After cutting 60 staff positions in the last two years, the Palo Alto City Council has again set the city’s finances as a priority. City leaders spoke to The Daily about current challenges and projections for the future.

During their January retreat at the Baylands Nature Interpretive Center, the council decided to maintain last year’s top five priorities for 2011–namely, city finances, community collaboration for youth well-being, emergency preparedness, environmental sustainability and land use and transportation planning.

Tackling budget cuts

Palo Alto budget cuts in 2011 almost reached $10 million to cover a $7.1 million deficit. The city’s deficit for 2012 is expected to be up $2 million. City staff is still recovering from the cuts, but the quality of services was not affected, council members said.

“I don’t believe they affected any services,” councilmember Greg Scharff said of the budget cuts.

“We believe that in the first six months or so it’s worked fine,” agreed Lalo Perez, director of administrative services.

“The goal was to minimize the impacts on the community,” Perez said, adding that the aim was not to “reduce the level of services, but [to] change how we deliver the services.”

One tactic the council used last year was contracting out services, such as park maintenance, golf course maintenance, custodial services and administrative support.

“I don’t think there are any negative effects other than that staff is obviously working at capacity,” Scharff said.

Staff workload continues to be an issue, as forty-six positions in the city’s general fund remain vacant.

“Some members of staff are completely overworked…and yet some positions are still fine,” said councilmember Nancy Shepherd.

Scharff said the recent budget cuts reflect efforts “to balance the budget and make structural change that prevents budget deficits in the future,” a theme echoed by Palo Alto Mayor Sid Espinosa.

“We know that [staff cuts] impact real people with families,” Espinosa said, stressing that structural change was needed to make the city financially stable in the long-term.

“This city council will balance our budget,” Espinosa said in his Jan. 24 “State of the City Address.” He emphasized that “there is no more critical issue facing our city.”

Speaking on Palo Alto’s predicted budget gap in 2012, Scharff said, “I think it’s manageable for the city, and the city is on the right fiscal path.”

Pensions and infrastructure

In addition to falling tax revenues, increasing retirement and healthcare costs contributed to the city’s deficit. This, in turn, led the council to establish a two-tier pension system.

“Part of the difficult choices we made was restructuring our pension program,” Perez said. “The bigger, looming picture that we won’t be addressing for 2012 is our infrastructure needs.”

The city currently has a backlog of almost $500 million in infrastructure needs.

Espinosa began early on in his address by saying, “Palo Alto is no exception” to the negative effects of the recession. He later acknowledged, “Like many cities, we also have a major infrastructure backlog.”

“There’s far more good news here than there is bad,” Espinosa said, arguing that “transformative policy-making often happens best in times of change.”

Dealing with the city’s deficit for 2012, which will be the focus of upcoming talks, “will probably involve some difficult choices and potential reduction of further services,” Perez said.

One uncertain aspect will be the proposed Stanford University Medical Center Renewal Project. Stanford recently put forward an offer of $173 million in community benefits to the city. With regard to this issue, Scharff thought that Stanford and Palo Alto were “working really well together.”

But the manner in which the hospital expansion factors into the city’s finances remains unclear.

“Until the project is approved, it wouldn’t be prudent for us to count those dollars for 2012 yet,” Perez said.