With the city still reeling from the economic wreckage of the COVID-19 pandemic, Palo Alto's elected leaders kicked off on Monday a contentious budget season by allocating funds to nonprofit groups that provide critical social services and scaling down a popular road-improvement project that had been nearly two decades in the making.

At the same time, most members of the City Council strongly pushed back against a proposal from City Manager Ed Shikada to cut funding from popular youth programs such as Children's Theatre and the Children's Library.

The Monday hearings were the council's first chance to offer feedback on Shikada's budget, which includes a general fund of $205.5 million. He proposes to save money by keeping three neighborhood libraries closed throughout the year, eliminating city funding for Palo Alto Art Center, reducing public support for the Children's Theatre, cutting five police patrol positions and instituting constant "brownouts" at Fire Station 2.

"We really wish we had a better proposal for the City Council to consider," Shikada said Monday. "By all means — we really regret having to bring forward discussion of program cuts, of resource reductions and the impacts that we know that has throughout the community for really endeared programs that are greatly valued by many members of our community.

"Nonetheless, we are meeting our Charter obligations to bring forward a budget that is balanced and that reflects recognition of expected revenues, expected expenses and the services that can be provided as the result."

The budget also makes it clear that the fiscal situation would have been even more bleak if not for federal assistance. Palo Alto is slated to receive about $12.5 million in stimulus funding through the American Rescue Plan Act of 2021, money that will be spread out over the next two years and that will help pay for COVID-19-related expenses. A key decision that the Finance Committee and, ultimately, the council will have to make in the coming weeks is: How much of this federal funding should be used to plug the hole in fiscal year 2022 — thereby averting some of the cuts in Shikada's proposed budget — and how much should be saved for the following year?

The council also allocated funding from a smaller but no less critical pot of federal funding — the Community Development Block Grant (CDBG) program that is administered by the Department of Housing and Urban Development and that supports social service programs targeting low-income residents and populations deemed to have special needs, including individuals who are homeless or have disabilities.

As part of the CDBG process, the city is distributing $738,920 in federal funds. Some of the largest allocations will go to Ravenswood Family Health Network, which is set to receive $300,000 for construction of an accessible ramp for individuals with disabilities, and the Downtown Streets Team, which is set to get $160,477 in support of its workforce development programs. That is less than half of the funding that the nonprofit, which provides support services to homeless individuals, had requested for its work-development program.

The council agreed to allocate funding for Downtown Streets Team despite the nonprofit's steadfast refusal over the past year to provide documents relating to allegations of sexual misconduct by top executives, including CEO Eileen Richardson. At a March hearing, Richardson told the city's Human Relations Commission that the past year has been the most difficult one in the organization's 16-year history.

In addition to facing allegations of sexual misconduct from multiple former employees and grappling with the impacts of the pandemic, Richardson told the Human Relations Commission that she has been battling cancer and that she received her final chemotherapy treatment in March.

She also pledged to provide more information to the city, including documentation about all new policies that nonprofit had adopted to address concerns about employee misconduct. Despite getting some funding from the city, Richardson said Downtown Streets Team will have to scale back its services in the coming year, though it has no intention of leaving the city.

"We'd have to cut staff," Richardson said. "Then, we'd come back bigger and stronger next year."

The city is also providing $31,545 to LifeMoves, the nonprofit that runs the Opportunity Center and that provides case management and other support services to homeless individuals and $65,340 to Rebuilding Together Peninsula, an organization that provides safety-related home repair services to low-income individuals, as well as smaller groups to other area nonprofits.

While council members were unanimous in approving the CDBG funding, they struggled to reach a consensus when it came time to discussing capital spending. Responding to direction from the council to identify additional $2.5 million in cuts in infrastructure projects in the current fiscal year, city staff proposed deferring a portion of the Charleston-Arastradero streetscape project to a future year. The city still plans to proceed with the most critical part of the project's next phase: improvements in the areas around El Camino Real and Middlefield Road.

The proposal drew opposition from bike advocates and parents who have been lobbying for the project for years. Penny Ellson, a leading supporter for the Charleston-Arastradero project, was part of a group of residents who urged the council to stick with its plan and complete the project, rather than split it up and defer a portion of it to a future year.

"The safety problems in this corridor are well documented," Ellson said. "We have a solution. Twenty years is long enough. Let's just do it."

Some council members supported her position, with Vice Mayor Pat Burt and council member Greer Stone both arguing that the city can find savings in other projects.

"I'm just baffled why there was a notion of a necessity to drop from this plan a critical project that is focused on the safety of children, when that was far beyond the council direction," Burt said. "And a project that has been committed to by multiple councils, delayed multiple times — and each time, each year we have injury accidents with children in these two critical areas, most of all in the greater El Camino and Middlefield area."

Burt's plan to retain the project in its entirety was narrowly shot down, with the council voting 4-3 to follow staff's recommendation and defer the final portion of the project — a segment of Charleston Road between Charleston Court and San Antonio Road — to a future phase. While Stone and council member Greg Tanaka joined Burt, the rest of their colleagues supported the staff proposal.

Those who supported the change pointed to the city's dismal financial outlook. Even with the Bay Area cautiously emerging from a year of shutdowns, Shikada's budget assumes that Palo Alto's sales tax revenues will be 23% lower than in pre-pandemic years and that its hotel tax revenues — a critical sources of infrastructure spending — will be 67% lower.

"There's no joy in this," council member Eric Filseth just before the vote. "But this is a conversation we'll have over and over again in the next several weeks. … We're going to run out of money before we run out of important stuff to invest in."

The council was more aligned when it came to additional cuts to popular youth programs such as Children's Theatre — cuts that just about every council member publicly opposed. Dozens of residents, including young actors and their parents, urged the council in letters and in public testimony to retain funding for the theater. Juliana St. Peter, 12, was among those who testified about the important role that the Children's Theatre plays in her life.

"I found my people and my place and I really don't want to let go," St. Peter said Monday. "The theater doesn't just serve the community by providing entertainment. It's a safe place for kids to hang out during the summer and it's place for families to gather and celebrate the accomplishments of their kids."

Stone, a history teacher, was one of several council members who underscored the heavy mental toll that the pandemic has taken on local youth and suggested he will oppose further cuts to the theater and to other popular youth programs.

"As an educator, I've witnessed first-hand the deleterious effect that this pandemic and the shelter-in-place order has had on our community's youth," Stone said. "I think it's incumbent on us, as city leaders, to do all we can to protect the health, safety and emotional well-being of our youth and support those programs that are serving that critical need."

Find comprehensive coverage on the Midpeninsula's response to the new coronavirus by Palo Alto Online, the Mountain View Voice and the Almanac here.