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Responding to an expected multi-million revenue loss, Palo Alto city government is striving to strengthen the city's bottom line while maintaining service quality.

"The challenge is twofold," said City Manager Frank Benest. "One is the economic downturn. The other is to maintain service and infrastructure."

Benest said the city government has an informal hiring freeze to save money. And all city departments are required to turn in reports on how they plan to cut their operational costs. The proposals, ranging from doing away with cookies at meetings to increasing development impact fees, will be organized into an action plan and presented to the City Council next Thursday.

"We are trying hard not to let the cuts demoralize the employees and still maintain a high level of commitment to the community," Benest said.

The city manager's office estimated that if city council does not take preventive action, the budget will head into a $2.9-million deficit by the end of this fiscal year. The debt may balloon to $4.2 million by the next fiscal year.

"We never have a deficit," said Cherie McFudden, budget programming assistant of the Administrative Service Department. "We should resolve the crisis before we have one."

To maintain quality service with an expected shrinking budget, the city government will hold a series of meetings with residents in early December to resolve if next year's budget should be spent on maintaining current infrastructure or funding new projects.

The decision has become extremely difficult as the city is expecting a revenue loss up to $7 million because of the reduction of sales tax and hotel tax, according to Carl Yeats, Director of Administrative Service Department. Revenues from sales and hotel tax accounted for 28 percent or $36 million of the 2001-02 General Fund's $126 million budget.

As a result of unemployment rate soaring to 5.9 percent and decreasing consumer spending, sales taxes in the second quarter recorded a 12.1 percent decline from the same quarter in 2000. New auto sales, office equipment, business services and miscellaneous retailwere all down.

Hotel taxes, declined drastically with hotel occupancy dropping from 73 percent of the first fiscal quarter of 2000-01 to 58 percent in the first quarter this year. After the attack of Sept. 11,l the occupancy rate to fell to 50 percent that month.

City Manager Benest said what has compounded the city's revenue shortfalls is the State's efforts to take property tax revenues from local governments since the last recession in the early 1990s. To date, the city of Palo Alto has lost $20 million in property tax that would have funded public safety, community services and infrastructure projects.

In last winter's communitymeetings, most people wanted the city to spend its revenue on the maintenance of existing infrastructure and services. Therefore, in the city's 2001-03 budget, the city council included a $100 million plan to rehabilitate the city's current infrastructure over the next 10 years.

However, with the $100-million infrastructure program underway, little money is left for new projects, including the expansion of libraries, the modernization of the art center, and the upgrading of storm drains. The 11 projects under discussion will total $3.05 million and none of them are currently funded.

To understand what the public wants, the city government is conducting two citizen surveys. The first telephone survey, which was recently completed and will be released at the first dialogue meeting this Saturday, asked 600 residents to assess the conditions of the city's current facilities and the priorities of proposed projects. The second survey will be conducted in April 2002 to evaluate if and how much citizens are willing to pay for the priority facilities.

With the survey results and resident input, the city council will consider whether to put a bond measure for the November 2002 ballots.

"Do we as a community want to modernize and expand these facilities to maintain our quality of life? Do we want to pay for it?" asked Benest in his column in a city publication. "We need our residents to help us answer these questions."

The schedule for the CityWorks Dialogue:
Saturday, December 1, 9:30 a.m.
Cubberley Auditorium
4000 Middlefield Road.

Wednesday, December 5, 12 noon
Lucie Stern Community Room
1305 Middlefield Road

Thursday, December 6, 7 p.m.
Lucie Stern Community Room
1305 Middlefield Road