Feb 13, 2008

Palo Alto to finance $69 million police HQ

By Kristina Peterson / Daily News Staff Writer

The city of Palo Alto will internally finance construction of a new police headquarters, the city council decided this week.

Late Monday night, the council voted 7-2 to finance the $69 million project by issuing certificates of participation, rather than asking voters to pay for a new public safety building.

Residents will get a chance in November to help the city build another massive project if they approve a general obligation bond to fund an $80 million set of renovations and improvements to the downtown, main and Mitchell Park libraries, the council decided.

"The police building is a necessity and we need to move forward with it," Mayor Larry Klein said Tuesday, noting that while the entire council did not unanimously support the financing plan, all agreed it was critical to start construction as soon as possible.

Under the plan approved Monday to pay for the police building, in April 2009 the city will issue $81.2 million of certificates of participation, a form of debt that enters Palo Alto into a tax-exempt lease with a nonprofit corporation acting as a middleman between the city and private investors.

Deputy Director of Administrative Services Joe Saccio said the issuance of an amount above the project's cost will establish the required debt service reserve and cover the capitalized interest. Annually, the city will pay $5.2 million to pay off its debt, starting at a reduced rate in 2010-11, he said.

Much of the debate on Monday night revolved around what sources of revenue the city will be able to rely on when paying off the debt. At the request of the council's finance committee, City Manager Frank Benest removed from a list of future revenue sources those funds that rely on potential economic growth, such as the Stanford Shopping Center expansion and a possible long-term lease with Foothill College at Cubberley Community Center.

That leaves the city with a handful of more concrete sources of revenue, including reducing the budget stabilization reserve from 18 percent to 15 percent and dedicating $3 million of last year's surplus to reduce the overall debt by $6.6 million, Benest said. The city can also try to reduce $1 million in operating expenses annually, rent out the police department's current location for roughly $860,000 and pay in advance its pension and retiree medical obligations to save $500,000 each year, he said. But he cautioned that it is difficult to predict exactly how the budget will shake out down the road.

"We don't want to pretend these are very, very solid numbers. We have some decent estimates, but they're certainly preliminary," Benest said.

Several council members seized on two new taxes the city could establish with voter approval: a business license tax and a 911 fee, which would likely manifest as a monthly $1.50 charge on the city's 125,000 telephone landlines to cover emergency management costs, Benest said.

While council members Jack Morton and Greg Schmid pressed to have staff move forward with developing proposals for the two taxes to ensure funding to pay off the debt, the rest of the council thought such a move would only confuse residents.

"The public votes no when we make things more complicated," the mayor said.

The business license tax and 911 fee will be further examined by the finance committee before returning to the council, Benest said.



E-mail Kristina Peterson at kpeterson@dailynewsgroup.com.