 million to general fund capital projects.

But we must do more. Our financial plan funds $73 million of capital projects over the next 10
years. This is insufficient to maintain the parks, streets and facilities that comprise our city’s half
billion dollars in material assets. In order to maintain these assets, we need to spend, on average,
$10 million per year into the future. And that number does not include anything new, such as the
new downtown park, police building improvements, or storm drains.

To meet this continuing need, I challenge my colleagues and the community to develop and
support a long term budget that fully funds our existing and future infrastructure requirements, even
at the cost of reductions in services.

How can we pay for it?
As we look to balancing the budget and supporting our infrastructure, we must consider not only
service cuts but also how we raise the funds to pay for our needs. In our net general fund, we
spend $1400 annually per resident. That’s about $3,000 per household or family.

Where does this money come from?

The average Palo Alto family in 2000 had a household income of $107,000 and paid a total of
$31,500 in Federal, State and local taxes. The city of Palo Alto received just 3% of these taxes. That
is, we received $1,048 from the average family.