>For the catch up facilities (projects on a backlog list) we recommended that the City could work these off as funds became available or bundle some or all of them into new long-term borrowing.


The comments by Stephen Levy are the standard stuff by tax-and-spend liberals, who have been in control of Palo Alto for decades. They spend on their pet projects, at the expense of infrastructure, then demand new taxes to spend on infrastructure, without naming specific cuts in their pet projects. It is a kick-the-can-down-the-road kabuki dance.

How about this: Our current generation deserves excellent infrastructure, because we have already been taxed for it! We need to specifically identify those who are responsible for this debacle.

Vote NO on any new taxes!

Stephen

This sounds as if it is already a done deal to borrow money for infrastructure. Most of us have never been asked if we want Palo Alto to live in debt rather than live within its means.

I am taxed up to the hilt already. I have a library bond, school bond, parcel taxes, bond for a hospital in South Santa Clara which I doubt I will ever set foot it. I don't want any new taxes.

If Palo Alto wants to raise more tax revenue, they should look at how Palo Altans are spending money. I give most of my tax dollars to Mountain View and other cities. I would prefer to give them to Palo Alto, but Palo Alto does not offer the shopping I most often use.

If Palo Alto wants to be live within its means, it has to start trimming its belt, finding cost efficient ways of providing the same services at less cost. Trimming the admin at city hall, PAFD, PAPD at the top has never been discussed. These services could all be merged with local services of Mountain View, Sunnyvale, Los Altos, etc. etc. and the money saved at the top would not reduce the number of people actually doing the work on the bottom. We have too many chiefs and not enough indians.

We do not want to live paying higher taxes to pay for what we have been paying for since we moved here. We just need better money management.

Why Funding City Infrastructure Solely By Bond Issue Is Not The Right Thing To Do.

The following is in response to Steven Levy?s thoughts on City Infrastructure Funding via ?ad velorem? property taxes--

1) ?Ad Velorem? taxes are unfair. Someone who has lived in Palo Alto for more than 30 years would likely have an assessed property value of 150,000 or less. People just moving in would have assessed property values of $1M-$nM.

Using $50/$100K of assessed value (for purposes of an example)?a long-time resident would likely pay $75/year for a property-bond sold to finance infrastructure. Whereas, a newly-arrived resident with a $1M assessed value would be billed $500/year. This $500 increases to $1,000 for a $2M home, and $1,500 for a $3M property (and so on).

There is no linkage between the use of ?infrastructure? and the assessed value of a home. This ?progressive? taxation is fundamentally wrong, when it comes to paying for the ?glue? that is supposed to hold our town together.

Infrastructure should not be the obligation of those who are newly arrived in the community. Everyone should be expected to pay for them equally, or as equally as possible.

2) Many Palo Altans live in tax-exempt buildings. Very upscale multi-family buildings, like Channing House and Lytton Gardens, are exempt from base property taxes?being subject only to parcel taxes. While people living in these buildings gladly vote taxes on the people living in single-family homes, they have gone to great ends to see to it that they do not have to pay those same taxes themselves. As more of these tax exempt housing projects target Palo Alto to build tax-exempt ?affordable housing units?, all of the costs of City Government are shifted from the occupants of these buildings/apartments to the local businesses, and single-family homeowners. This is also unfair. If people are not going to be subject to taxes, they should not be able to vote for them.

3) Renters (living in commercial housing) do not pay property taxes directly. Over time, it stands to reason that they contribute to the funds used by the building owner to pay the property taxes on the building. However, they are never sent a bill that identifies their contribution to the buildings property taxes, nor can their assets be attached for non-payment of property taxes. Again, it makes no sense to allow renters to vote taxes on business and home owners?when they are not directly responsible for paying their ?fair share?.

4) The City of Palo Alto will be spending, over the next thirty years, a minimum of $6.5B (that?s BILLION DOLLARS), based on a nominal base of $140M (adjusted by a 3% yearly CPI). If the City were to reduce its spending over this timeframe by a mere 5%, then this would result in an surplus of $326M. If the spending were reduced by 7.5%, then the savings would be: $489M. And a 10% reduction would produce: $652M.

The argument that the City can not reduce its spending by a mere 5%-7.5% is ridiculous?unless you are a dyed-in-the-wool ?Tax-and-Spender?. Of course it can reduce its spending?if forced to do so by the voters.

5) Utility ?Profit? Pass-thru + UUT has been quite extensive--about $450M over the last hundred years. About $310M since the passage of the UUT in the late 1980s.


6) The Utility has an asset value greater than $1B-$nB (generally sale value is some "magic number" times yearly sales). If the Utility were sold, and the money invested so that it returned at least $40M-$50M (per billion dollars of sale price), the savings in taxes to Palo Altans would doubtless outweigh the difference in Utility costs, and the City government could downsize by over 300 employees. The Utility?s obligation for pension guarantees, and post-retirement health care costs, for the Utility employees has not been clearly identified, but is about 30% of the total obligation for the City. This savings alone, would probably be $500M over a 30-year timeframe (estimated).

7) The City has about $20B-$25B (that?s BILLION) in land assets. Selling just 5%-10% of these assets would bring in $1B-$2B?which would, in turn, generate $40M-$50M (per billion of invested funds) a year. These land sales would doubtless require some infrastructure upgrades, and permit some development, but the development that would follow would increase the tax base for the City, paying for this infrastructure, over time.

8) Adjusting the Prop.13/AB8 multiplier for the City of Palo Alto somewhat, increasing its cut of property taxes from the current 9% to something larger. This means that other agencies would get proportionately less, but as the assessed property values go up, those agencies would be getting larger shares of the yearly tax ?take?.

Summary

Looking at these very large numbers (a billion here and a billion there) it?s pretty clear that the long-term financial picture of the City has never included the alternative use of City-owned assets, or the cash flow alternatives for the conversion of these land assets to both the City?s yearly ?bottom line?, and the future cost of living in Palo Alto, from a resident?s point-of-view. The current ?business as usual?, ?nothing can be changed? mindset of the people the City has appointed to these various commissions, clearly seems to be not only blind to the possibilities, but perhaps, in the grand scheme of things, ?criminally blind?.

It is inconceivable that the City will be receiving $6.5B from the taxpayers over the next thirty years?while at the same time they can not find a few hundred million out of those billions to pay for needed infrastructure repair/refurbishment.

Change comes slowly. Sometimes it takes a revolution to get the ?ruling class? to admit there is a problem. Hopefully, we Palo Altans can do a little thinking for a change, not list to people who don?t really have any ?skin in the game?, and vote our own self-interests should any of the large bonds for infrastructure come before us in the coming years.

There is plenty of money in the general fund, if we spend it differently, and perhaps sell of some unneeded assets. Giving the City $1B to $2B to fritter away as they have done in the past just makes no sense? no sense at all!

Funding of the City?s infrastructure needs would be far more equitable if the City were to commit to ?living within its means?, not using ?ad velorem? taxes that target most single-family home owners, and businesses, and reduce the value of its asset load?converting those dollars into revenue-producing financial instruments. This is not hard to do?it just takes some thought, and a little political will.
---

Stephen: Why is it that borrowing to spend seems to be the first thought that leaps to your mind? How about a suggestion that the first step be one of saving some money somewhere? Or better still proving that money approved for current projects is spent judiciously without cost overruns?
The days of this sort of tax and spend are over. NO to unlimited borrowing and spending without cutbacks and spending checks.

I would like to see a total of all of the liabilities for the city & school district; most recently we've seen the following bonds & liabilities:

* school district bonds of $378 million
* library bonds of $76 million
* unfunded pension liabilities of $259 million (this is assuming CalPERS can deliver a 7.5% return; the staff at CalPERS actually believe a 7.25% is more appropriate)

Do we the property owners want to add more to this debt load? (which would bring it up to over $1 billion? and what other spending might we need to go into debt for?

And going into further debt limits the future flexibility to react to unforseen circumstances (like another recession, or some other calamity).

Stop overpaying a bloated city bureaucracy first. Get rid of defined benefit pensions and switch to 401ks like the taxpayers footing the bill. I'm not giving the city any more money until they quit wasting the funds thy do have.

Steven Levy dances around this fundamental problem, as usual. He'd rather soak the taxpaying public than stop overpaying his beloved government bureaucrats.

"Those who cannot remember the past are condemned to repeat it"

This famous quote from Santayana applies perfectly in this situation. A blue ribbon independent panel should be formed to assign blame, and name names, as to how our infrastructure was ignored, in favor of other (pet) priorities over the decades.

Once this report is submitted, fully debated and appropriate cuts of existing pet projects made, should there be any talk of new taxes.

Most responders so far are angry and in their anger have made confused assertions and wandered close to or into an alternate universe of what is real.

The biggest lapse in thinking is around the contention that finding savings in the city budget avoids the need to borrow to finance major city investments. Even if posters win their case and the city council cuts all the projects that posters deem unnecessary and pet projects, that will only free up money to finance the annual payments on some kind of borrowing.

Think about it for a moment. The IBRC recommended two major projects?a Public Safety facility and a renovated Municipal Service Center. Even with partial financing from developers or rental income from freed up space, the capital costs will likely be more than $100 million. Surely posters are not arguing that normal good policy is that the City should save the entire $100 million before commencing new projects.

So there will be borrowing just as most residents do for their homes and cars. Just as with homes and cars it is ok to borrow for large capital investments and pay the loan off over time as the benefits are received and often income and wealth grow. This is espcially true for cities where future beneficiaries should share in the cost.

And there are choices about how to finance the borrowing ranging from General Obligation bonds financed by a property tax increase to other kinds of city bonds paid off from savings in the budget, a sales tax increase or savings from not renewing the Cubberley lease or even other choices not mentioned in the IBRC report.

The second alternate universe posters inhabit is that Palo Alto is some kind of special case of incompetence or corruption that prompts the need to borrow for large capital investments or consider raising revenues for the operating budget.

That premise is not supported by the data. In the November 2012 election, local school districts and governments are proposing

--106 school bonds all financed by increases in property taxes
--25 school parcel tax extensions or adoptions
--7 local government infrastructure bonds
--8 business license tax extensions or adoptions
--24 local government parcel taxes
--17 hotel tax increases
--32 sales tax increases

And none of these are in Palo Alto. These examples show that the challenges of financing local services and investments are occuring in most if not all cities and school districts and many have asked voters for additional taxes for regular services, but Palo Alto is not doing so right now.

it is perfectly normal to borrow and pay for the borrowing through an increase in property taxes. It is the normal route in California and across the nation. And as I said in the original post, such borrowing has the additional advantage of needing to be approved by voters. So angry posters will and should have their chance to convince people that these projects are either not worthwhile or should be funded by other means.

What puzzles me is that posters on Town Square continue to complain after their position is not accepted by voters as in the continuing complaining about voters'd ecision to improve and retain all oour libraries.

to Chris--No the current genereation has not paid for new Public Safety or Municipal Service Center facilities nor should they have. Facilities like these take additional funding, which should be shared by current and future generations.

The IBRC did recommend that current ongoing repair and maintenance be funded through an increase in General Fund spending not requiring a tax increase.


To Resident, it is absolutely not a done deal becasue any bond borrowing that is proposed will require a 2/3 voter majority and there will be lots of discussion before any vote is taken in 2014.

To Wayne--Bonds financed by property tax increments are exactly standard practice. However the IBRC did identify potential alternative financing streams such as a sales tax increase or use of Cubberley lease funds if the lease is not renewed.

To common sense. If you hunt through city docuemnts you can find a list of the City bond and other borrowing obligations. The infromation we saw at the IBRC is that PA has a very low ratio of debt to our assessed value. In addition borrowing costs are at historic lows and PA has a great credit rating.

To Anna and Gouged, there is a city council election coming up. Argue your case with voters. See if you can convince them with your inflamatroy rhetoric. Also have you considered moving to a place that more conforms to your way of thinking. This griping about city council, their choices and staff pay has been going on a long time from posters. Perhaps you are out of tune with the majority of PA residents. In any event that is what elections are for.

@Stephen -

I'm sure you are a better academic (and just common sense person) than to argue that because you can point out entities that raise money through bonds and increased taxes, that it therefore must follow that Palo Alto would be justified in doing so. You leave out the obvious possibility that there are many others who did NOT have to raise money this way and funded their needs through existing sources.

In my view, we should be particularly wary in Palo Alto where revenue is so high and infrastructure neglect has been so prevalent. Withholding approval of a bond seems like an appropriate way to communicate that spending must change. After the change, we can reconsider new revenue sources.

As to your attack on fellow posters - "Most responders so far are angry and in their anger have made confused assertions" - check the mirror on that one, my friend ;-)

If my car is leaking oil, I would want to find out why and try to fix it. Looking for a cheapest motor oil is not a solution and the engine will soon be gone!

Every city asset should be accumulating depreciation as that asset is used. When the asset is fully used/depreciated there will then been enough funds to replace that assest.

Using debt to finance replacement of an assest is simply charging future generations for that already depreciated/used asset.

Well Me Too, bring it on. If I go back 3 or 4 election cycles, I can show you 500 school districts and many cities that borrowed to improve their facilites. Please show me 10 that built new schools or new city facilities costing $50 million or kore out of their operating budgets.

The IBRC agrees that annual repair and maintenace should be funded out of the operating budget.

We are talking about major capital investments. I am sure readers are awaiting your list of cities close to our size or anywhere that have funded new public facilities costing more than $100 million out of their operating budgets and without borrowing.

Think about it--both out of their operating and without borrowing.

Remember the title of the thread is about borrowing for major capital investments, a choice now being considered in our city.

The city has accepted the IBRC recommendation to improve annual infrastructure maintenance out of the existing operating budget.

@Stephen, I am happy to leave that research to you - let us know when you've gone through all the data and can share the results without the above cherry-picking ;-) I merely wanted to point out the obvious fallacy in your argument. You might also want to research cities that have foregone new infrastructure until they could control their spending, which is always a wise thing to do. Do you think that is a null set as well?

While the IBRC may recommend an increase in maintenance funding, it is another thing for the city in fact change its spending priorities and make the required expense/service/payroll cuts to do so. While they apparently have endorsed the sentiment (motherhood? apple pie?), I and I am sure many others would like to see it actually implemented for an election cycle or two before voting for additional revenue source which, once approved, are almost impossible to pull back (remember the HSR vote?). Don't you agree?

Stephen, using our debt ratio to assessed value is an incorrect way to look at this. A person's house doesn't pay off the loans you are so eager to foist on everyone. It's their household income, and with 17% of the households being classified as senior citizens, and most likely living on limited income, their ability to take on additional expenses will be difficult.

As one of the previous posters had pointed out, if the city could have been saving 4-5% of the general fund budget for infrastructure. The Police building has been a known need since at least 1998, and if the 4-5% of the budget had been saved, there would be $55 - $60 million available.

You should also know that the city does "save" money for various capital expenditures - they have a technology fund, a fund replacing autos, etc. so this is not a new concept for the city or for the council.

"The infromation we saw at the IBRC is that PA has a very low ratio of debt to our assessed value"

This is kind of an odd metric for a couple reasons.

The numerator is "debt" - the huge miss here is that this certainly does not include the value of the city's unfunded retirement obligations, right Stephen? Since that liability is real, and measurable, it should be treated like the debt it is, and used to judge our solvency and ability to take on more debt. Do you agree, Stephen? How does that impact of debt ratio?

The denominator is the assessed value of our homes. I'm scratching my head why that matters? Stephen, can you shed a little light on that one?

Stephen, what you've done here is tried to justify your ultimate goal (more borrowing, larger government) by making a very narrow argument about capital structure: "borrowing is OK for huge capital projects -- look, everyone is doing it," and ignoring the root causes of how a city as rich as Palo Alto suddenly finds itself asking for another tax increase.

While long-term borrowing may make sense from a project-finance perspective in a vacuum, the responses here correctly take issue with the fact that city government expects the taxpayers to service the additional massive debt, while continuing to waste taxpayer money on a bloated bureaucracy, overly generous pensions and other benefits for its own, pet projects, and other non-essential spending.


And some free advice: statements such as the one below demonstrate a degree of desperation and closed-mindedness. Fact, reason, and other arguments would serve you better than dismissing those who disagree with you as "confused."

"Most responders so far are angry and in their anger have made confused assertions and wandered close to or into an alternate universe of what is real."

I am writing about the reasons that borrowing is the right strategy to finance long-term capital investments in Palo Alto.

Posters respond a) that the city wastes money on employee pay and pet projects and b) that we should have saved for new major capital costs so as to not have to raise taxes to pay off future borrowing.

I disagree with both arguments but more to the point, they are irrelevant to how to finance future major capital projects. The most obvious reason is that the city did not put aside money for the library project or for the projects readers and residents will now be discussing next year. I think this was the right policy bit in any event--woulda, couda, shouda is not helpful to people who want a new public safety building or municiapl service center complex. We and they have to deal with what is.

The second reasonis that these capital costs are very large, easily over $200 million for all three projects and "saving for them" is/was simply not feasible even if the posters could somewhwo convince residents in their waste and bloat argument.

It is true that substantial budget cuts could be used to finance a part of future borrowing, but borrowing would still be the right policy as it is for young famiilies wanting to buy a home.

And there are strong reasons for borrowing even if you think the city budget could be improved.

The most important is matching benefits with paying for the projects. It is current and future residents who will benefit and borrowing such as with a geneal obligation bond allows the costs to be shared with residents and businesses who are here to enjoy the new facilities. Why should residents from the past pay for major projects they may not be here in 20 years to use?

But even more the depreciation analogy does not apply here. MOst major capital projects like the libraries or school upgrades or public safety building are not replacing faciliites that are no longer useful. The major costs are for expansion, new facilities, meeting new legal or technological imperatives and the like.

Trying to figure the right project scope or whether opportunites for collateral benefits such as partial private financing or rental income opportunities for the old facilities twenty years ago for schools, libraries or public safety facilities would be a fools errand.

So argue against new projects if you don't think they are worthwhile or aruge that budget savings should be part of the financing for future borrowing if you want but don't confuse disagreement about city operating budget priorities with the rationale for financing future big capital investments.

>woulda, couda, shouda is not helpful to people who want a new public safety building or municiapl service center complex. We and they have to deal with what is.

If not now, when?

As an aside, I believe that as Palo Alto converts to an Asian majority, we will see many more people demanding that we save up to pay for the services that we want. Asians have a long cultural history of personcal sacrfice, before they purchase.

To Timothy Gray

Help me understand some of your positions. I am open to voting for people I don't agree with entirely if I think they bring a fresh and helpful perspective to the council.

I see theses campaign signs that say "spend less". We are all so tired of the presidential candidates talking about taxes and budgets without much specifics, I was hopeful you could say what spending you advocate cutting.

Second, you say cut spending somewhere to be able to spend on infrastructure. Do you think all of your cuts will be available to be redirected or do we need to control the growth of spending mostly to take care of rising costs relative to revenues?

Finally, I either don't understand what you are saying about financing major investments like the public safety building or we just disagree.

Are you saying we should save up a fund (reserves) from reducing General Fund spending and wait ten to fifteen years to get a new facility becasue you oppose borrowing for long-term capital projects. Do you also oppose borrowing for school facilities? Shouldn;t we distinguish between operating budgets where the IBRC does advocate building a reserve and long-terrm capial investments.

P.S. I really do vote for candidates that I sometimes disagree with. I strongly think Greg Schmid is wrong in his arguments that the ABAG regional projections are too high. I also disagree with his position on Palo Alto and the RHNA housing planning target. But I will vote for Greg becasue he is honest, dedicated and brings a set of skills and perspectives to the council.

Stephen,

You ask many good questions. I can answer with more detail in a private correspondence, but in general, I am advocating for us to take an Infrastructure first approach to budgeting so that we don't get further behind in maintaining our streets and sidewalks (fully fund "keep-up" and also set aside a few more million to the "catch-up" category. We should also set aside reserves for replacing our newer facilities from day one, so that we have a meaningful pool of money to repair and replace them as needed.

With the money that is left, we can, as a town inventory and prioritize City services and spend what is left according to a general consensus on what is important. If there is not enough money in the budget to spend on the least important, then those are the items subject to reduction. That kind of soul-searching requires the Council to engage the residents in sincere Citizen Participation. Even if I had an idea of the least important services, I could not act on my own opinion, because I am elected to be a representative of the Will of The People. Yes, even my own opinion can be a special interest that has to be set aside. (Read more about this at Web Link )

In lean times, we may decide that the cuts are too painful and we might choose not to fund some of the reserves. In times of plenty, we may fund extra. But the problem is that even for richer or poorer times, we have consumed our revenue on operations and failed to establish proper reserves. That is the concept: Just because you can put off fixing your roof until next year, does not mean that you spend the money now.

Now realistically, because our history of overspending, and not keeping up with prudent repairs, nor setting aside reserves, we may be in so deep of a hole that we have to ask for a "bailout" by borrowing in the bond market. I agree that we need a new Public Safety building, however there is this not-so-unwarranted belief by the residents that any amount of money put on the table would be spend by a City Structure that has an insatiable appetite for cash.

With that kind of skepticism and division between the voters and the City, acceptance of a big bond measure is unlikely and it would be unwise to spend cash on failed attempt. However, if the City demonstrated that it was willing to prioritize and make meaningful sacrafices in City operations, then some trust could be restored.

Demonstrating good financial stewardship is the key: As an example, when I worked for the Lucile Packard Children's Hospital, we needed millions to build new programs and to recruit new physician specialties. However, the Packard Foundation (the one with Billions) simply stated (and I paraphrase) "Before we give you this extra money to grow, you need to meet some spending benchmarks are prove your financial stewardship before we release the funds. It was painful on operations, but the organization reached consensus and achieve some meaningful spending reductions. With that trust, funds were provided, and the wonderful growth in services is a story that everyone knows.

We might even keep this story of earning trust in mind as we creatively pursue some public and private partnerships. Instead of cutting, there may be a way to gain some outside funding to provide the Infrastructure first budgeting balance.

There continue to be stories about how Palo Alto has an adminstrative budget equal to Cities two times the size. Let's get the numbers and either show that is untrue or face the reality that some reduction is appropriate. It is never painless, but we have to keep our eye on the greater prize of gaining community unity through increased trust, which will allow residents to more enthusiastically investment that the City needs for the future.

There are other factors like searching for cost savings through regional cooperation, and inspecting once more if there might be functions within the Public Safety Building that might be share with other agencies. For example, we know that disasters are no respecter of political boundaries. I can't say what this increased scrutiny will yield, but we owe it to the residents to vigorously explore every option and in doing that, the City will be rewarded with greater unity and trust.

Thank you again for sincere interest in thinking in a the bigger picture with a more expansive timeline, and seeing that what we choose today will really determine whether we have resources tomorrow to continue our path of being a place of innovation. The alternative is a future where a large amount of cash will have to dedicated to servicing debt, and that diversion of resources will limit our ability to create the future that we all want.

Best regards,

Timothy Gray www.Vote4Gray.com is my campaign web site

Some of these comments! Haha! But really, I agree totally. Why would there be any money in storage in a recycling facility? You're more likely to find some other sort of rare junk than a lot of money in there! Haha! Makes you wonder how desperate or nuts the guy must have been to want to risk his future for a few hundred dollars. If that were me, I'd pick a proper retail shop or something where they at least have money in transaction on a daily basis!