Palo Alto foresees losing $39M in revenue

Council members adopt more severe economic outlook to plan budget, with cuts likely ahead

PALO ALTO >> Just a month after projecting the city would lose $15 million to $20 million in revenue after an initial analysis of the economic impacts of COVID-19, city staff now anticipate an even worse outlook.

City Council members on Monday adopted the most pessimistic scenario to guide them in drafting the 2021 budget, an outlook that would see the city lose $39 million in revenue and which some council members still see as too conservative.

Less than a month ago, Palo Alto committed to paying all of its thousand and more employees through the end of June. Now, council members are discussing potential cuts to services, programs and staffing as they share ideas.

“Everything is going to suffer,” Mayor Adrian Fine said Monday.

“Over the past week we’ve had calls saying we need to save the crossing guards, the animal shelter, recreational programs, the traffic team. Everyone has something they love, and a lot of it is not going to get through this.”

Council member Tom DuBois seemed to be lobbying for cuts in the city’s largest departments as it became clear the council would draft a budget based on worstcase-scenario projections.

“I hope we stay focused on bigticket items, department cuts and the largest departments the most,” DuBois said. “We’re going to be in talks about structural changes over many months, and we’re just beginning to grasp the implications.”

But Fine said each council member has his or her own “sacred cow we want to trade off,” and he added he doesn’t want to have that conversation yet as there are many holes in the economic outlook presented by city analysts.

Like in 2009, when the economic impact of the previous years’ financial crisis began to rear its head in the city ledgers, city staff warned council members that the full impact of the COVID-19 pandemic on the economy won’t be felt for months or years.

Despite the encouraging news of a potential soft reopening of commercial activity this week, “I can almost guarantee you” that none of the city’s financial forecasts “are correct,” said city finance director Kiely Nose. That could be good or bad for the city — analysts just don’t have enough information, Nose added.

Council member Greg Tanaka was among the most pessimistic and said a $39 million loss appears too low.

“I’m actually looking at that scenario as the best-case scenario,” Tanaka said, adding that the biggest challenge will be adhering to

strict social distancing requirements that could make it difficult to do business.

“Even if a restaurant can open, they have to space every other table, and most run on single-digit margins already, so if you lose like 50 percent of revenue, it’s super hard to stay open,” he said. “Trade shows and conferences are being pulled. There are 30 million lost jobs. Unemployment numbers are near the Great Depression. I don’t see a big bounce back. I think this scenario is kind of optimistic. I don’t want to be such a downer here, but with the research I’ve done, it’s not looking good.”

Along with the sobering financial outlook, Palo Alto has been slowly easing back its regulatory framework in an effort to stem the economic impact on businesses. On Monday, the council unanimously decided not to collect service fees from downtown businesses aimed at beautifying the city’s main strips, and it will forgo collecting all business registry fees and late fees.

But with flat fees costing $50, council member Lydia Kou didn’t understand why staff would propose forgoing those fees. Despite voting for the measure, she wants the city to retain any money it can as it prepares to partially reopen its troubled businesses.

“It’s a small number, but also a number that would support a lot of what the businesses are asking for in order to have them reopen,” Kou said, referring to the personal protective equipment, sanitizers and other aid businesses may need to conform with relaxed social distancing rules. “Just going blanket (policy) and removing that fee, I don’t like that.”

For Tanaka, however, any money to businesses helps.

“It’s not a lot of money, but people are really suffering,” he said. “We’re basically in an economic depression, and I think this could help them stay in business, even if just a little bit. A lot of them are on life support right now.”

The City Council is set to discuss budget balancing at its meeting Monday and will begin looking at budget cuts Tuesday and May 13. City staff expect a final budget will be drafted May 26 and adopted June 22.