The Palo Alto City Council may pass nearly $10 million worth of budget cuts for fiscal year 2011 in response to what City Manager James Keene described as unprecedented financial hardships for the city.

“In contrast to a lot of similar recession periods, this is deeper and longer-term than California cities, in my view, have ever faced,” Keene said.

Palo Alto’s budget crisis resulted from rising costs, including salaries, according to Mayor Pat Burt. Now, if cuts to the budget are passed, they would reduce public services citywide and result in the loss of the equivalent of 75 full-time city jobs.

Burt said the city expects to face pointed reaction from community groups “wanting to come in and argue why their programs should be preserved.” He called the process “difficult,” saying that the “toughest” budget cut issues to decide will be the ones with apparent community objection.

Keene has been working with individual city departments over the last six to nine months to develop a list of 33 potential cuts the city council will vote on this June.

Palo Alto’s deficit has been a recurring problem. The FY2011 budget gap is projected to be $8.3 million, and the city has accumulated almost $500 million in backlog infrastructure needs, according to Vice Mayor Sid Espinosa.

It is hoped that implementing the $10 million in FY2011 cuts will reduce the budget gap for FY2012 to as low as $1 million, said Greg Scharff, council member and member of the finance committee.

The 33 potential cuts translate to $10.3 million, an amount that deliberately exceeds the projected $8.3 million FY2011 gap in order to give council members some choice in determining where cuts will ultimately be made.

The budget gap can be attributed to the city’s rising cost of salaries and benefits in combination with a decline in tax revenues, Burt said.

The city’s sales tax collection, for example, fell to $15.9 million in 2009 from $22.9 million in 2000, while the combined cost of salaries and benefits rose to $91.9 million from $64.8 million, according to Scharff.

“I think that everyone in the community understands that cuts need to be made in order to balance the budget,” he added.

The solution, however, is less obvious. Although the global economic recession contributed to the deficit, Burt said local governments around the nation experiencing similar problems will need more than a healthy economy to rectify budgetary woes.

“The government takes longer to recover than the private sector,” Burt said. “That is why we feel we shouldn’t just use a series of band-aids to get us through this tough time, but actually implement a series of structural reforms.” Scharff defined structural reforms as changing expenditures on a forward-going basis.

Community Effects and Reactions

The budget gap has forced local government to prioritize critical city services and attempt to minimize impact on the community.

“We have expert assessments of where the city should make reductions that would have the least impact on the city — which would be surprising to most people because there are a lot of things on this list that will raise concern in our community,” Keene said.

Scharff explained that rectifying the budget gap is fundamentally an issue of reducing employee costs.

“The only way you do it is you have layoffs, basically,” Scharff said.

The city is currently considering eliminating the equivalent of 75 full-time positions, through contracting out services like landscape maintenance and assessing efficiency within the police and fire departments. So far, five full-time police officer positions have been identified as a potential cut, in addition to two police investigative services positions.

It is estimated that proposed reductions within the police team and traffic control would save the city $1 million.

Other proposed cuts include shortening public library hours for $215,000, requiring city residents to privately manage sidewalk repair expenses, canceling Twilight, a summer concert series, and cutting Safe Routes to School, a school-hours traffic control program that Burt described as one of the most effective ways in which the city has reduced the use of vehicles in getting children safely to school.

Community groups and service providers, such as the fire union, have already begun expressing opposition to the cuts through petitions and feedback in public meetings.

Espinosa believes that public satisfaction will be close to impossible.

“At every step, there will be someone who thinks the service is critical and should not be cut,” he said.

Stanford Hospital & Clinics

The city’s budget woes may also have affected negotiations between the University and the City of Palo Alto on the expansion of Stanford Hospital & Clinics and Lucile Packard Children’s Hospital, since the hospital expansion proposal could increase housing, electric, water and traffic costs for the city.

Burt said the hospital negotiations are “pretty much independent” of the city’s budgetary issues. Scharff, however, said the negotiations may reflect the city’s need to minimize costs.

“I think there is heightened sensitivity to the fact that Palo Alto needs to be at least revenue-neutral,” Scharff said, explaining why the city is being careful to ensure that the hospital expansion won’t cost Palo Alto in the long term through increased traffic or environmental impact.

“The good news in that the differences between the city’s concerns about environmental impacts and the hospital are much smaller than they were four years ago,” Burt said.

The city is exploring ways to improve the process of making budget decisions, Burt says, by involving more policy representatives in decisions that have been historically made by the finance committee alone.

The city has also been trying to raise revenue through tourism.

“Palo Alto and Stanford are being marketed a lot more,” Burt said. “And we consider that to be a real asset of the community, to have Stanford here.”