Palo Alto City Councilman Greg Tanaka publicly accused his council colleagues and city staff on Tuesday night of poor stewardship in handling city finances and for repeatedly failing to "stick to the budget."

Tanaka, who routinely votes against labor agreements, service contracts and infrastructure projects, made his comments as the Finance Committee considered ways to fill a $4-million hole in the city's approved general fund, which includes $210.7 million in expenditures. The committee and the council approved a budget last summer that created a $4 million gap, which it expected to fill through structural cuts later in the year. The gap was created to help account for the city's growing long-term financial challenges, most notably its growing pension obligations.

During the discussion of the city's strategy for managing its finances, Tanaka called out his colleagues for having "no backbone to stick to the budget."

"I hate being the 8-1 vote all the time. No one else seems to care," Tanaka said. "That's what we have to do, otherwise we're burning our city. We are burning future generations. We are hollowing out the city now by not sticking to the budget."

During its May budget hearings, the Finance Committee directed staff to return with specific proposals for $4 million in structural cuts in the current budget. Instead, staff came forward on Tuesday with a proposal to perform a full "strategic action plan" – a comprehensive analysis of every city service and how much it costs.

City Manager James Keene noted Tueday that the city will actually need to cut more than $4 million this year to comply with labor agreements and new funding commitments, including the city's recently approved agreement with Stanford University over fire services. Given these expenses, the total number that the city is looking to cut is about $8.7 million this year.

Making such a change, he said, would require a longer conversation involving labor groups and other stakeholders who may find service levels diminishing.

"My own conclusion is that it would be difficult to impossible to adequately and represent and make the changes that would be required in November to hit the $8.7 million number," Keene said, in explaining staff's decision not to recommend specific cuts at this time.

Keene also pushed back against Tanaka's accusation, which he said isn't accurate. The city had not spent beyond its adopted budget at any year during his decade as city manager, Keene said.

"I don't think it's accurate to say that we are regularly fiscally mismanaging in any way at all," Keene said.

He added that almost every item that staff brings to the council is a budget decision. There are situations where there are cost increases, but "we account for those," he said.

Among the biggest challenges that the city is facing is labor costs, Keene said. It's also an area that is in some ways driven by factors beyond the city's control, including CalPERS decisions. Kiely Nose, interim Chief Financial Officer, also alluded to the challenges of hiring and retaining people at a time when the economy is doing well and market competition is fierce.

"We're trying to attract a skilled workforce to deliver quality services to the community," Nose said.

Tanaka's committee colleagues agreed with him that the city should move quickly to identify short-term savings in the current budget while also proceeding with the longer-term strategic plan. Committee Chair Greg Scharff made a motion to that effect, which passed 3-1, with Tanaka dissenting. Councilman Eric Filseth stressed the importance of making cuts now, to avoid making even larger cuts in the future, as the cost of benefits continue to grow.

"It's a question of setting aside enough money to make the commitments we're making," Filseth said. "We're spending the money now and we're going to get a bill for it in the future with interest. … I don't want to kick this down the road."

Scharff said he disagrees with Tanaka's assertion that the council has not been "good stewards." He attributed the fact that the city's expenses have routinely exceed its long-term forecasts to the way it budgets for labor costs. He noted that long-term forecasts typically show a far lower increase in labor costs than what gets actually adopted. Including a higher number in the forecasts, however, would be unwise from a negotiations standpoint.

In the short-term, the council has one option that would not impact any services or positions. It can pull $4 million from its Budget Stabilization Reserve to fill the budget hole (the reserve would remain above the city's target of 18.5 percent of the general fund, according to staff). The committee generally agreed, however, that this one-time fix would not address the long-term problems and should not be a solution anyone feels comfortable with.

"I do think every department head should be able to find some money in their budget that they can cut," Scharff said.

Tanaka wasn't entirely satisfied with the strategy. The city, he said, should consider cuts every time it makes a decision that exceeds the budgeted amount.

"We can sit around the table and say, 'No problem,'" Tanaka said. "We can kick the can down the road and not deal with it. Or, when we exceed the budget, we can make comparable cuts somewhere else so we know what the trade-off is."