Los Altos’ finance director suggested last week that past leadership may have been penny wise, pound foolish, accumulating large budget reserves while allowing city infrastructure to deteriorate.
“We didn’t do anything as a city,” Sharif Etman told a Nov. 22 gathering of the Los Altos Community Coalition. “It’s coming back to bite us now.”
Offering a “fiscal lens” into the city’s current budgets, Etman said all city structures are outdated and in some state of disrepair. He estimated the city is spending $1 million annually on Band-Aid fixes to the aging structures.
“Every (city) building in Los Altos needs to be remodeled and fixed,” he said. “We need to invest in our infrastructure. ... It’s nice to have money under your mattress, but (at some point) you need to spend it.”
Now they are. A new $38.3 million community center is about to undergo construction; the previous 1950s-era buildings were demolished last month. The city has $23 million, built from reserves, budgeted for its community center project. But other aging, cramped facilities need updating as well, including Los Altos City Hall, the police station and the recreation building at Grant Park.
Etman noted the city may not need to take out a $10 million loan, as previously planned, to pay the balance of the community center’s price tag. He pointed to $16 million in potential park-in-lieu fees – fees developers pay when their projects do not offer open space – that could make up the difference.
In addition, voters in 2018 approved an increase in the transient occupancy tax for the city’s three hotels. That amounts to an additional $700,000 annually, which Etman said could be used to pay off the loan without additional impact on the budget.
According to Etman, the city is in excellent financial shape, with property taxes as the central factor. Even in lean years, Etman has seen 6% and 7% yearly increases. Property taxes rose more than 8% last year. For 2019-2020, property taxes are expected to provide $25.6 million of the city’s $45.5 million in total revenue.
Etman pointed to property tax windfalls, citing 40-year-old homes that sold for $200,000 now selling for $4 million to $6 million. In the housing value bubble of Silicon Valley, he called Los Altos a “bubble within a bubble.”
Other sources of revenue: $3.3 million in sales taxes (which have remained “flat for many years,” Etman said); $2.78 million in utility user taxes from phone and cable charges; and $3.6 million in community development fees (from new construction projects and home remodels).
Expenditure-wise, Los Altos is projected to spend $41.1 million in 2019-2020. Nearly half, $19.5 million, goes to public safety, while $5.6 million is directed to maintenance service for public works projects such as roads and landscaping.
The city has invested $1.8 million in a technology overhaul to enhance its efficiency – those improvements are expected to be in place by next year.
“We’re moving up 25 years in software,” Etman said.
Always a surplus
Los Altos forecasts operating revenue over expenses at $4.3 million for 2019-2020 and $4.8 million for 2020-2021.
“We do not budget up to our revenue,” Etman said. “It’s what makes us unique.”
As a result, Los Altos is always operating at a surplus.
“The way we budget, you will have money,” he recalled being advised. “You have the money – don’t be scared (to spend it). Because – guess what? – you’re going to have more money next year.”
Los Altos also is in good shape in regard to paying into unfunded pension liabilities – an issue that is proving a financial backbreaker for other municipalities. The city has established a $5 million reserve to pay down on pensions. Etman said it’s a major problem for neighboring Palo Alto with its 1,000 employees and $1 billion liability. Los Altos has 136 full-time and 60 part-time employees to serve its 30,000 population.
Etman predicts an economic recession ahead after nearly 10 years of growth. But he said the city can weather it. Furthermore, he doesn’t see the next slowdown as severe as the 2008 downturn.
Challenges for Los Altos ahead go beyond repairing infrastructure. Etman pointed to a report that listed Los Altos as the third most expensive place to live in the country. The high cost of living means all but three of the city’s 136 employees commuting from all over. Etman rides a motorcycle to work from his home in San Jose, cutting in half a normal 80-minute automobile commute.
He acknowledged that leadership, including the city council, can play a role in either attracting employees or triggering employee turnover.
Former Mayor Jean Mordo, who attended the Nov. 22 talk, sang Etman’s praises.
“We’re lucky to have him,” Mordo said.
Etman’s presentation was among several featuring local leaders sponsored by the Los Altos Community Coalition. The group works to educate residents about ways to improve the city for future generations.
For more information, visit losaltoscommunitycoalition.org.