After Downtrend, New Forecast Predicts Improving Economy in Palo Alto | New
Despite a massive economic blow during the pandemic, Palo Alto’s long-term outlook has become increasingly optimistic, with city officials now projecting years of steady growth and budget surpluses.
The projections are included in the recently released Long-Term Financial Forecasts, an overview of the city’s economic climate that covers the period between 2023 and 2032. The long-term outlook suggests the city is on track for economic recovery after a period of declining income and budget cuts.
The promising projections are informed by recent trends. A new tax revenue analysis, which includes both sales tax and hotel tax revenue, indicates that the city’s economic performance in the second and third quarters of this year (between April and September) has been strong relative to to the previous year, according to Staff of the administrative services department.
While sales tax revenue declined in fiscal 2020 and 2021 by 16.3% and 4.7%, respectively, new data shows that the trend is now reversing, revenue from cash flow for the fourth quarter of fiscal 2021 (between April and the end of June) increasing by 28.2% compared to the same quarter of the previous year, according to a city analysis, which cites significant increases in the sectors of the retail, restaurants and general transport. Sales tax is now expected to generate approximately $ 30.6 million in fiscal 2022, an increase of $ 2.5 million from the budgeted amount. City staff expect this revenue stream to reach $ 32.3 million in fiscal year 2023.
Hotel taxes, an essential source of revenue for financing the city’s infrastructure, are also on the rise. While they remained about 53.15% below pre-pandemic levels in the first quarter of fiscal 2022, they were also 229.4% higher (or about $ 1 million more) than in the same. period in 2021, when the sheltering order was in effect and movement was severely restricted.
The city’s revenue report cites the city’s strong performance in the second and third quarters of fiscal 2021 and the city’s expectation that “this will continue into calendar year 2022 and beyond. beyond, although at a slower rate of growth, as advances in immunization allow economic activity to resume and / or expand especially in previously closed sectors such as restaurants, hotels, entertainment and trips. “
The city’s open hotels had average occupancy rates of 60.1% and average daily rates of $ 156.63, according to the report, an increase of 26.5% and 34.8%, according to the report. compared to the same period in 2020, according to the report.
In total, tax revenue remains about $ 12.3 million – or 9.1% – below pre-pandemic levels, according to staff. But with just about all tax categories showing positive trends, staff expect revenues to rebound to where they were before the pandemic by fiscal 2024, which begins in July 2023.
Property taxes, which account for about 25% of general fund revenue (they are, as such, the most important source of revenue) are also expected to increase over the next decade, from $ 30.6 million for the current year to $ 32.3 million in fiscal 2023 and $ 34.4 million in fiscal 2024. Growth is expected to continue through 2032, when staff forecast $ 43 million in revenue. property tax.
The city council’s finance committee, which discussed and approved the forecast at its Dec. 7 meeting, welcomed the new projections, although members acknowledged that the forecast surplus is unlikely to be met. Indeed, the main forecast scenario is based on current staffing levels, an assumption that would not hold if the board moves towards restoring the services it cut back during the pandemic. The forecast also does not include the cost of major infrastructure projects, including improvements along the rail corridor, reconstruction of the town’s animal shelter and renovations to the Cubberley Community Center.
The biggest wild card, however, is the cost of labor. The forecast assumes a 2% wage increase for each group of workers in each year of the forecast. This projection, however, is based on a hypothetical model rather than actual employee contracts. All groups of workers in the city will have their contracts expire before fiscal 2023 and actual wage increases will be negotiated.
During the committee’s discussion on Dec. 7, Deputy Mayor Pat Burt and council member Eric Filseth said they expected to see major differences between the forecast figures and those in the budgets the council passes. every year. Filseth noted that the city’s spending has traditionally grown at a faster rate than long-term forecast. And Burt, who has always advocated quick action to restore services that had been cut during the pandemic, suggested the new numbers only underscore how conservative the board has been in its revenue projections to date.
Burt said it had to be a “deliberate goal” of the council to restore services the council had cut since 2020, when it slashed its budget by $ 40 million. The cuts, he said, have had a negative impact on the city’s ability to recruit and retain its workforce.
“I think these are things we need to restore to become a Palo Alto again that our residents and taxpayers have been waiting for decades,” said Burt.
While President Alison Cormack and Filseth generally agreed with this sentiment, both also stressed the need to take a fresh look at the city’s traditional spending strategies and determine if they still make sense. Filseth said the upcoming budgeting process will be “more complex than just adding in things that we had before.” Cormack agreed with the advice and said the city will need to think about what services it should restore.
“If we’re going to add everything the community had before… it’s worth thinking about: was that exactly the right stuff? Do we want more of some things and less of others? Cormack said. “Because things have changed and the number of people in our community has changed.”
The new forecast does not take into account the two revenue measures the board is currently considering, both of which would further complement the general fund. One is a business tax, which, under the current direction of the board, would be based on square footage and would be retail exempt. Another is a tax on utility users, which the city relies on to restore revenue it risks losing due to a lawsuit against resident Miriam Green. Palo Alto has already been ordered to repay around $ 12 million to its gas customers, a decision the city is appealing. By addressing voters with a proposed utility tax, the council hopes to restore its historic policy of transferring some funds from its gas utility to the general fund, a practice the lawsuit seeks to overturn.
While business tax is almost certain to appear on the November 2022 ballot, the city is less certain of the utility tax. The council recently commissioned a polling company to measure potential voter support for the two measures and will likely base its decision on the utility tax on the results of the survey.