finance committee final sense minutes

FINANCE COMMITTEE FINAL SENSE MINUTES

of 50

Special Meeting May 23, 2018

Chairperson Scharff called the meeting to order at 9:12 A.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California.

Present: Filseth, Kou, Scharff (Chair), Tanaka

Absent:

Oral Communications

None

Agenda Items

1. Fiscal Year 2019 Finance Committee Budget Wrap-Up.

James Keene, City Manager stated he would go through the brief Power Point that Staff put together in advance of taking public comment and how they work through things. The first slide showed roughly what the wrap-up agenda was. He felt the compressed day-long sessions worked more efficiently and on the Staff side of things they were more productive because people could be on-call but still be working. He noted the Finance Committee (Committee) worked through the budget pretty well and for the most part, identified just a few outstanding issues at that point that were put in the parking lot. These were the issue of the library hours and where the Library Department was, concern about the non-funding of the Urban Forest Master Plan and Public Works, and some interest in how to move towards electric vehicles, with some larger questions about the Vehicle Replacement Fund. Some Staff members were present to speak to those items. He indicated the big discussion point was the directive given by the Committee to Staff last Thursday to look for potential cost savings as far as a structural cost adjustment in the budget so that the City could begin to contribute to what the Committee saw as the likely real unfunded pension liability that is hanging over the City. The worry was brought up that the pension might not be there in the future and questions of those costs crowding out other

FINAL SENSE MINUTES

of 50 Special Finance Committee Meeting

Final Sense Minutes: 05/23/18

spending and services in the City as the years unfold and the need to deal with that. The leadership team and Staff looked at ideas and issues and he had some recommendations he wanted to make to the Committee. He also advised that what the Committee should do by the end of the meeting is formulate their final formal recommendation, Motion to the Council transmitting the Finance Committee’s recommended budget. He stated, in addition the Committee also took some tentative actions, which were some recommendations related to the auditor’s budget and some recommendations relating to the Office of Sustainability. He explained that generally he would be included in the recommendations and comments he made about this directive on the $4 million in reduction. He noted they looked at two things over the past six days. The first was the range of kinds of sort of more strategic things that needed to be looked at long-term as a City, or things that might take quite some time to work through that could provide cost savings to the City so that, one, we could adequately support, for example, the increased contribution to the unfunded liabilities, but also maybe redirect funding into other areas of the City that may need those in the future. An example of things that were identified were, in the realm of Public Safety, regionalization which would look at initial things like, how could we regionalize our dispatch functions for Police and Fire and consolidate them in a way with Mountain View, potentially with Los Altos and those sorts of things. Thinking about the Public Safety Building, this has a dispatch sort of Emergency Operations Center (EOC). Do we proceed with it that way or think more opportunistically? We could have a facility that could very easily accommodate a regionalized dispatch operation, could we partner with Mountain View to share resources. Those things take some time to work through. The need was identified for looking at things like ultimately reducing some of the great Public Safety costs by looking at civilianizing the Emergency Medical Response aspects of staffing in the Fire Department. Those changes would take time with potential bargaining issues. Other consolidations looked at in the past; consolidate some of the Fire Departments. These are all worthwhile questions that could be looked at, but right now those types of things could not be transmitted into something that could be counted as a cost savings that could be contributed right now. He confirmed that the City spends a lot in support of the school district, $5 to $8 million annually. Is that something that long-term the City should be continuing or could there be a more robust cost-sharing discussion with the school district? It takes time to work through those conversations. Regarding Cubberly, he noted they are actively trying to move ahead in master planning, but this has been discussed for a long time. The point is, the City in one form or another pays the school district close to $8 million a year for the lease of Cubberly. Some of that money allows us to do some

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maintenance and some small-scale capital investment, but we’re not moving towards implementing a vision worthy of our Community. When $8 million in cost savings is asked for, it’s noted we’re giving $8 million in lease payments and that is something that there should be a conversation about over time. He continued that there are a lot of different things, both in creating new public/private partnerships versus we continue to disproportionately fund Project Safety Net. It is a collaborative across the not-for-profit City and school district that the City is the prime funder on. There are lots of things in operational changes. There is always a question of how to increase revenues, recovering full cost of services through fees. These are great ideas. That again takes varying degrees of a lot of work. The whole point is, we might have identified $15 million or so that we might be able to look at over time that could really be recaptured or redirected in some way, but we’re not in a position to be able to say, we could answer those things and put that in a way that the Committee could make definitive recommendations on any of those things right now as far as recapturing those costs. That’s strategic, macro strategic issues. The next slide was more focused on if we really had to generate $5 million, what that would look like. Reduction goals were issued to different departments for some ideas on how to plan those things. There were some examples of the kinds of things that came up. He noted they were not ready to be able to say they would recommend specific changes. There were lots of implications. Some things looked at involved position reductions some of which could have people in them. The practice has been to not make position reductions with people in them. They look for ways to identify opportunities, even in the height of the great recession; there were only a couple of people out of all the reductions made. He emphasized that the workforce is the biggest asset the City has. There is no great Palo Alto quality of life through quality of services if we don’t have a quality workforce. There are things like Community Services where they identified little things and big things, but special events funding, summer concerts and other things were cut out. In Public Safety, when pushed they would have to look at reducing Fire Station staffing, the possibility of closing a Fire Station at night. Even if those things were done, forgetting the community reaction, there would still be meeting and confer requirements, so he would not be in a position to endorse those actions at this time. He indicated the real point is, more time is needed to analyze the full and secondary impacts and benefits of the changes made. To that extent he stated his own recommendation would be that they come back to the Committee during the first quarter of this year with a much more detailed discussion about what areas could be available, how to discuss those with a chance to do a lot more impact analysis and with conversations with the leadership team members about what it would take to actually

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carve out a $4 million structural reduction this year and to be able to do it in a thoughtful enough way that there are no uncertainties. When it comes time to formulating the Committee’s recommendations, the recommendation made about the Auditor’s Office function would be handled in that same way. That would be a concern that the Committee would ask Staff to look at during this review of what are the best ways to do cost savings. The same thing on the Sustainability position. He would be able to talk to that more specifically. The point is, the Committee can get to the point of what they want to achieve and he will talk about some possibilities on how to proceed at the end. He emphasized that the best decisions would not be made at the detailed level if they were to try to do that right now. More time is needed. Staff was asked in six days to do two or three times the number of cuts that took two months to do during the budget process. Staff would like to put this out, how they could structure ultimately the conversations with the Finance Committee, maybe this morning, about some ways of looking at what is hoped to be achieved and how to really begin to prioritize the areas to be focused on. They want the Committee to be able to endorse the most cost-effective ways, but still provide the highest value to the community but to be able to communicate how effectively the changes can be assimilated in the organization and the impacts. He believed they could meet the Committee’s request of what to do about the $4 or $5 million, except that more time is needed to spend on this at the start of the Fiscal Year with Staff and with Finance to do that. It can’t be done in this time frame. He stated they tried to think about how to provide maximum value, not just cut budgets. Room is needed for making contributions and the $4 million is only half of a known identified contribution that the Committee thinks is needed to be made on the pension side of things. The City will also have growing needs and issues in the future. Is there some way the elected officials working with Staff can have some frameworks that can be used to think about the tradeoffs that are always involved with changes? Michelle will have some food for thought and some suggestions.

Michelle Flaherty, Deputy City Manager articulated that one of the things Mr. Keene was talking about was that in the process of trying to address the unfunded pension liability challenges, they need to be looking at putting the organization on a path forward in the long term, because it’s really a 30-year problem, not a one-year problem. What did this mean in terms of managing the organization and servicing the community? They talked about how it comes down to grappling with balancing what can feel like competing priorities of fiscal responsibility, operational needs and community priorities. One of the ways to think about those three buckets is to think about the City’s core mission, fulfilling the City’s core mission and getting clear about

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defining about what the City’s core mission is, what are we mandated to provide, what are the key municipal services that are the City’s responsibility. Over time, as broader interpretations of that are looked at in order to meet broader objectives, like community values, there are some tradeoffs. In the circle of values on the slide, there are community values and organizational values that can help refine or expand the definition of the mission. In the third circle there is cost effectiveness such as return on investment, how much bang for the buck, as well as how efficiently the organization is being run, how cost effective, fiscal responsibility These become tradeoffs for the Council and City management when grappling with highly treasured values in the community and the added costs those represent and the potential changes to the City mission those can represent. When looking at those competing values, one way to look at this is to not look about them as competing, but to think about them as complementary. When trying to prioritize the really difficult choices during times of budget constraint, trying to figure out which things being invested in meet all three of these as opposed to just one or two of them. So, instead of thinking about tradeoffs, think about maximizing the value of the investments. So, thinking about first and foremost as responsible community stewards who are interested in building and keeping stable the Palo Alto community that is cherished, looking at what is important there that aligns with the core mission and that can be delivered in a cost-effective way. Those should be the highest priorities. So, when there are things that are highly appealing, but perhaps in only one of these areas, think long and hard about what the implications are in comparison to the other things they are trying to do. For example, Mr. Keene spoke about cost sharing and looking at cost sharing with some of the community partners is a way to drill a little bit deeper on the notion of core mission and which aspects of what we are putting our money toward are truly the City’s business versus business that may be something that another community partner might be picking up, whether it’s county government, the school district or a nonprofit organization. Cost effectiveness becomes pretty tricky because when cost cutting is done, in a budget thing that can look very simple in cost cutting, like overhead, but if we want to deliver services most effectively, resources are needed to do that. To be able to see if there are efficient results and getting the most bang for our buck analysts are needed who can study the metrics. So, people who sit at desks need to be paid, in addition to people who actually deliver the services. The Information Technology (IT) systems that make that analysis possible need to be paid for. Things like IT systems and support Staff make efficient results a part of the service delivery and this is needed to be done in the context of prioritizing the policies that the Council has articulated as most important, that guide everything else. She stated

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they wanted to introduce this framework to the Committee, not as an answer to all challenges, but as a language that can be gone back to and referenced moving forward and talking about the different kinds of competing priorities being juggled, and how focusing in one area of this may, at times, create compromises in other areas that are unintended and looking at all three parts of this diagram strategically when grappling with budget decisions going forward.

Mr. Keene noted they were suggesting this is a simple and useful framework for also getting clearer about where people are coming from at times, whether it’s a committee or our organization or the community, because one of the real issues is, there are good ideas but when it’s started to deploy them, people perceive them from different frameworks or perspectives. So, they may hear, well, that’s not the most cost effective, let’s go ahead and do this. Then it is ultimately realized that there is a value in the community that relates to that. Just picking the Palo Alto process, is that efficient? He indicated that almost any benchmarking city that was sent here to ask how you could be more efficient would say, I think you need to reform a lot of your processes. How much did the Comp. Plan cost over a decade’s worth of work? Just actual cost, Staff time, consultant time, all of those sorts of things, Premiums were paid because there were values there might be about engagement and listening in the community that had prices. Sometimes, if only price is focused on, what’s ignored is the value that may be undone. Core mission, the City provides, most likely, way more in direct funding as a City to the school district than would be the norm. A core mission would really say, what is it that only we can do? That’s what we would provide as the most essential things that can’t be done by somebody else in some ways. On the other hand, a counter punch would be we say, the quality of the Kindergarten through 12 educations is as crucial to the quality of life in this community as a value that we’re willing to say we’re going to step outside our core mission and do those things. We could talk about all sorts of efficiencies such as picking up dead animals off the street. People are calling if a dead squirrel isn’t picked up off the street in 20 minutes. Most other cities just let those things desiccate naturally. This was just a humorous example. If you want to start to know who we evaluate things, then you’ll be told how much it costs to get a squirrel off the street, over $100 by far. When tree trimming was looked at and the cycle, there was a really strong value about the urban forest and the canopy is our lifestyle. Beyond that regular contract, we have some tree trimmers on call to basically respond to an individual call from a citizen with a problem with a tree. Many other cities don’t provide those levels of services. Palo Alto provides a very high quality of service because responsiveness to the public

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is valued, the fact that we have high standards and high expectations and quality as a community. More often than not those things are separated. They are talked about on one hand and then on the other hand real cost cutting, how to save some money is discussed, and those things are not linked together. He suggested making the best choices we need to be sure that in a public sense we are able to account for what we do. Particularly because he thinks the Committee is asking two things. One is asking Staff to make room for this necessary investment in the long-term pension obligations in a meaningful way. Second, in that case and in anything else, you don’t want things crowding out things that are even more essential, because they were not analyzed or dealt with directly. If the $4 million is done, that is only half of what was identified as this known issue. Next year Staff has to be able to systematically come back, and there will be other things, so how can they really consciously look at big issues and big changes. There are a lot of things that could be done more effectively that would require just changes in behavior. Accepting the use of more technology such as license plate readers that could make a big difference in just permit parking enforcement. One of the highest levels of service on regulating parking in neighborhoods, but cost is also a concern, yet we don’t maximize the use of systems or technology that will allow the City to do that because of other concerns. All of those things are on the table but not overtly or specifically, which means a lot of process has to be worked through. Staff is acknowledging they need some more process in the near term with the Finance Committee in order to advance the cuts and adjustments. He is asking the Committee for more time to fully analyze and articulate the benefits and impacts of possible reductions. Second, the directive the Committee gave Staff at the close of the session was directed towards the General Fund but need to acknowledge that the pension obligation issue is not just in the General Fund. A third of employees are outside the General Fund in the Enterprise Funds. The same thing needs to be done in that arena. In some ways that is easier in the Enterprise Funds, because there is more flexibility about how to adjust revenues. But those issues potentially have some impact on the rates so some discussion is needed there. Clearly the problem will not be solved if this is not expanded to all funds. He indicated a clear decision criteria and framework for addressing concerns and direction is needed. He felt that was important for at least three reasons. One is to make the best possible decisions. Second, that it is clearer to the community why a particular choice is made since there may be competing perspectives. Third, it is extremely important that our organization understands the criteria for the recommendations and decisions that are made. That means time is needed to engage and talk with the workforce, not only on please just let me understand what it really

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means, to the second stage of that, which is, it actually is way more complicated to implement changes that are significant. He noted he has lots of great ideas and he will sit with Staff and talk about these, and Staff will respond noting all these different things that have to take place. Everything has an impact on other things. What it takes to change direction or implement things has an impact. We are not managing our human resources or economic resources or expectations if they say go ahead and do something but they can’t articulate what the implementation cost is, so more time is needed for that. There are always other challenges that are out there, other things that have already been identified that are beyond the proposed Fiscal Year (FY) 19 Budget that will hit us, such as new labor contracts, possibly other projects that will have to continue to be looked at. If there are increasing problems with recruiting and retaining employees, investments may need to be made, how people work. These may require new approaches and new costs. In parallel to this they are trying to figure out how to reallocate the Budget to be able to provide this important strategic funding for pension. Ways need to be found to accommodate those things in FY’19. All of that lined up to say that they need to figure out how to put together some sort of work approach and work plan with the Finance Committee as to how to move forward on this. That would include responding to the Committee’s directive on identifying $4 to $5 million in budget cuts or changes and would also apply to the Committee’s suggestion about cutting the Auditor’s Budget, put that in the same framework of how to preserve the audit function over the course of the first quarter of the new Fiscal Year working at the Staff level and with Finance. This will also give Staff a change to have more public discussions with Finance about the future of sustainability, what all those things will be as the staffing is reduced in the sustainability function and explicitly subsume that within the operations of the City Manager’s Office. He suggested Committee should be thinking about ways to hold Staff accountable to the suggestions that are made here.

Chair Scharff noted there are some public speakers but asked for brief reactions to what the City Manager said.

Council Member Kou did not notice on the Agenda any additions or deletions or changes.

Mr. Keene emphasized that this session was agendized to be able to adopt a budget.

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Chair Scharff suggested starting with reaction to the City Manager, then the public, deal with the parking lot items then a wrap-up about anything else done or talked about.

Council Member Kou indicated she appreciated all the work Staff did in the last week with the new direction and instructions. She recalled that at the last meeting some decisions were made that she thought about and she wanted to reverse her votes, particularly regarding the Auditor’s Office. She hoped the Auditor could be brought back today to discuss what the Committee had instructed. After that decision went out the community really reached out. She understood the Auditor’s Office was a community directive, something the community brought forward, so to eliminate it without any discussion with the Auditor herself was not wise, so she is reversing her vote on that. She is also reversing her vote on the Capital Investment (CIP) Projects that had come forth, especially with the infrastructure. There is limited funding for that and the community will be asked to vote on measures. Right now, the big one is the Transient Occupancy Tax (TOT). She didn’t feel there was enough discussion on that. Also, on Monday night they just passed the Charleston/Arastadero CIP, which seemed to be moving one project above all the rest when prioritization was not done or formal or public discussions regarding what needs to be done to prioritize the needs of the community.

Mr. Keene responded that the comment about the Auditor, he had suggested that the recommendation from the Committee earlier be looked at to fold that into this deeper review of issues in the first quarter. So, he was requesting that the Committee rescind that directive. He shared that he was not speaking for the Auditor and was expecting the Auditor would have the opportunity to talk to the Council. He wanted to be very cognizant of those boundaries.

Vice Mayor Filseth thanked Staff for all the work they did. He believed that the discussion, given that they were talking about really structural issues that needed to be done carefully and would take time, what was proposed is a high-intensity process with Finance Committee in the first quarter to figure out how all these things will be identified as opposed to throwing darts the next several weeks. He felt that was a pragmatic and sensible idea that what is done regarding every office is done holistically. His reaction was that terms like fiscal responsibility, cost effectiveness and efficiency and diagrams were tossed around, but the reality is this year the City is on line to spend $8 million more on pensions than previously. There is no money to pay for it, so the way to fund that is to write an I Owe You (IOU) and our

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children will have to pay for. By the time they have to pay that, it’s not going to be $8 million because it’s going to accrue interest at 7 percent a year, so it will be $30 to $40 million by then. So, they will pay in the future that we are consuming now. There is a lot of concern in the community that things are so expensive here that our children may not be able to live here. He articulated that it was important to understand that. It is not abstract. The business of maybe California Public Employees Retirement System (CalPERS) will lower their discount rate in the future and this is insurance is not the reality. The reality is, the City is spending $8 million more on pensions in this budget than in the past. This is not something in the future, it is now and somebody is going to pay for it, and it will be the kinds. In that context, he felt the other thing to understand is, talking about $5 million here, and being careful not to end up with draconian service cuts, the $5 million is 2 percent of the General Fund. He questioned if this was done the wrong way there would be draconian service cuts for 2 percent of the General Fund. He stated it is not impossible but felt the process suggested to do some due diligence make sense. In terms of process, one way to do this is to ask every department manager to cut 2 percent out of that their budget. That is not typically the best way to do something like this, but it could be done. It was important to not kick the can down the road. To undergo the process that the City Manager is recommending that makes sense; it really has to be done. It is a community thing which everybody has to understand this has to be done.

Council Member Tanaka asked if what he heard from the City Manager was that even though there was this more than $8 million deficit, the cuts should not be done this, but do it next year.

Mr. Keene replied no. The Committee did not ask him to look for $8 million in reductions but asked him to look at half of that. Last week the Committee’s direction was to look at how to begin to make this payment systematically, not just one time, at 50 percent, essentially $4 million. So, he proposed that could be done but a deeper discussion was needed about what the impacts of making those changes would be than could be presented today in detail.

Council Member Tanaka indicated that what he heard was to kick the can down the road for the $4 million.

Mr. Keene replied that he was not.

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Council Member Tanaka asked if he was saying this should be done for this budget cycle.

Mr. Keene answered that he thought there were ways the Committee could think about how to make concrete their direction to Staff so the Committee could insure that this was not just a matter of approving the budget exactly as it is and then continue to talk about this.

Council Member Tanaka replied he was trying to understand if the proposal was to start chipping away at the stuff this year or next year and it sounded like he was saying there should be a process for this.

Ms. Flaherty suggested that what she heard the City Manager say was that the budget process doesn’t begin and end at adoption of the budget. Adoption of the budget sets the budget for the Fiscal Year, but then they start implementing that budget over the course of that Fiscal Year, including mid-year changes or refinements to it. So, during the course of implementing the budget Staff can look at refining it in partnership with the Committee.

Council Member Tanaka asked if what the City Manager was proposing was: this was too hard a problem, have the Committee draw up the budget as is, and then start looking at making changes.

Mr. Keene replied that was not what he was saying. There were ways to look at if there was a credit that could be taken against the budget right now that made it concrete to Staff that there is $4 million that would not be in this budget until this question is answered. Will it go to maintain services in the budget exactly as proposed or will it allow Staff to make a 115 Trust contribution beginning this year towards this unfunded pension liability.

Council Member Tanaka responded he wanted to understand what the feedback was.

Mr. Keene asked if he now understood what he was saying.

Council Member Tanaka replied he thought so.

Mr. Keene thought the Finance Committee could find a way to think about reducing the proposed budget in such a way that would allow Staff to have

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the time needed organizationally, on the Council and with the community to be able to report on what the implications of that change are and not be irresponsible to just say, here’s $4 million. He believed the Committee could make this concrete and then allow Staff to be able to account for and report on how to implement that and that can’t be done in this time frame.

Vice Mayor Filseth inquired if the budget as proposed in the General Fund is $214 million, so what Staff is saying is the Committee adopt a $210 million budget, top line, but how that is moved around is yet to be determined?

Mr. Keene replied they have thought about this.

Kiely Nose, Director of Office of Management and Budget felt what Vice Mayor Filseth described is probably it. What Council does from the Muni Code standpoint is to adopt ultimately an appropriation ordinance. So, what could be done is to reduce the ordinance amount in the General Fund, from $214 million to $210 million and essentially put a negative reserve, then say the impacts of this is to be determined at a later conversation.

Mr. Keene suggested a good way to think about this was that a budget was just a plan and the formal action the Council takes is the appropriation ordinance, and that ordinance is an authorization to spend. So, you could say you are restricting the authorization to spend to $210 million because there is this unknown $4 million. That would allow the time to say, if you want to spend any of that $4 million Staff has to come back to Finance and get the okay that either says, here are the changes and reductions you are going to make and therefore the whole $4 million contribution will be made this year to the Public Agency Retirement Service (PARS). Staff would amend the ordinance and say, spend $4 million on that. Of if unable to do that, the Committee would have to OK that. So, the Committee has effectively done that which is the responsible way instead of asking Staff to amend the appropriation ordinance and make premature reductions in individual budgets that could not be accounted for. It’s like the Committee is putting a governor on the engine of the General Fund that slows it down to $210 million.

Lalo Perez, Chief Financial Officer and Director of Administrative Services added if the projected revenues came in higher than expected, they cannot spend those dollars without the Council’s authorization to increase the expenditure side. So, Staff is restricted to the $210 million. Come June 30th

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money will run out if they don’t come up with ideas somewhere in April or May.

Mr. Keene hoped that clarified what they were saying.

Council Member Tanaka replied that was good because it was really important this problem was addressed. That helped clarified what they were trying to say.

Chair Scharff indicated what Staff was proposing was a good idea. As Vice Mayor Filseth said, do $210 million and a $4 million negative credit then you will come to Finance in the first quarter of the new Fiscal Year and we will go through the process of evaluating each of the possible cuts and thoughts and then move forward to decide on approving them.

Mr. Keene answered that was generally it, the degree of review. The Committee wants to do. The policy and value need to be provided. The Committee represents the community and Staff’s job is to try to represent the impacts on the organization and what it would take. He also added he thought what the Committee wanted to do is not mean spirited to just cut the City budget. It is exactly the opposite. There is a cost the City is ignoring if this isn’t taken on and it will grow in the future. As has been said in previous Committee meetings, this would undermine benefits that the City employees are counting on if this isn’t dealt with. He completely agreed with the need to do this. However, getting from here to there should be thoughtful so the impacts on services and what is done in the community is done in the best possible way. He agreed with the comment that in one sense it is not a lot of money, it is 2 percent. We can figure out how to do it, but there is some process needed so everyone is clear about what that is.

Chair Scharff wanted to go back to the process done in 2010, the great recession. $20 million was cut out of the budget. This was done with really no layoffs. He recalled that pretty much everyone kept their jobs. There were some positions that were open that were cut. There were no service cuts in the community that anyone noticed.

Ms. Flaherty stated this was a powerful observation. She was a newcomer to Palo Alto and offered the observation that in the months she has been working here and trying to understand where the organization was, she had learned Palo Alto is still under the level of the number of employees from

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before the great recession. As the economy recovered, the organization built back up some of its productivity and service delivery.

Chair Scharff inquired if this was more productivity or just more people.

Ms. Flaherty replied yes, and spending on contracts as well. That has occurred, but part of what she witnessed in the last week, based on the Staff research in response to the Committee’s direction was that Staff is not finding the fat to cut. Bringing the Committee cutting into bone is not fun for Staff to do and never fun for any elected body to grapple with. That was one of the reasons for the Venn Diagram. The things in those circles are going to need to shrink and those will be tough choices. She was not sure they would find easy answers for the Committee. Having this substantive work in front of them was part of what they were trying to communicate.

Chair Scharff clarified he was not making light of it. He thought it was important to look back but there was probably a lot of fat in the organization in 2009 and 2008. At that time $20 million was cut and the City Manager did an amazing job. He went out into the community, explained things, and came up with efficiency cuts where people didn’t notice them. He offered some cuts that were declined and those were the things that mattered to people. Chair Scharff voiced his concern about reducing expenses, special events, summer concerts and library hours. In 2010 these were particularly protected. He did not see cutting special events, summer concerts, and library hours. These are things the average person in Palo Alto will notice. He would not support those things. He thinks the City Manager made a really good observation. If license plate readers will save a lot of money in the way parking enforcement is done, it is foolish not to do that. He felt there were a lot of what he called efficiency solutions that may exist that have not been done, cameras in garages, how that affects the need for a special officer to patrol the garages. These are things that need to be thought about, the ramifications. That is the way this should be handled first. We should not be cutting into bone. That is not what this is about. We are talking about 2 percent of the budget, we should figure out how to do this without causing issues in the community in terms of lower service levels. He noted there is a difference between white shoe service level and a service level that most people will not notice the difference. That is obviously a difficult issue. He asked if they moved towards sweeping the streets.

Mr. Keene confirmed that street sweeping was cut in half.

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Chair Scharff replied that he had not gotten a single call about this. He recalled this was not something that was done lightly. There was a thoughtful discussion about this and a decision was made. He felt there should not be a discussion on cutting summer concerts, library hours, special events, and crossing guards. There should be a different discussion about who should pay for what between the City and the school district. Clearly, all the crossing guards are needed in the community. The City does subsidize the school district. Education is a very important value in this community. The Council and the community may decide that supporting education by subsidizing the school district is the way to go. Of it may be decided that the school district has a better ability to raise money and should really pay their fair share of crossing guards. He thought Cubberly had been talked about since he has been on the Council. A Blue-Ribbon Task Force was put together. He indicated he had lost faith that there will ever be an agreement with the school district of a way to Master Plan the site. He questioned should the City take their eight acres and build a great community facility or should talks continue? He felt people were not happy with the status quo. The incremental step was done where the City no longer pays them not to develop the site.

Mr. Keene responded that the $1.8 million was shifted from that covenant not to develop and that was put into a Capital Sinking Fund. A portion of that is used each year for maintenance at Cubberly. For the most part the City is maintaining a lot of decrepit buildings. There is a vision from the City perspective that could say there could be amazing community-serving facilities at Cubberly but we are stuck.

Chair Scharff agreed. He commented that has been a really difficult, long-term place to be stuck. He thought Staff’s approach was probably a thoughtful and good one. There is a need to think carefully about what gets cut. Only Staff can do Staff’s work. Say, this is what needs to be done and these are the options. He encouraged them not to bring back anything they think is cutting into bone. He did not know how other Committee members felt, but he didn’t think anyone wanted to take those kinds of approaches. He encouraged Staff to think about things like the license plate reader and there was probably a lot of technology that could be deployed to make the City more efficient and that hasn’t been thought about as a community. Those discussions are needed. When put in terms of money, things become clearer. Privacy issues need to be clarified. Coming forward with a plan to allay fears regarding privacy issues is important. He remarked that he would probably be supportive of what the City Manager suggested. He wanted to reassure the City employees that this is just making things more efficient

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and protecting their pension’s long term. Every year that we pretend we’re not spending $8 million that money, over 30 years, becomes $30 or $40 million. If we don’t deal with it now the problem will become so big that draconian cuts will have to be made in the City. These problems should be dealt with incrementally. That is why the Committee didn’t suggest Staff make $8 million in cuts. That would be too hard. They said think about half of that. How much of that is actually done will depend on what the options are.

Vice Mayor Filseth added he thought that was exactly right. If we don’t deal with this now it will be much worse in the future. People need to understand there are agencies around the State that are now or in the future, defaulting on some of their obligations. Community, employees, businesses, everybody will all be at risk if this isn’t dealt with now.

Chair Scharff noted that an agency came to Bay Conservation Development Commission that one of their contractors had caused a lot of fill to get into the bay. It was going to cost $50,000 to clean it up. Due to their obligations over time, pension obligations and other things, they were going to be unable to move forward so they were going to be bought out and reorganization by the State of California. That is seen with smaller agencies that have obligations that are bigger than what they can handle. They are being moving into some other organization that has more money, but at some point there will be no more organizations that have more money and that ability will fail if people don’t start thinking about it. We remarked the Committee has an obligation as trustees of the City to figure out how to make Palo Alto work. One thing he has noticed is Palo Alto may be a very rich City compared to other cities, but pension obligations per person are much higher here. If the pension issues are not dealt with it will start eating into the City’s flexibility to give employees market-wage adjustments and services for the community and that means jobs.

Mr. Keene remarked he want to add in some things and some metaphors that could be used going forward. He agreed with Chair Scharff about the summer concert series. When he talked to Community Services they had a list of things and noted everything they do serves the community. Almost anything they cut there will be someone saying, why are you doing that. That was an interesting way to realize there is somebody out there on any of the community facing things that people are concerned about. The default thing is to do the hidden stuff that sounds easy but isn’t necessarily easy. His examples were, making a lot more investment in technology and other things, but one of the things on the list is cutting some of the technology

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funding. That is not immediately evidently but will that come back to bite. The other piece is, to the extent that some of the processes really need to be changed to be able to be more efficient, that change effort takes time which means the status quo environment needs to be maintained. A perfect example is, a much better parking permit system is needed. There is a plan to invest a lot of money to develop and deploy that system. While in the process of doing that, the old system needs to be maintained. These things are complicated and need to be identified in advance. There is an obligation as professionals to be as predictive as possible. There are all sorts of issues in the community mostly because of the movement from the way things were to some future state which is necessary but the process of change is there. The great recession was an outside thing. This is something that can be seen clearly. There is a real $8 million bill. People need to understand the City is overspending in some areas right now that are keeping it from paying this bill that is a higher priority than a lot of things that are being done. People inside and outside the organization need to understand that is necessary. Conversations and a little bit of process needs to be done. The parking permit system will probably at a year or so to implement and some of the old things will be kept in parallel. The cost savings will come in the future but during the transition the change will cost us more.

Council Member Kou asked in the 2010 budget cuts, how many of the infrastructure projects were part of it? Were there as many infrastructure projects that were identified and needed to be done compared to now?

Mr. Keene acknowledged that was a good question.

Council Member Kou wanted to compare apples to apples. Pension is always going to be on an upward trend and always looking at personnel to cut first is wrong. Looking at programs, if they are being leveraged correctly and at the same time what are some of the big money infrastructure costs. Is the right determination being made on size? It might require taking a step back to review all the projects. What will benefit the community? The economy hasn’t fallen down, but it is time, given the $8 million gap, review is needed of these projects.

Mr. Keene noted these were good comments. Regarding the $8 million, to what extent are there ongoing contributions to infrastructure that would be adjusted, that would be looked at. That is different than cutting a particular project that only gives a one-time saving, not a structural savings. The more interesting parallel is, there wasn’t as much spending on infrastructure

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before the great recession. There is a parallel between the infrastructure issue and the pension issue which is, the City delayed paying attention to its infrastructure for a long period of time. That is what the whole Blue-Ribbon Task Force spent its time on. Since then there has been a very significant reinvestment in the community, much of which has been trying to catch up with things that were not dealt with then and now proactively trying to deal with them in the future in a way that will sustain us. This is very similar to the request about looking at how to pay to pension bill.

Chair Scharff agreed they were really related. He felt Palo Alto was doing a bad budgeting process for 20 years before. This is basically ignoring keeping up with infrastructure. If you cut the infrastructure spending you make the community worse over the long term. That was looked at hard in 2010. People were really upset with the general quality of our infrastructure and investment in the community is needed. When looking at the investment in infrastructure, people want to cut infrastructure to provide other things. That is a bad way to run a city long term. It costs much more to address crumbling infrastructure issues than if it was kept up. The purpose of the Blue-Ribbon Task Force was to identify what was needed to catch up, keep up.

Council Member Kou agreed that infrastructure needs to be kept up with, but at the same time the employee side should not be something that is first gone to. Now there is a much more difficult system to deal with. There is an impact to everything. She remarked that looking forward different ways of revenue need to be explored in order to find ways to fund all of this. Every time there is a reaction to something that is implemented as a policy, there is an impact with added costs that were not thought about in 2010. Now moving forward, we need to really leverage every means of collecting revenue or recovery costs. She felt this was like running a company and the employees were the key to ensuring there were smooth operations. She wanted to give recognition to the employees. Moving forward, looking at all the programs, they need to run efficiently and cost effectively. She commented that she was not sure where the Business Registry was at. Residents should not be looked at as someone who is always going to be investing in the community. There is also the business aspect of that.

Council Member Tanaka stated that one thing that was not talked about was about $200 million of the $700 something million overall budget. When talking about the General Fund, he felt it made sense to understand the pension liabilities for all the funds. Look at how to start chipping away at that deficit because that is as big a problem as in the General Fund. The rest

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of the funds are bigger than the General Fund. He asked if Staff had the pension deficit for the other funds.

Mr. Perez replied based on the 7 percent, it is $504 million and 67 percent of that is General Fund.

Council Member Tanaka asked how much deficit there was this year in the other funds combined, not in the General Fund.

Mr. Perez responded that he would have to look it up. He clarified if he was asking at the 6.2.

Council Member Tanaka replied doing the same thing that’s being done with the General Fund.

Mr. Perez indicated it was $12.5 million for the remaining funds.

Mr. Keene clarified it would be a little more than half.

Vice Mayor Filseth interjected that it is proportionate to the total, so it is about one-third other funds, two-thirds General Fund. That was because Public Safety is a big part of it and that is in the General Fund.

Council Member Tanaka continued, if it was $12.5 million for the total and it is $8 million for the General Fund, that means it is $4.5 million for the rest of the funds. So, it is a percentage of the other funds. It is not as big an item. The move was taken of trying to stop digging ourselves into a hole on the General Fund. He proposed the same thing be done for the rest of the funds. It would be $4.5 out of $5 million, to it was about 1 percent. They could also try doing half of that. For the General Fund trying to get half way, for the rest of the funds he felt they should go half way as well. So, look at $4 million in possible cuts for the General Funds and then $2.5 million for the rest of the funds.

Mr. Perez noted this was the second bullet of the slide, saying that will be looked at as well.

Council Member Tanaka asked if when the Committee approved the budget, it would be approved at $210 million for the General Fund and what is the rest?

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Mr. Keene replied that there are a lot of different funds. There is not just one non-General Fund.

Council Member Tanaka understood the budget total was $704 million, so $704 million minus $4 million for the General Fund, minus $2.25 million for the rest of the half of the pension deficit. So that would take it down to $697.75 million.

Mr. Keene confirmed this was conceptually. The intent was clear. These other funds needed to be included. There is a bigger challenge in the General Fund. There is revenue control in the other funds that is not in the General Fund. He felt these costs shouldn’t automatically be taken as cuts in the other funds.

Council Member Tanaka reiterated that what he was trying to saw was the budget is running about $4.5 million negative in the other funds combined per year which will keep growing unless it is dealt with. Some can be handled through cuts or more cost recovery approaches. His main point was that it was great this was being addressed in the General Fund, but it makes sense to also take steps towards the other funds.

Mr. Perez remarked that they did not disagree with him. There is a different structure for say the Enterprise Funds, because they have reserves. An accommodation could be made in the short term and fix it. We were going to come back to the Committee with the impacts in the longer term because the rate may go up. The Committee did not need to be as precise with those funds as they might want to in the General Fund. Part of the strategy has been to contribute the same amounts for all funds and the desire is to continue that.

Mr. Keene noted that this cannot be done. They cannot say, well, we’re going to take contributions from the General Fund that will sort of go towards the unfunded liability for all employees. All of the funds must contribute equally. The choices and challenges are more complex in the General Fund, given the restrictions and the array of services. The Committee wanted to be sure it actually made an adjustment to the proposed City Manager Budget now to ensure they have that conversation. There was no need, in his view, to make a recommendation across the other funds at a dollar amount and say reduce the overall budget by that amount. There is more flexibility on how to address it. He suggested that the Finance Committee’s Motion makes it explicit that they want Staff to apply the same

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cost recovery across the other funds as directed for the General Fund. The spending authority does not need to be reduced as proposed right now because there is much more flexibility.

Council Member Tanaka suggested there might be some expense control, some revenue recovery.

Mr. Keene responded that the suggested Motion that he heard was to actually look at budgeting a credit right now. He felt this needed to be done in the General Fund. He did not think that needed to be done in the other funds because it is unknown if this will be a credit or an increase in revenues. There is more than enough flexibility in the short term to deal with it and pay all of the bills.

Ed Shikada, Assistant City Manager added one other perspective to that, representing some of the enterprise funds involved. He reiterated that they felt the same level of responsibility and concern about needing to address the long-term liabilities in the enterprises. The real question is where the Committee should spend its time going forward, over this first quarter of the next year. Many of the strategies talked about for the General Fund will also affect the enterprises, especially related to administrative operations and personnel-related elements. There are at least 13 funds that could potentially be looked at, so given the level of complexity and the variety of issues point out by Mr. Keene to tackle it simultaneously. It made more sense to focus on the General Fund with the understanding that many of the strategies did apply, but the level of urgency and importance is as much in the Enterprise as in the General Fund.

Council Member Tanaka remarked that Vice Mayor Filseth had a great idea on how to handle the General Fund, but asked how to handle the rest of the funds.

Mr. Perez stated they would give the Committee some ideas if there isn’t a Motion at some point. He felt all they needed to say was, and to include the Enterprise Funds, a specific plan for the Enterprise Funds when they return. He felt the budget did not need to be adjusted at this point.

Chair Scharff noted the Committee would hear members of the public speak.

Jourdan Janssen informed the Committee she is a resident of Stanford, California who is a program performance auditor with San Jose. She

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commented on the role of auditors in government. She encouraged Committee members to reverse their votes regarding the Auditor’s Office.

Renata Khoshroo Louwers noted she was a performance auditor in the Palo Alto City Auditor’s Office from 2002 through 2008, then for San Jose from 2009 through 2016. She commented on the importance of in-house auditors, and thanked the Committee for considering taking more time regarding their decision about the City Auditor’s Office.

Sharon Erickson stated she has been a resident of Palo Alto all her life and was the Palo Alto City Auditor from 2001 through 2008. She expressed her disappointment in the Committee’s decision to eliminate five positions in the City Auditor’s Office and asked the Committee to rescind that decision.

Neilson Buchanan remarked that Mountain View and Cupertino were working on structural changes and bringing in a Business Tax. He encouraged the City to bring the business community to the financial table with an additional stream of income. He felt the school district was another way to restructure. He was confused if the valet parking services at $300,000 are in the operating budget. He objected the City plan to fund the new garage on the parking lot. He felt all the permit parking in that garage should be funded by the business community.

Chair Scharff responded that all the valet money was put back in the budget.

Mr. Keene stated that when Kiely shares the draft Motion that Staff put together, that is explicitly called out about the continuity of the valet services continuing.

Ms. Nose recommended talking about the lists of things to do. The library has a verbal report back to the Committee on library hours and electronic content versus print materials. There were two items in the Public Works Department that were placed in the parking lot, the Urban Forest Master Plan funding for $150,000 and finding an offset and information regarding the Vehicle Replacement and Maintenance Fund. Distributed today at places is a memo that articulates for the Public Works Department a funding offset for the Urban Forest Master Plan, meaning there is full funding for the $150,000 on an on-going basis while maintaining the seven-year tree-trimming cycle. There is also information regarding the Vehicle Maintenance Fund, about electric vehicles and an attached list of the proposed vehicles included in the five-year CIP Plan. Specifically, on the electric vehicles Staff

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anticipates piloting them to do a more cost analysis of an electric vehicle versus the normal vehicles from a sedan perspective. For the next two sedans up for replacement the Department plans to do an electric vehicle replacement which will allow monitoring the costs associated with those electric vehicles in comparison with the sedans. They are also looking at piloting larger pickup trucks if they can be found.

Chair Scharff asked to take the Public Works Director first. He inquired what the Staff’s recommendation was on this.

Ms. Nose clarified if he was asking about the Urban Forest Master Plan.

Mike Sartor, Public Works Director recalled in the meeting last week that they had proposed continuing with the tree-trimming contract, adding some additional money to cover increases in costs for the services and not fund the Urban Forest Master Plan. After the Committee’s direction to fund the Urban Forest Master Plan, they went into the records for the actual tree-trimming cycle over the last ten years. They were including, with the increases in the last three years, at about a 6.7 cycle over the last ten years. With that they found they don’t need to increase the third year of the contract by about $167,000 to $177,000. They can take $150,000 of that increase and put it into the fourth year of the Urban Forest Master Plan and still maintain a less than seven-year cycle.

Chair Scharff clarified that Staff’s recommendation was to do that. He asked if there was any discussion about Staff’s recommendation.

MOTION: Chair Scharff moved, seconded by Vice Mayor Filseth to recommend to the City Council to reduce the funding allocated for tree trimming contract by $150,000 while maintaining the seven-year trimming cycle and reallocate this funding on an ongoing basis to fund the Urban Forest Master Plan.

MOTION PASSED: 3-0, Tanaka absent

Council Member Kou requested ten minutes to review the At Places Memo.

Mr. Keene believed there was nothing in there that would be an issue. He felt they could proceed and at the right time, maybe take a break to read it. That may be more efficient.

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Council Member Kou noted she just wanted to make sure since they were voting on things if there was any information pertaining to her vote, she would like to know it in depth.

Mr. Keene noted a ten-minute read might not completely answer her question. He asked Kiely if there was something that was going to come up and there was a Motion, if they could be really clear as to how that is dealt with, if she could highlight it and they could also read it later also.

Chair Scharff remarked he didn’t think there was anything in it about the library other than a verbal update will be given.

Council Member Kou asked if they could do what Mr. Keene suggested as they go along.

Mr. Keene stated Monique Ziesenhenne is the Library Director and also the Interim Community Services Director.

Chair Scharff understood Kristen was Community Services Director.

Mr. Keene replied Kristen was for a while and then this move was made to get some greater insight.

Monique Ziesenhenne, Library Director remarked that she was on vacation but watched both hearings and did hear the Committee’s questions. She mentioned that the Library Commission routinely reviews a lot of the issues that were brought up. They have had regular reports on either e-books or use of volunteers in the library or other matters. One of the Committee’s questions had to do with the use of volunteers in the library to help extend hours. She believed they could not use volunteers to do regular Staff work. They are used for enhanced services. Annually they use enough volunteer hours that it is between one and two Full Time Equivalent (FTE) equivalent for special programs, for English as a Second Language (ESL) tutoring, things that have to do with assistance with Three Dimensional (3-D) printers. It is generally enhancements, not the regular direct service. The librarians have a general standard that librarians have Master’s Degrees from an accredited university. The frontline Staff who are experts in customer service, resolving issues, assisting with copiers and signing up for computers and finding material are highly trained Staff and many have advanced degrees. They are not technically librarians. They have a really well-educated Staff able to help the community. There was some discussion

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about 3-D printers. They 3-D printers they have were procured through grants. They are very delicate and sensitive pieces of equipment and it takes a lot of Staff time to work with them. Initially the grants funded the supplies but after two years those supplies have ended, so they will begin charging for the 3-D printing by weight. The 3-D printers didn’t come with maintenance contracts, so those costs had to be absorbed and most of the library’s contractual expenditures relate to maintenance of equipment. Regarding the electronic resources she noted in the current fiscal year there was about $675,000 in the budget that was allocated towards materials. About $233,000 to about $235,000 was allocated to e-resources, not just e-books but everything they have such as all of the magazine and journal data bases, resources for children on California Missions, learning foreign languages, downloading music, streaming movies all fall under that $230,000. Of that, $33,000 is for e-books. A lot was done through consortial borrowing and all of the public libraries try to avoid buying the e-books from the publishers who require repurchase after 26 circulations. Many of the vendors are moving to a system where the library isn’t even necessarily responsible for selection. If a library user comes in and seeing something that is available they click on it and at that point the library is charged. This charge is generally far less then buying it outright. The library is charged $1.50 as part of the contractual arrangement. The circulation and use of all of these things is examined on an annual basis. The library has 45 different data bases. These were bulked up when there was library construction because library hours were less consistent than now. Looking at it in the grand scheme, $675,000 for materials, one-third of that is spent on the e-resources which accounts for nearly a million material uses over the year. The cost of a print book is about $15 an item. The charge for e-books is about $60 or less. They do purchase items that are requested by Palo Alto residents, either print or electronic. There is a strong base of users who prefer the e versions, but there are a lot of people who want paper. Even thought these libraries were just built, at three years old or older, space is needed. When there are physical items in the library there is a need to constantly reassess. They have on-line systems to help with that and the librarians pay attention to what the community is using, what is needed, what the school curriculum and what will help support that. Regarding the question about hours of the library, will the hour’s people want actually be used? Older residents really want the library to open as early as 8:00 A.M. She remarked that she focuses more on the teens and kids as opposed to the older adults in the community. She believes that, within the constraints, they do as good a job as possible to meet everyone’s needs. They have Staff who have been trained in the Harwood Institute Methodology, looking outward, talking to the community, facilitating discussions which have been

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done on various topics for guidance. They came up with a basic cost of just under $3,000 an hour.

Chair Scharff questioned if that was $3,000 an hour for every hour?

Ms. Ziesenhenne replied yes. That includes Staff at a minimum staffing level to be safe in the building, any other utilities and overhead costs. They have been trying to streamline this as much as possible but understand there are parameters to that.

Chair Scharff noted when he was at the library at 10:00 P.M. at night it seemed filled with teens. He asked if she believed the teens would stay until 10:00 P.M.

Ms. Ziesenhenne responded that she thought so. It would depend on the teen and the family. Staff does not check if they are doing homework. For many teens, this could be a social outlet. Regarding the question of how long people stay in the library, that was not something that is tracked. A library card is not needed to use the library. The expanded hours for students during finals week have been very popular. She did not know if people would stay if there were extended hours. It could be tried.

Chair Scharff stated what he heard from kids was that with other activities, by the time they got to the library to study, it would make a big difference if they had the extra hour. He felt that by staying open until 10:00 P.M. the teens were then allowed that option to the go home and stop studying. That was the question of how much it would cost, and is the need there. Regarding Mitchell Park is open five days a week but this probably would not be needed on a Friday.

Ms. Ziesenhenne replied they are open until 9:00 P.M. Monday through Thursday.

Chair Scharff asked if there are certain days at Mitchell Park where there are more teens or are there many teens there all four days.

Ms. Ziesenhenne believed it depended on the time of year and the day of the week. They looked at how many people are there when they open, how many are there when they close. At Mitchell Park it looked like when closing at 9:00 P.M., between the 8:00 and 9:00 P.M. hour there were 51 to 62

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people. At Rinconada during the same time frame there were 34 to 47 people. Looking at the opening hours there were generally between 100 and 200 people who come in between 10:00 to 11:00 A.M. in the morning. On the weekends it is over 200 people at the 10:00 to 11:00 A.M. hour.

Chair Scharff inquired when people asked for the earlier hours, was this during the week or weekends?

Ms. Ziesenhenne replied this was during the week. They do a fair amount of data analysis. There is a committee that looks at lean management, looking at circulation, how things are processed. They could have a group focused on this. Many libraries are not open on Sundays during the summer. This could be a 9:00 to 10:00 P.M. during the school year, not year-round.

Council Member Tanaka noted he was currently on the Google Maps website which showed the popular times this was used. He asked if they looked at this type of data.

Ms. Ziesenhenne replied yes, they did.

Council Member Tanaka thought it would make sense to shift the hours back. Instead of opening so early, open later and not just for the Mitchell Park Library.

Ms. Ziesenhenne stated that was a good observation. People who come in every day come in during that morning time.

Council Member Tanaka indicated it is busier in the evenings and maybe people come in earlier because they like the quiet time. He reiterated they are trying to maximize the utility of these resources and Staff time so it would make more sense to have more open house later in the day than opening earlier.

Ms. Ziesenhenne reiterated they would need to look at it closely. When looking at the opening hour there are between 100 to 200 people coming in, then drops off and then picks up in the afternoon.

Council Member Tanaka remarked he sees the role of the library changing over time. There is a big desire for community space. He would like to see

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the libraries aligned more to when the kids are out of school versus optimizing for fewer people who want quite time.

Ms. Ziesenhenne acknowledged what Council Member Tanaka was saying. She noted a number of programs happen in the morning but some of those could happen without the library being open. Spaces would have to be sifted. Public meeting rooms and study rooms are very popular. There are a number of people working on businesses, working with people around the globe, story time for kids happens in the morning and some of these have 100 people in them.

Council Member Tanaka felt it seemed logical that the libraries should be open when they are the busiest, to shift hours to maximize utilization of those resources.

Ms. Ziesenhenne believed sometimes the library served a larger purpose than straight utility. They are dealing with education, with people some of whom are unhouses, some don’t have air conditioning. She acknowledged what Council Member Tanaka said. She noted they have five libraries for 64,000 people which was unusual. She suggested they do more analysis. She thought when the new libraries were opened, people who paid for them wanted them to be open and that was a big impetus.

Council Member Tanaka suggested they try to optimize the hours and even days for when the libraries are being used the most. He brought up his local library College Terrace which is closed on Sundays. Could it be closed one weekday and open on Sundays? Would there be better community benefit with that.

Ms. Ziesenhenne replied that in the analysis they looked at a number of local businesses and there were quite a few people who used College Terrace when working from the offices around there.

Mr. Keene asked if they could move into the efficiency quadrant and make a Motion.

Chair Scharff thought Council Member Tanaka raised good questions about College Terrace. He felt they should look at maximizing utility. The community pays for the libraries and the more people who use them the better. He voiced appreciation for the effort Ms. Ziesenhenne makes on behalf of the libraries.

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Mr. Perez noted a Motion was needed to approve the Library.

MOTION: Chair Scharff moved, seconded by Vice Mayor Filseth to recommend to the City Council to tentatively approve the Library Department Budget.

MOTION PASSED: 4-0

Chair Scharff acknowledged it could have been put in the Motion but Ms. Ziesenhenne heard him.

Mr. Keene asked what the point was.

Chair Scharff replied his question was what the follow up on Ms. Ziesenhenne coming back and optimizing library hours.

Mr. Keene suggested this be folded into the whole discussion to be done in the first quarter.

Chair Scharff moved on to the City Auditor and welcomed Ms. Richardson.

Harriet Richardson, City Auditor noted she wanted to talk about outsourcing the Auditor’s Office. She stated she did not know that was coming as an option and was not prepared last week. Over the past few days she has done more research on the issue of outsourced audit functions. The City of Stockton had some financial difficulties several years ago so they completely eliminated their audit function and began using a consultant as their internal auditor. They don’t have any audit reports listed on their website. She went into quite a few of their Audit Committee meetings to look at their status updates which are done fairly regularly. From that information she notes they are spending about $450,000 a year but they are not doing performance audit. They are doing mostly internal control reviews and helping departments develop policies and procedures. The City of Modesto outsourced their audit function several years ago after their City Auditor. There is a website presence but there was not information on it to give any indication of if they are actually doing any audits. She could not get any information about actual costs. She talked to someone she knows who went to Valley Metro in Arizona. They established a new internal audit function about a year ago after some financial issues. Ms. Richardson was told that person had some consultants come in to do work for her in the first year

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before she begins to Staff up. They have assisted her on three audits so far and she has had to redo much of their work and their work would not pass government auditing standards peer review. Ms. Richardson emphasized her office followed the Government Auditing Standards. Following a recognized set of auditing standards brings credibility to the audit profession. If you cannot cite the Standards in the audit reports or pass peer review that says you have complied with those standards, it brings down the credibility of the work. The way the work is documented in Valley Metro, it is not clear what they have actually done. The reports were very poorly written and she has had to spend a lot of time redoing that. Ms. Richardson went on to highlight some of the work being done in the Auditor’s Office right now. The City has issued a Request for Proposal (RFP) and is in the process of finalizing their evaluation of the proposals received to implement a new Enterprise Resource Planning (ERP) system. Her office is doing a fair amount of work in preparation of that to support a successful implementation of the ERP system. The primary reason is, in a previous jurisdiction where she worked they pulled the plug after $30 million had been spent because the ERP systems do often fail in the implementation phase. The initial phase is usually successful but when getting into design and implementation, there are cost overruns. Her office has a series of audits, the first of which sets the foundation for the remaining audits. That is a data and system governance audit. That audit is currently out for technical review. There will be a meeting on it next week and that should be going to the Policy and Services Committee soon. That sets the foundation for what should be in place, what kinds of policies and procedures should be in place to have a successful implementation process. They are looking at things that will help with the migration of data over to the new system. The first is data standardization; the second is segregation of duties and third is data reliability. In all three they have found some significant opportunities for improving what is currently in place before that data gets migrated over to the new system to ensure they are not making garbage out become garbage in. On the data reliability, they did something similar in two previous audits where they identified some issues with specific data sets where they have made specific recommendations for improvement. One was the water meter billing audit where they identified several discrepancies in the way water meters are tracked in different modules of the current Systems & Applications Data Processing (SAP) system and how that data needed to be cleaned up if you don’t know where you are drawing it from, you could be migrating the incorrect data. They also identified quite a few issues with the vendor master file when they did the payments audit and the Administrative Services Department (ASD) is committed to making some changes to that before migrating over. A few other audits that are in place, they are close to

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finishing up their code enforcement audit and an audit of the Business Registry. They recently started a mobile device inventory and security audit. She emphasized that she thought it was important for the Committee to think about whether this is the right time to think about contracting out and what you will get for your money. She was not able to get a lot of information from what is currently being done. As she mentioned last week, there are not a lot of firms that do perform this audit work and her conversation with Valley Metro confirms that there are some challenges in contracting out that may seem not exactly what you would expect on the surface, but if you contract it out, will you get the quality of work you want for what you’re pay for in contract dollars.

Vice Mayor Filseth thanked Ms. Richardson for her anecdotal evidence which was interesting and this needs to be thought about. He asked how hard it would be to get more exhaustive assessment and information of the availability of whether such services can reliably be contracted out in whole or in part.

Ms. Richardson replied she could do more research. She had a limited amount of time to spend doing research to get information about this. She tried to find places she knew had done contracting out. She noted when she worked for the Washington State Auditor’s Office, when they first started up that program they were contracting out everything. The brought her in to transition out of contracting because the cost was so high. They were spending an average of $1 million per contract. They were getting very voluminous reports which were not well received by the agencies. That is a State agency so it’s not really as comparable to local government and the types of firms Palo Alto might be able to get to bid on our audits.

Council Member Kou asked why it is important to have an auditor function.

Ms. Richardson explained that the auditor function provides accountability and transparency. It allows going in and looking at operations to find areas where they might be able to streamline functions, identify issues that may not come to light within a department if the auditor isn’t there to bring it out. She noted one of the things she has not been able to do that could be really helpful would be to do a Citywide risk assessment to see where the biggest vulnerabilities are for not being able to achieve the mission in an efficient and effective way. Really looking at is the City getting the outcomes that they want in a cost-effective way for the money being spent?

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Council Member Kou noted in 1983 when the residents of Palo Alto decided an auditor was needed, did Ms. Richardson know what was behind that decision.

Ms. Richardson answered she did not know what was behind that decision.

Council Member Kou stated it was included into a charter there must have been an extreme need.

Ms. Richardson responded they have a copy of the ballot measure that was put forward. She could get a copy of that and forward to the Committee.

Council Member Kou asked about the City Auditor’s Staff when she came to the City.

Ms. Richardson replied she came here in 2014.

Council Member Kou inquired how many of her Staff was inherited.

Ms. Richardson replied four.

Council Member Kou noted there were now a total of five.

Ms. Richardson responded yes.

Council Member Kou asked how the City Auditor’s Staff could be more productive. She felt the City Auditor’s Office is very productive having sat through a year of Policy and Services meetings and listening to all the audits. She recognized there is a lot that is in the works, especially with the ERP system. That is a big job in itself. The City also has Utilities which is another big department. The City Auditor’s Office has six including Ms. Richardson that are all over the place. It is a big job. The City Auditor’s Office is doing great but maybe there is a need for more collaboration and stepping it up with her Staff members.

Ms. Richardson responded that it really lies in project management. There is the audit side but audits are projects and to really get into a project management perspective to look at managing these projects in a more time effective way. She recently sent one of her Staff to Agile Project Management training. That person was tasked with developing a plan to

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implement and apply it to the audits to make them progress in a more timely manner. Just doing that should help them be more productive.

Council Member Kou felt the City Auditor’s Office has given a level of confidence to the residents in Palo Alto regarding ensuring that there are checks and balances in place. On that note, it is important to have that accountability and transparency through the City Auditor’s Office. That is why supporting her office and her is important as Council Members. She had concerns about the Senate bill coming forward in terms of contacting?

Mr. Keene replied that is the California Supreme Court ruling decision and the City Attorney could speak to that more specifically.

Council Member Kou clarified that it was note the same as outsourcing.

Mr. Keene replied it is one of the factors overall that will have to be factoring into a lot of considerations about how services are provided as a City and moving into an unknown area.

Molly Stump, City Attorney stated they have a new decision from the California Supreme Court that speaks to a body of law that had long existed with respect to when is a person doing work properly classified as an outside consultant or contractor versus actually being an employee. So, it’s not solely the determination of the paying agency, which status is the correct one. It depends on how the work is structured; the nature of the work, the way the work is done and managed. That is an issue with all of the consideration about contracting out, all of that will need to be run through that analysis. That is one of the reasons why it makes sense what the City Manager has set up today, which is to set some dollars into a separate bucket not to be spent but to allow sufficient time to work through the process of considering and implementing those decisions appropriately. There is some preliminary discussion today, but the auditor has really had only a few days to think about this complex set of questions. The City Attorney’s Office has not done the analysis Council Member Kou referred to. There are other considerations as well. She encouraged the Committee in the efficiency sector to note this as an initial conversation but understand there will need to be further conversations. Staff, including the auditor is not in a position to give the Committee full analysis and complete answers today.

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Council Member Tanaka stated he viewed the auditor’s function as one of the most critical functions of the City. They will be spending $740 million of the constituents’ money and this needs to be money well spent. He was glad the City had this Office. In going through the budget process, he felt benchmarking was very important and he would like the Auditor’s Office to play a bigger part in that. He didn’t see much of that, maybe due to staffing or charter. He has pushed the City Manager for this, but questions if this benchmarking should be independent, maybe the City Auditor’s Office should be doing this to understand how Palo Alto is doing against other cities. This would help to understand what best practices are, how efficient is Palo Alto. He notes there is only what was done historically, and there is no other way to compare. When he brought up the idea of having open data or transaction level data available, the reason was because he really wanted transparency, help in interpreting this data to make sure Palo Alto has the right metrics and is best in class in various area. He indicated he supported this last time because Chair Scharff talked about the City has a dropping number of audits.

Chair Scharff noted he was told by the City Auditor’s Office that they should be able to produce ten audits, but that a goal of six was set because it was in baby steps to get it up there and that her Staff was having a hard time even getting to the six. He viewed that as very unfortunate, that audits are taking much longer as they should and there was definitely a productivity issue in the Auditor’s Office. They would be at about 60 percent of where it should be if and they’re not producing nearly the number of audits that should be done. He thinks the Committee can take a step back on this, but he believes his recommendation would probably still stand. It is a good plan to come forward and look at this in depth in Finance, give the Auditor’s Office time to see what this would look like, give people time to talk to the employees and come back with more information and make a decision. This is not a precipitous decision and he didn’t want people to think they were outsourcing the Auditor’s Office. He noted Ms. Richardson is the Auditor and the question was what tools are out there to solve this productivity issue in that office. His opinion was that what is done now is not working. If the Auditor’s Office could get six audits a year at 80 percent of the cost that is a no brainer. If on further reflection that is not possible, that needs to come back to Finance to see what that looks like. He understood Council Member Tanaka’s concern was what are the benchmarks and what should this look like. His own concern was about productivity. The Auditor’s Office said there should be ten audits a year, but they were hoping to get to six because they are not even meeting that.

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Mr. Keene hoped the Committee would not go farther out on stuff that generally would be outside the purview of the Auditor. That is a conversation that is needed organizationally. There were some very specific things relating to the Committee’s initial direction that should be talked about now and the larger questions should come back in the discussion first quarter of next year about how services are delivered, the most effective ways to do it, saving costs and those sorts of things. Some discipline is needed now to know how to postpone discussions to the appropriate time and focus on what is necessary now.

Vice Mayor Filseth believed Council Member Tanaka was zeroing in on the right place. This is not an issue of whether an Auditor’s Office was needed. The real question was how it should be structured in order to best serve the interests of residents. To him it looked fairly simple, the number and quality of audits and which direction is better served. That question is not going to be answered at this meeting. He felt Council Member Tanaka’s comments about benchmarking go to the heart of that, which is what should expectations be.

Mr. Keene agreed that benchmarking the production of audits and those things is accurate. He did not think it was most effective to be thinking about assigning to a performance auditor how to set up the accountability mechanisms for routine management and performance and those things.

Council Member Tanaka asked why not.

Mr. Keene replied it would not be nearly efficient. There were some very particular standards and protocols that auditors have to follow in doing audits that is very different than what is needed to be able to set up how to measure and perform things. He guaranteed they will be able to provide what is wanted faster and more fully in the purview of the work his office is doing than the auditor. If the auditor is asked to do this, she will tell you she needs more resources. This issue he has in responding to the request is, they need more resources. A discussion is needed. He has not said no, he has said if. He thinks this is misunderstood. One of the biggest functions in accountability in government often is the separation of powers within government between the legislative and the executive branch, or the judiciary or whatever and who is watching who. Palo Alto has a unified system of government, not a separation of powers. This is not a question of Congress needing to have oversight over the executive. You all have oversight over the executive. The accountability mechanism, if you do not

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think that I am doing what we need to do or the Staff needs to do, you fire me or you hold me accountable. First of all, that conversation is needed before it is said, the City Manager can’t do this so let’s give it so somebody else. That is different than being sure we have an independent periodic review of performance stuff that, in a sense, isn’t designed to cover all areas. It is designed to inject this independent oversight as an available thing to allow you to look at it. Not to look at everything, but to have that piece there. Ultimately, what you want to do is, you all looking at everything through your Staff, and that is a capacity conversation that is needed in a sophisticated way. He stated he felt a little resentful that there would be a sense that they are not doing it because they just don’t want to do it. Once that discussion has taken place, if there is a different way you want to talk about it, that could be done. We are drifting afield from how the Auditor’s Office is most productive in accomplishing what is before her Office right now, not even how to do new stuff to it.

Council Member Tanaka said he wanted to stay on track.

Mr. Keene replied he didn’t think he was on track.

Council Member Tanaka stated this was his second year of budget meetings. He asked for this information last year but had to do it himself.

Vice Mayor Filseth inquired if he was asking for benchmarking data from the City Manager or from the Auditor?

Council Member Tanaka said either department at this point.

Vice Mayor Filseth responded they were talking about the Auditor at this point. This is not a discussion about the City Manager.

Council Member Tanaka noted the City Manager brought up a different topic. Back to the Auditor, last week when the Chair made this recommendation, he expressed the opinion that there were a lot of different auditing firms that could do this, being very judicious and picky in terms of which ones were picked. It seemed like the City Auditor supported this, what changed?

Ms. Richardson replied that she answered the questions asked of her at the time. She was not indicating there were a lot of firms out there. She was indicating there were actually not a lot of firms and she commented on how

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this was a unique profession and that the people who are in the firms who could do this work were generally those who had been in the profession in a government environment and then gone out into the private sector. That pool was limited and that was why you had to be picky about who you would choose when you are looking at that, because you want to look at the backgrounds and what type of audits they do. She mentioned last week that you don’t want to just go out and ask a City of Palo Alto (CPA) firm to come in here. This is not their bread and butter and it is not the type of thing that is their strong expertise. Some to it on the side but it is not their strength.

Vice Mayor Filseth noted the Committee raised the question of acceptable quality of audits and productivity, was there a different model that would deliver that at a different rate. The short answer was, the City Auditor didn’t know. He believed they asked the City Auditor to find out and that was a discussion for the first quarter.

Chair Scharff thought that should be rolled into the City Auditor coming back but looking closely at the productivity issues, the benchmarking issues that were raised, and be prepared to office options on how to move forward and what it would look like. He voiced appreciation of a large percentage of the San Jose City Auditor’s Office coming out to support us. He would be happy to listen to what they would have to say when these hearings are held. He also said they are not outsourcing the Auditor’s Office. The Auditor is in the Charter. They want to support the Auditor’s Office to have high quality audits but to have enough audits that it would be an efficient use of resources. That was the plan. There was not plan to make the Auditor’s Office weaker but to make it stronger and to find the best way to accomplish that, in his opinion, what is currently being done is not working.

Council Member Tanaka remarked that Council Member Kou asked how many members Ms. Richardson had inherited and she stated four and there were five right now, six including herself. He thought she had done performance evaluations for her department and there were some challenges. He asked her to talk about that.

Ms. Richardson responded that she didn’t think it was appropriate to talk about that in a public hearing.

Mr. Keene clarified that the City Council had direct responsibility for performance evaluation and management for employees in the organization.

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Council Member Tanaka stated he was not talking about her performance evaluation, but her employees.

Ms. Richardson responded that she felt that was what the City Manager was clarifying.

Chair Scharff understood that was the City Auditor’s and the City Manager’s business.

Council Member Kou reminded everyone that the City Auditor’s Office has been given a big role in implementing the ERP so that was a large part of what they had been handling.

Ms. Richardson stated it had been some of the last year.

Council Member Kou continued that there had been a lot of work on that in various departments, changing over the system, making certain efficiencies and at the same time coming through with the national survey that residents appreciate. Also, the jobs of the Council Appointed Officer’s (CAO) oversee their functions, but at the end of the day, the Auditor’s Office actually provided information as to the Council Members’ performance and if their policy setting was going the right way. She felt that was very important.

Chair Scharff commented that was a great idea, the Council Members should be performance audited.

Chair Scharff suggested some changes in the recommended Motion from Staff. The first three items were fine the way it was drafted. He thought Item Number Four should say, recommend the City Council direct Staff to, and then, return to the Finance Committee during the calendar year 2018 with a work plan. He thought it was important to have a work plan and that work plan should be returned to the Finance Committee within the next 30 days. It should say what you are going to do and when you expect to get to the Finance Committee, that would be very helpful.

Mr. Keene was trying to conceptualize a work plan as an evolving work plan from general to more specific.

Chair Scharff was thinking of one like there was on the calendar, which basically said in July you are coming to us with the X thing that is happening

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in Finance. They need to know how long it will take Staff to do the work to be able to come to the Committee with these items. He assumed there would not be one meeting that said here are $4 million in cuts. He assumed this would be over a series as the Staff work is done, and he assumed that the Municipal Fee Schedule would be a separate item. He assumed the strategy about prioritizing capital improvement project criteria in the Gas Fund would be a separate item.

Mr. Keene requested that Staff not be given a timeline. It is clear enough with the work plan, the first touch point would be in the first quarter of 2019.

Chair Scharff asked what the first touch point meant.

Mr. Keene said that was early in the first quarter of FY 2019.

Chair Scharff asked what would be done in the first quarter of 2019.

Mr. Keene stated they would come back to the Committee with the work plan and be able to begin to discuss.

Chair Scharff asked about the first quarter of Fiscal Year 2019 if this was June to July.

Mr. Keene clarified it was the first three months, July, August and September. Certainly, when the Committee came back from recess they would start to meet. They may be able to send the Finance Committee information before then.

Chair Scharff felt that was fine. He had a problem of Staff not thinking out and laying out how this would be done by the end of the year and what meetings are needed. Those meetings need to be scheduled in advance. He suggested Staff will need five Finance Committee meetings, three months to look at this aspect of Staff work. He was looking for a work plan.

Mr. Keene suggested they say by the break.

Chair Scharff agreed by the break was fine. He additionally thought this should say, this will include a review of the City Auditor’s Office staffing and the Office of Sustainability, rescinding the Committee’s initial directive.

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Mr. Shikada thought they were talking about doing the work plan in August as opposed to June because there is no Council action until June on the budget. So, the Council would approve this action in June, so they would come back to the Finance Committee with a work plan in August.

Mr. Keene stated he was hearing more of a timeline work plan. Staff is thinking about a work plan of how they start working through this issue.

Mr. Shikada noted he was also thinking about the Council approval prior to coming back to Finance Committee and the timeline involved with that didn’t really allow them to come back to this Committee in June.

Mr. Keene did realize they were coming back to the Committee by them doing the work plan.

Chair Scharff stated he was expecting them to come back to the Committee with a work plan of a timeline nature that would be approved, saying, here are the number of meetings you are going to need. He did not disagree that it could be done after the Council approved this. It could be done when they come back from break.

Vice Mayor Filseth believed what was said was that the Committee doesn’t want to come back in August and start talking about how to schedule meetings in September and October.

Mr. Keene confirmed by the time the Committee comes back after the break, a Finance Committee meeting will be scheduled the first week of the break and this will be put together in advance of that.

Ms. Flaherty felt they were going to come back with a timeline by the end of the calendar year, and she thought it was a timeline to complete these discussions by the end of the calendar year. The work plan would not be due by the end of the calendar year; it would be done by the end of the calendar year.

Vice Mayor Filseth voiced another question, which was a discussion last week about reorganizing Sustainability by putting it into the City Manager’s Office. He asked if that was something that would need more review as part of the work plan or something that they can proceed with?

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Mr. Keene stated he proposed a budget that cuts the Chief Sustainability Officer (CSO) position at mid-year and there was funding for this. It would just be a matter of clarifying the language used about the Office of Sustainability. He felt the Committee would rescind that initial directive and felt there was agreement that the Office is subsumed within the City Manager’s Office.

Chair Scharff suggested putting that in the Motion to clarify that is what was meant.

Council Member Kou asked about the timeline. It was not just coming back to Finance with these questions, but how would it work if it goes to Council prior to break? Would that be the June 18th date? There would only be one meeting to bring this budget to Council for the rest of the Council to look at?

Mr. Shikada noted the 11th is with the Utility Rates.

Mr. Keene clarified Utility Rates would be discussed on the 11th and the recommendations from Finance. Traditionally, that has been the schedule. Sometimes two public hearings have been scheduled but the action portion has more often than not been once. Out of all the Committees and Committee work, the Council has most fully delegated the real hard work on the budget to the Finance Committee. The general expectation was that the Committee does the work and the Council is able to review it and assimilate it and deal with the questions and issues in one meeting.

Council Member Kou noted there are new Council Members coming in. Ms. Nose and Mr. Perez helped her understand things last year. As long as the Utility Rates were kept separate and enough time is given for the rest of the Council to understand what they were dealing with and if this was done, then okay. Having the two dates, keeping it in line would be very important.

Mr. Keene stated that in many ways the proposed budget that was before the Council was, he called it a status quo budget. The bigger issue would be if and when the specific $4 million in changes are made which would be during Fiscal Year 2019. That would be the time when the discussion before the Council would be what is especially important. At that time some significant changes would be made to how things are done. Based on experience, most of the time the only time there were real issues on the City Budget was if there was a budget that is actually cutting a lot of programs or services, then the public would come out, or if a lot of revenue increases

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were proposed. When the $4 million impact is looked at there may be those kinds of issues and at that point there will be plenty of time for the Council as a whole to deal that that.

Council Member Kou commented that she hoped Staff was foreseeing some of the discussions that will come up even based on this Motion. There will probably be quite lengthy discussions about it and that time will be provided for that open discussion.

Mr. Keene recognized that when the Committee looked at all the issues they have, there is a lot on the plate in June. There are already five meetings and trying to get another special meeting. That would be to deal with a range of issues before going on recess.

Chair Scharff remarked that Council has always managed to get the budget done in one meeting. He didn’t think they would need more than one meeting to do it.

Vice Mayor Filseth thought he understood what the City Manager said about the Office of Sustainability, but come August there will be a lot of stuff to talk about. He felt this was pretty much done.

Mr. Keene didn’t think that would actually need to be specifically called out. They want the Committee to rescind the initial directive.

Chair Scharff asked what was different in the initial directive. What could be said is that the City Manager could clarify the initial directive how. The initial directive was simply to move it into the City Manager’s Office.

Mr. Keene noted the Committee sort of said "eliminate the CSO position at the start of the Fiscal Year", and he asked that it be left in as originally recommended and he would report to the Council what was done.

Chair Scharff asked how long he wanted to leave it in.

Mr. Keene noted he wanted the Committee’s initial directive rescinded. The budget included a half year of funding. He believed he could take two months off of that half year funding.

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Chair Scharff recommended just making that the new directive; take two months off of that.

Council Member Kou asked if that was through the end of the year.

Chair Scharff clarified it was through October.

Mr. Keene stated as of November 1.

Chair Scharff suggested just saying as of November 1, funding for that position through November 1.

Mr. Keene was okay with leaving it the way it was.

Chair Scharff asked if the language needed to be rescinded.

Mr. Keene assumed that was the Committee wanted to do.

Chair Scharff suggested putting rescind in and the Office of Sustainability would be funded through October 31.

Ms. Nose reminded the Committee, over the course of the last three days tentative Motions were made. So now they are trying to capture everything. They have gone back and looked at all the tentative Motions, tried to capture all those tentative Motions, including referrals, and this was a summary of essentially all that was done over the last 2 ½ days. She felt they could clarify the language in Number Two a little that the Finance Committee recommended to the full Council that the Office of Sustainability be subsumed within the City Manager’s Office.

Mr. Keene suggested it should say effective November 1, 2018. Just say rescinding the Committee’s initial directive to clarify it.

Chair Scharff agreed with that.

Ms. Nose clarified rescinding the Committee’s initial directive. So, they will take out the redundancy under five in the first bullet and leave it as just the City Auditor’s Office.

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Mr. Keene noted that kept the review of the City Auditor’s Office there in the first quarter.

Council Member Kou asked why they would still review the Auditor’s Office. She was okay with the Office of Sustainability.

Mr. Keene thought the majority of the Committee wanted to recommend that the review continue into the first quarter part of the Fiscal Year.

Council Member Kou looked at it as a cloud over her office. What could she tell her Staff who were unsure where they would be going. The Committee needed to have confidence in her so she could bring the confidence to her Staff so they could continue doing their job. She wanted to make sure they would do their job giving it their fullest without a cloud hanging over their heads.

Chair Scharff asked how you know that.

Council Member Kou responded she didn’t, but was looking for Ms. Richardson to do it, directing her to go back and tell her Staff they need to do their jobs. Between now and when this directive would come back, how do they operate if the Committee doesn’t give her something solid to take back.

Chair Scharff reiterated there was a lot to take back; the Council is concerned about productivity and will be reviewing their productivity and the way the Audit Office functions.

Vice Mayor Filseth felt the Committee had a responsibility to the residents.

Chair Scharff thought residents should be put first.

Council Member Kou suggested at the same time there is an obligation to the employees.

Chair Scharff asked if Council Member Kou wanted to pull that issue out and vote separately on that, split the Motion and vote separately on the Auditor language.

Council Member Kou responded that would be fine.

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Council Member Tanaka stated he didn’t see anything about optimizing library hours.

Chair Scharff suggested adding that, come back to the Finance Committee with a discussion about optimizing library hours.

Ms. Nose asked the clarifying question. She thought the City Manager articulated that would be part of the first bullet under five, when the $4 million was looked at, the structural reductions.

Chair Scharff said that would be the first bullet returning to the Finance Committee.

Ms. Nose noted optimizing library hours would be a component of that.

Chair Scharff suggested just putting a discussion of library hours under the first bullet.

Ms. Nose understood under the first one.

Chari Scharff noted that would address Council Member Tanaka’s concern.

Council Member Tanaka pointed out the language stated also included discussion regarding the implication of accounting, rising costs in non-General Fund, specifically the Enterprise and other funds. That was not really talking about the $2.25 million gap they were going to try to close. It didn’t have to say structural reduction but it should address that the Committee was going to try to close that gap, not necessarily through reductions.

Ms. Nose answered what could be said was, also include discussion regarding the implication of closing the pension gap.

Council Member Tanaka clarified at least half of the pension gap, which was $2.25 million.

Mr. Keene agreed the commensurate 50 percent.

Ms. Nose continued, at a commensurate 50 percent level of the General Fund structurally.

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Council Member Tanaka also stated he didn’t realize Council Member Kou was going to change her vote on the CIP. He noted since he voted against it, that it should not pass?

Council Member Tanaka asked what happens to the CIP then. Did that need to be pulled out.

Ms. Nose noted what could be done was add another item, as was done last year with a similar situation, it could be called the General Fund CIP, and the Finance Committee’s Motion was to tie for City Council review. Ultimately from the Finance Committee’s standpoint, when talking about majority or unanimous approval of something is dictating whether or not an item goes on to Consent or an Action Item and it was such a large item, the whole thing would go as an Action Item to the full Council. So, it would be transmitted that it was a 2-2 vote for that specific item.

Mr. Keene stated there would be a note with the exception of this. The Finance Committee was not actually recommending approval of the Capital Budget.

Council Member Tanaka noted he voted against a number of other things.

Mr. Perez clarified they will summarize all the actions taken in the wrap-up memo that will be given to the Council.

Mr. Keene reiterated it would have a 3-1 vote or whatever it was on all of those.

Chair Scharff confirmed that all votes would be set for in the minutes.

Vice Mayor Filseth felt they were converging on a Motion but there was something that was bugging him about the Capital Improvement Budget which was the $1.7 million for the Council chamber upgrades. Council moved to send it to the Finance Committee for review and that is what should be done, but that hasn’t been done yet, so it was still in the Capital Budget at $1.7 million, in the CIP, in the Technology Fund. He noted this was kind of a procedural thing because it was going to be reviewed but because it hasn’t been reviewed and the date seemed to be moving around, the Committee is in a position where they may ask the Council to review the budget without understanding what that number will be. He was having a tough time

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sending a budget to Council with the $1.7 million Council chamber upgrade in it. He felt it should be set to zero and after review of the Council chamber upgrades go back and change it. It’s likely there are things that need to be done, if they are out of Americas with Disabilities Act (ADA) compliance,that would need to be fixed. He personally didn’t see the need for a giant 4G screen this year inside the Council chambers to replace what is there.

Mr. Keene suggested a Motion that would say, the Finance Committee essentially requested that funding not be included for the Council chamber upgrades in the proposed budget with the understanding that Council did refer discussion of the project to the Finance Committee which was still expected to take place after the break.

Vice Mayor Filseth agreed with that.

Chair Scharff stated he would also support that Motion.

Mr. Keene asked if there was a vote.

Chair Scharff noted there hasn’t been a vote on anything yet and they were trying to get the Motion in the right form.

Vice Mayor Filseth noted this was tentatively in June.

Mr. Keened stated most likely the meeting would be June 19th.

Ms. Flaherty stated unless that date is eclipsed with a study session on another topic.

Mr. Keene noted they were looking at June 5th or June 12th or June 16th as the study session dates, so the 19th was still available.

Ms. Flaherty advised that would be the day after Council would adopt the budget, so still after budget adoption.

Mr. Keene believed that would be okay.

Council Member Tanaka reiterated he voted no on a bunch of things so he would have to vote no on this unless there is a carve out.

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Steve Guagliardo, Principal Management Analyst replied that language was added at the beginning that said it will note the individual Committee Member votes on each item and will include the following amendments that were just discussed.

Chair Scharff clarified that all your votes will be noted on each item for the Council.

Council Member Kou stated she was looking for her issue on the Auditor’s Office.

Chair Scharff replied there will be a separate vote on that.

Ms. Nose confirmed that was pulled out of the Motion and it will be done separately.

Council Member Tanaka again stated this didn’t include his no votes.

Mr. Keene explained this was not put in the Motion, but the full report that went to the Council would have that.

Ms. Flaherty reiterated it would have the record from the minutes of the previous meetings, in the clerk’s minutes. So that would be stapled to this.

Council Member Tanaka questioned if that is done, why they have Number 3.

Mr. Guagliardo explained that the only vote the Committee took that was 2-2 was the CIP, so that was called out as a split vote. Everything else was approved tentatively by the Finance Committee, either by a 3-1, a 3-0 vote, with someone abstaining, a 3-0 vote with someone absent or some other passing vote.

Chair Scharff asked if everyone was comfortable with that Motion the way it was now.

Mr. Keene noted under (inaudible) is just make it a little clearer and say rather than review project, which will be reviewed tentatively, why not say tentatively scheduled for June 19, 2018.

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Chair Scharff agreed to do that.

Council Member Tanaka voiced his reservation that if the budget stays as it is, he would probably vote against the budget. That was his main issue he had with the Motion.

Ms. Nose clarified that from a procedural standpoint, the Finance Committee is making a recommendation to the City Council. This is not approving an ordinance, just approving what would be brought in summary.

MOTION: Chair Scharff moved, seconded by Vice Mayor Filseth to recommend to the City Council to approve the City Manager’s Fiscal Year 2019 Proposed Operating and Capital Budgets and Fiscal Year 2019 Municipal Fee Schedule noting the individual Finance Committee member votes on each item considered including the following amendments:

1. Finance Committee recommendation for the continuation of valet services in Fiscal Year 2019 for the downtown area;

2. The Office of Sustainability would be subsumed within the Office of the City Manager effective November 1, 2018, rescinding the Finance Committee’s initial directive;

3. Approval of the General Capital Improvement Fund Budget;

4. Staff recommended changes to the Operating, Capital and Municipal Fee Schedule as summarized and outlined in the Budget Wrap-up Memorandum;

5. Recommend a $4 million reduction in Fiscal Year 2019 budgeted expenses in the General Fund with the impacts to be identified and articulated to the Finance Committee during the remainder of the 2018 calendar year and set aside this funding in a reserve; and

6. Recommend the City Council direct Staff to:

a) Return to the Finance Committee with a work plan and timeline to discuss the $4 million in structural reductions in the General Fund and the impacts of the reductions in expenses when the City Council returns from break, including a discussion of optimizing library hours; include a discussion regarding the implications of closing the pension gap, at a commensurate 50 percent level to the General Fund, accounting for rising costs in Non-General Funds, specifically Enterprise and Other Funds;

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b) Return to the Finance Committee with a discussion of the Municipal Fees discussed during this agenda item. Examples include but are not limited to the review of activities the City currently regulates and evaluate if it is necessary to continue to regulate such activities and review special events fees and policies; and

c) Return to the Finance Committee in August 2018 with a policy discussion on the strategy for prioritizing Capital Improvement Project criteria in the Gas Fund.

MOTION PASSED FOR ITEMS 1-2, 4-6: 4-0

MOTION PASSED FOR ITEM 3: 3-0 Tanaka abstain

MOTION: Chair Scharff moved, seconded by Vice Mayor Filseth to recommend to the City Council to remove funding for the Council Chamber Audio Visual Upgrade (TE-19001) Capital Improvement Project understanding that Council has referred review of the project to the Finance Committee, tentatively scheduled on June 19, 2018.

MOTION PASSED: 4-0

MOTION: Chair Scharff moved, seconded by Vice Mayor Filseth to recommend to the City Council to include a review of the requests by the Finance Committee regarding the City Auditor’s Office, rescinding the Committee’s initial directive.

MOTION PASSED: 3-1 Kou no

ADJOURNMENT: Meeting was adjourned at 12:45 PM

finance committee final sense minutes

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