City reports $76 million surplus

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BY ELAINE GOODMAN
Daily Post Correspondent

Better-than-expected sales tax revenue and the sale of former City Manager Jim Keene’s house contributed to the city of Palo Alto’s budget surplus of $76 million for the 2019 fiscal year.

The city’s surplus for fiscal year 2019, which ended on June 30, was a 27% increase from the $59.5 million surplus for the previous fiscal year. The surplus is the difference between revenues and expenses for the year.

The $76 million surplus included $22.6 million from Palo Alto’s governmental activities, plus $53.4 million from business-type activities, such as the city’s utilities operations.

The surplus brings the city’s net position — the difference between its total assets and liabilities — to $1.2 billion. About 92% of that is tied up in land, buildings and infrastructure. Another 4.2% of the funds have restrictions on their use.

“The remaining balance of $46 million, representing 3.9% of the city’s net position, is unrestricted and may be used to meet the government’s ongoing obligations to its citizens and creditors,” according to the city’s Comprehensive Annual Financial Report, or CAFR, which was released last week. The City Council Finance Committee is scheduled to review the report tonight (Nov. 19).

Increases in tax revenue contributed to Palo Alto’s surplus

Sales tax revenue of $36.5 million was 17% higher than the previous year and about $5 million more than the city expected when preparing the fiscal year 2019 budget. Car sales and restaurants contributed to the increase.

And even though sales at brick-and-mortar retailers are decreasing due to online competition, a growing number of online retailers are now collecting sales tax, the financial report noted.

The $47 million in property tax revenue received in the fiscal year was 10% more than the previous year and about $1 million more than what the city was expecting.

Hotel occupancy down but tax revenues rise

Hotel tax, also known as transient occupancy tax, was $25 million, up about 3% from the previous fiscal year. A voter-approved increase in the hotel tax, to 15.5%, took effect on April 1. Average hotel occupancy was down 1.8% in the fiscal year but rates were up 2.6%.

The city received a one-time boost to revenue from the sale of former City Manager Jim Keene’s house at 335 Webster St. The city owned 66.2% of the home and Keene, who retired in December, owned the remainder. The house was purchased in 2010 for $1.9 million and sold in June for $3.9 million.

In the city’s business-type activities, the electric fund posted a $19 million surplus in fiscal year 2019, according to the financial report.

Vacancies, deferring projects saved money

About $7.4 million of that was due to revenue from the sale of excess hydroelectric generation. The electric fund’s expenses were lower than expected for several reasons, including the postponement of capital project deferrals, savings due to vacant positions, delays in energy and water efficiency contracts, and lower energy purchase due to decreased demand.

The gas fund had a surplus of $5.3 million, in part due to more sales revenue than expected.

The city raised residential electric rates by 6% and gas rates by 4%, effective July 1, 2018. Rates went up again this year.

Despite the budget surplus, Palo Alto is moving closer to placing a proposed business tax on the 2020 ballot to help pay for transportation and affordable housing projects.

The city is also grappling with how to pay employee pensions. As of June 2018, Palo Alto was facing a $455 million gap between how much it has saved for pensions and how much they’re expected to cost. The pension gap grew by 9.8% compared to the previous year.

5 Comments

  1. there is no surplus, it is all given to pension. lets talk real numbers and stop hidding the big elephant, how are we going to pay for all those benefits that were handed out.

  2. It’d be nice if the $76 million were earmarked for pensions, but that’s not reality. Council is still paying the bare minimum toward the city’s CalPERS obligations and has a side fund that has about $2 million in it. If the city were to put half of the $76 million in the side fund, it could begin growing and pay a large part of the unfunded liability. But that’s not how politics works. Council will use the money for projects that will get them re-elected and ignore the long-term implications. It’s called kicking the can down the road. Make the next generation pay for our excesses.

  3. There is no $76M, at least in the sense the Post suggest(they suggest this every year, in fact).

    The Post bases their numbers on changes in “Net Position,” which is government accounting lingo for your Balance Sheet. So basically it counts changes in fixed asset values and liabilities.

    Bottom line is we could get that money if we, say, sold City Hall off to a developer. But this notion there’s $76M lying around for projects and services is just not right. I wish it were.

  4. I’ve always doubted Filseth’s financial acumen, but now I’ve got to question his reading comprehension. In paragraph 4, the Post story says:

    “The surplus brings the city’s net position — the difference between its total assets and liabilities — to $1.2 billion. About 92% of that is tied up in land, buildings and infrastructure. Another 4.2% of the funds have restrictions on their use.”

    Filseth is suggesting the Post story is wrong, yet the very thing he’s complaining about — that the figure represents the city’s net position — is clearly stated in the story.

    Why is he complaining about an accurate report? Methinks he’s up to something.

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