BY SARA TABIN
Daily Post Staff Writer
The economic fallout of the COVID-19 pandemic had Palo Alto City Council going in two different directions last night — at one point considering layoffs of city employees to save money and, at another point, talking about giving out loans to businesses.
The stay-at-home order has hammered many businesses. Restaurants have been forced to close dining rooms and only offer take-out. Hotels are closing as vacancy rates have dropped into the single digits. Stores — unless they’re essential businesses like supermarkets — have closed as well.
Council asked City Manager Ed Shikada to come back with ideas for helping city businesses, such as handing out loans.
Council said they might be interested in copying Mountain View, which created a $400,000 small business relief fund last month.
These city programs would be in addition to a federal program by Small Business Administration that will provide businesses with fewer than 500 employees forgivable loans to cover eight weeks of payroll if the firms avoid layoffs.
City considering layoffs
On the same evening council was talking about loaning out city funds, it faced the possibility that the city might have to lay off some of its own employees due to an expected drop in hotel and sales tax revenue.
Shikada told council that the city might lose $20 million before the city’s fiscal year ends on June 30.
Besides taxes, Palo Alto is getting less money from builders taking out permits. Other forms of city revenue have stopped too — such as fees for recreation programs, that are now cancelled. And the city isn’t issuing parking tickets because there’s no cars to ticket.
City employees exposed to COVID-19
Shikada’s memo to council suggested that the city had to spend money on “temporary lodging” for city employees who were believed to have been exposed to COVID-19. No specifics were given in his memo, such as when the exposure occurred or how it happened. At last night’s council meeting, he said none of the employees tested positive.
Councilwoman Alison Cormack said that even if the stay at home order is lifted for a while, it might get reinstated in the future. She said the current order, which ends May 3, might be extended through the end of May.
Chief Financial Officer Kiely Nose said the business shutdown caused by the pandemic could lead to a recession that lasts several years.
Council decided last night to keep paying all city workers until the fiscal year ends on June 30 rather than start a process that would lead to layoffs beginning possibly this month.
Mayor Adrian Fine said that was the most prudent thing to do since the city doesn’t know what services it will need in the coming months and because the fiscal year is almost over anyway.
The council might have to cut positions for the new fiscal year. Nose said the city currently spends $6 million a month on non-utilities salaries.
HR Director Rumi Portillo said the city will have more freedom to make decisions like moving employees around without union consent because of the state of emergency. Normally, the unions have to agree to such decisions.
I don’t get it, they don’t have enough money to pay their workers but they want to hand out money to businesses? Bizzare!
Council’s first order of business should be to put its financial house in order. Drop the talk of giving money to local businesses, no matter how good that makes council members feel. It’s just pandering. The favorites will get money, the troublemakers won’t. We know how that goes.
When you’re in a hole, stop digging.
Council should have taken option A last night and started making cuts. Yes layoffs. Saving money. By cutting now, the pain won’t be as bad at the end of the month. Instead, council decided to “kick the can down the road” and hope that things will look better on June 30 when they have to complete the FY21 budget. I’ve got news for you. Even if the stay-at-home order were to end now, the economic damage will continue for several more months. Sales tax collections and TOT (hotel tax) revenues lag the economy by 4-6 months, so today’s downturn won’t be seen in the city’s accounts until the fall.
So my advice is to forget about handing out money and make cuts now to avoid worse cuts at the end of the quarter.
I question whether the city council has a good understanding of how expensive it is to run a business in Palo Alto. $1 million in loans won’t go very far. The typical restaurant will have gross receipts of $10 million a year. And this $1 million in city funds would be divided up among how many businesses? If 200 businesses seek this $1 million, that would be $5,000 a piece. It’s a nice gesture but it won’t go too far.
The founding father of Silicon Valley venture capital, Eugene Kleiner, had a saying, “There is a time when panic is the appropriate response.” Faced with a catastrophic decline in tax revenue, the City of Palo Alto chose to instead do nothing. The one thing it did decide to do was to go ahead with previously scheduled raises rather than postponing them, and engaging in frank and painful emergency discussions with bargaining units about how best to respond to the situation that citizens and municipal employees now face.
There will be inevitable layoffs. Employees who lose their jobs through no fault of their own will be thrown onto a job market where everyone else is also not hiring. The least painful option facing residents and employees alike would have been to implement a 10% pay cut across the board. This will not prevent the need for layoffs but will reduce the number required to get the budget deficit under control. If we had not chosen to delay making hard choices, the adjustments needed to be made in future months would have been less, and would cause less disruption of public services.
Notwithstanding what you read in letters to the editors, it’s been my experience in dealing with local government employees during my career that they as a group are hard working, conscientious, and care greatly about the well being of their community. If we are to be asking them to make sacrifices, the same must be asked elsewhere in the budget. Now is the time for the current and many former council members who receive health care insurance paid for by the city for what is not a full time job (yes, I know that the hours put in are much longer than most people realize) come to an end immediately.
Let’s start treating this a situation calling for controlled panic.
It seems very poor of such a rich city to be unable to absorb a pandemic and keep everyone employed. But I guess I don’t know much about economics or finances.