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Palo Alto City Council City of Palo Alto Palo Alto, CA 94301 Cc: James Keene Subject: Long

Term Cost of Cubberley Lease Agreement Elected Council Members: As the issue of what to do with the Cubberley property once again makes its way to the Council, the council is reminded that the City has not provided the public with much of a long term financial picture of this property, or even a P&L (Profit & Loss) view of its finances. So, for most, the financial picture of this facility is little more than a proverbial black hole. Transfer Payments to the PAUSD The following table attempts to track the Cubberley Lease payments from 1990, through an arbitrary end-point in time (2021):
Payments to PAUSD From City of Palo Alto For Cubberley Center
Yearly Transfer (in Millions) 19901991 $4 19911992 $4.33 19921993 $4 19931994 $5 19941995 $5 19951996 $5 19961997 $5 19971998 $5 19981999 $5 19992000 $5 19902000 $48

20002001 $5.50

20012002 $5.65

20022003 $5.81

20032004 $6.96

20042005 $6.12

20052006 $6.29

20062007 $6.45

20072008 $6.63

20082009 $6.81

20092010 $7.00

20002001 $63.22

20102011 $7.18

20112012 $7.38

20122013 $7.58

20132014 $7.78

20142015 $7.99

20152016 $8.20

20162017 $8.43

20172018 $8.66

20182019 $9.13

20202021 $9.38

20102021 $81.71

Total:

$192.49

Source: City of Palo Alto 2009-2021 Payments Estimated

Note: The yearly inflation factor used for the estimation of the 2009-2021 timeframe might be a little high, perhaps in the 10%-15% range. Presumably the Finance Department can provide its inflation factors, and produce a slightly different long-term estimation of the total payment to the PAUSD.

Discussion The total cost of operating the Cubberley Center is a bit of an unknown, since the Centers operations were not set up as an Enterprise Fund, but simply another operation under the Parks/Recreation Department. This means that its books are not likely to be as straightforward as one might hope they would be if this property were managed in a more P&L model, than the almost opaque methods of City Government. While not the total cost of operating this Center, the PAUSD Lease Fee is doubtless the most expensive component of the Cubberley Centers expense profile. As such, looking at the long-term cost of this operation should have been a part of the yearly review of its operations, both by the City Managers Office, and the City Council. Sadly, its difficult to find much documentation that the Centers operations, and its finances, have seen yearly, in-depth, reviews, that a property worth well over $100M would in receive in the private sector. Questions For Council: How many Palo Altans Actually Use This Facility? How many of the tenants are Palo Alto residents? Why shouldnt tenants of this facility be expected to pay market rates for their use of the facility, and possibly a surcharge for the future refurbishment of the facility? Why should the Palo Alto taxpayers be responsible for subsidies required to allow non-resident tenants access to this prime, Palo Alto, location, for their business operations? Why hasnt the Council directed the Finance Department to put their reporting of this facility on a P&L basis? Is the refurbishment of the Cubberley Center in the $550M infrastructure back log? Conclusion The data provide above is intended only to demonstrate the magnitude of the long-term costs of running this complex, which seems to be dominated by non-residents, and organizations which have nothing to do with Palo Alto (see link below). Missing from this picture is the revenue side of the operation, which would provide a clear measure of the liability (or benefit) to the taxpayer, as well as clearly derived benefits to Palo Altans. In this case, the UUT (Utility Users Tax) and the various tenant lease fees no doubt cover the cost of the PAUSD lease fee, but there is little evidence that the City has understood the importance of being Cash Positive where the finances of this large Center are concerned.

Getting out of the operators chair would be good for the City, in the long run, even though some of the special interest groups that have been dependent on taxpayer subsidies will have to actually work a little harder to justify their existences to their clienteles by finding quarters elsewhere, of paying market-rate for the space they occupy. Its hard not to see a win-win for the City by selling this 8-acre parcel at the right price. On-The-NET: Cubberley Center Space Rented to Non-Residents: http://www.youtube.com/watch?v=Z4PMxZe-2VI

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