With Palo Alto facing a budget crisis, City Manager Ed Shikada said Monday that he plans to take a 20% pay cut and that managers at City Hall will give back 15% of their salaries.

Shikada's announcement came days after the council held a series of meetings in which members debated a wide range of budget cuts to close a $38.8 million gap. Last week, the council tentatively approved service reductions in every department, which includes shorter hours at local libraries, leaner staffing in the Police Department, elimination of the city's free shuttle and decreased funding for recreation programs, which would entail cancellation of all performances at Children's Theatre.

The proposed cuts have triggered a community backlash, with dozens of residents submitting letters in recent weeks arguing that the city should be looking at salary reductions rather than eliminations of services. Mayor Adrian Fine and Shikada had both said that the city cannot legally require unions to accept salary decreases without going through a formal negotiation process.

But with popular programs on the chopping block and residents increasingly anxious about service reductions, Shikada told the council Monday that he plans to bring forward for the council's consideration a proposal that would reduce managers' salaries. The details will be released this Thursday and will be made available for the council prior to the May 26 meeting, when council members are scheduled to further refine the budget for fiscal year 2021, which starts on July 1.

Shikada told the council that the city's "manager and professional staff are leading by example" in contributing what he called a "compensation giveback" of 15%. In addition, he will be personally contributing an additional 5% giveback, Shikada said.

The "management and professionals" group, which includes supervisors, middle managers and other staff members who are below the director level, is the only major labor group at City Hall that is not in a labor union. According to the city's budget, the group is comprised of 231.75 full-time-equivalent positions.

According to the city budget, members of the management and professionals group have an average base salary of $149,306 (the total compensation, when benefits are factored, is $250,791). While the city has not released an estimate of the potential savings, the budget documents suggest that the pay reduction of 15% to the base salary for each position in the management group would achieve savings of about $5 million.

Shikada, who earns a salary of $356,013, would see his compensation reduced by $71,202 under his proposal.

During recent budget hearings, Hamilton Hitchings was one of many residents who called for salary cuts to reduce the budget deficit.

"I am a big proponent of our leadership, but I do think the leadership should have some temporary cut built into conversation," Hitchings told the council during the May 12 hearing. "I don't know how we negotiate with unions if the people negotiating aren't willing to share any of the pain."

Councilman Greg Tanaka had also repeatedly brought up the topic of salary cuts, at one point calling it "the elephant in the room." On May 13, he called for having all managers, directors and council members take pay cuts.

"If everyone took a 17% pay cut, we'd be done," Tanaka said at the meeting. "We could end the meeting right now, we wouldn't have to cut anyone, we could keep all the services."

His colleagues have largely avoided discussing salaries in public. The council has already devoted two lengthy closed sessions to labor negotiations, each time emerging with no reportable actions. But Fine and Shikada each addressed the topic of employee compensation on Friday during the city's weekly "Table Talk" webcast, in which they discussed the city's budget troubles. Fine said he has received a lot of feedback from people urging the council to require 20% pay cuts, much like many people in the private sector are now doing. The nature of public employment, he said, does not allow that.

"We have agreed upon multiyear contracts with most of our labor units, and that means that on a year-to-year basis they are programmed to receive certain increases that the council has agreed to and they cannot change that unless they agree to it," Fine said.

To achieve savings, Fine said, the city has to first determine what services it wants to provide and can pay for. Only then can it notify the labor units, triggering negotiations about service cuts and, potentially, salary reductions.

"We have to do it in a pretty formal legal process to make sure we're following state laws, that we are doing diligence with our labor unions and that we are also balancing the city budget per our requirements," Fine said.

Shikada said the city's representatives are having a "very heartfelt" conversation with each of the labor groups about helping address the budget crisis. He said he is "optimistic that we're really working together."

"Residents and neighbors in Palo Alto should really take heart that the city employees are taking this seriously and are dedicated to finding any solution that we can," Shikada said.

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